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Allbirds and a number its executives and board members have scored a win in a lawsuit accusing them of making false and misleading statements in the company’s initial public offering documentation and in subsequently-issued statements. A federal judge in the Northern District of California dismissed a proposed securities fraud class action against the company on June 23, finding that the plaintiffs lack standing to pursue claims under federal securities law.
The lawsuit, which was filed on behalf of investors who purchased Allbirds stock during and after its 2021 IPO, alleged that the company misled the market about its strategy and financial health. Specifically, the plaintiffs claimed that the San Francisco-based footwear brand – once heralded for its sustainable materials and minimalist design – strayed from its direct-to-consumer roots, over-expanded its brick-and-mortar footprint despite underperforming stores, slashed brand marketing spend, and diverted focus from its core products to apparel lines that failed to resonate with customers.
According to the April 2023 complaint, Allbirds’ registration statement omitted key risks, including inventory shortages of bestsellers and excess stock of unpopular new products. The plaintiffs argued that statements made by executives, including co-founders Joey Zwillinger and Tim Brown, who are named as defendants, painted an overly optimistic view of the company’s growth potential and masked operational struggles.
In dismissing the claims under Section 11 of the Securities Act of 1933, the court focused not on the truth of the plaintiffs’ allegations, but on a procedural issue: the plaintiffs did not adequately show that their shares were traceable to the allegedly misleading IPO registration statement. Because pre-IPO shareholders were allowed to sell some shares shortly after the offering, the court held that simply alleging that stock is “traceable” to the IPO is not sufficient. The judge required more specific allegations to establish standing.
The court also dismissed related claims under Section 15 (control person liability) and Section 10(b) of the Securities Exchange Act. With respect to Section 10(b), the judge found that the plaintiffs failed to allege not only intent to deceive investors but also an actionable false statement and a plausible theory of loss causation.
> Despite the dismissal, the case is not necessarily over. The judge granted the plaintiffs leave to amend their complaint, leaving open the possibility that the case could proceed if more concrete allegations are added.
Once considered a “unicorn” startup and a darling of eco-conscious consumers, Allbirds has struggled in public markets. Shares that debuted at $15 in November 2021 have since fallen below $2, as the company faces waning demand, inventory challenges, and a broader cooling in consumer enthusiasm for “green” DTC brands.
The case is Shnayder v. Allbirds, Inc., et al., 3:23-cv-01811 (N.D. Cal.).
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