Investors that owned stock in Farfetch Limited are pushing back against the luxury e-commerce company and its former executives’ efforts to sidestep a securities fraud lawsuit that followed from its rapid downfall last year. The plaintiffs – shareholders that allege that Farfetch executives intentionally misled them (and “hundreds, if not thousands” of other holders of Farfetch’s Class A ordinary shares) about the company’s financial health and growth prospects – have filed an opposition to the company’s motion to dismiss, as well as an objection to the company’s request for judicial notice, aiming to keep the case in play and prevent what they call “improper” evidence from influencing early proceedings.
The Background: The consolidated class action lawsuit, which got its start in the U.S. District Court for the Southern District of New York in December 2023, targets Farfetch, the company’s founder and former CEO José Neves, former finance chief Elliot Jordan, and former Group President Stephanie Phair. The bulk of Plaintiffs Fernando Sulichin and Yuanzhe Fu’s claims stem from Farfetch’s alleged shift away from its original business model as a third-party marketplace for luxury fashion brands and its pursuit of a series of high-cost acquisitions that were poorly integrated into Farfetch’s business, creating operational inefficiencies and adding substantial costs that strained the company’s finances.
All the while, Sulichin and Fu claim that Farfetch’s growing financial tensions, which ultimately saw the company placed in liquidation and acquired by Coupang in a rescue deal late last year, were masked by “materially false and misleading statements” made by Neves, Jordan, and Phair. The executives “systematically misled investors about the company’s true financial health, business model, and growth prospects” and kept the value of Farfetch’s stock (which formerly traded on the NASDAQ exchange) inflated, Sulichin and Fu argue.
In response to the headline-making lawsuit, Farfetch, Neves, Jordan, and Phair lodged a motion to dismiss the claims in September, arguing that Sulichin and Fu have not pled an actionable misstatement or omission, and do not and cannot plead any particularized facts establishing the requisite “strong” inference that any of the defendants acted with fraudulent intent. Beyond that, they argue that they should be shielded by protections afforded to forward-looking statements under securities laws.
Keeping the Complaint in Play
With the ball back in their court, Sulichin and Fu argue in an opposition to the defendants’ motion to dismiss, as first reported by TFL, that the former Farfetch executives knowingly misled investors about the company’s business model, internal controls, and strategic acquisitions. They specifically point to a pattern of misrepresentation by the defendants, asserting that Farfetch “was plagued by longstanding unremediated internal control deficiencies, resulting in unreliable financial reporting and exacerbating high operating costs.” Despite these issues, Sulichin and Fu allege that Farfetch and its former execs presented a misleadingly positive outlook to investors, claiming that the company’s internal controls were effective and that its acquisitions were on track to drive future growth for the company.
According to the plaintiffs, Farfetch’s public statements created an “illusory image of success” that deceived investors, while the company’s executives were allegedly well aware of “a continuous decline in market growth further stressing the company’s profitability.” Yet, despite such knowledge, they “told investors nothing was wrong,” and instead, put forth an overly optimistic view of the company’s health.
The opposition filing directly challenges the company’s portrayal of its business as stable and thriving, with Sulichin and Fu maintaining that the defendants used inaccurate depictions of the company “to raise roughly $2.4 billion through various unsuspecting private financings,” allowing Farfetch to sustain an artificially high stock price. They claim that “the truth about Farfetch’s deficient internal controls, overvalued and underperforming acquisitions, and dire financial condition” eventually came to light, causing the company’s share price to plummet and leading to substantial losses for investors.
The plaintiffs further clarify that the Farfetch executives’ statements were not merely corporate optimism but a deliberate scheme to defraud investors.
Contrary to the defendants’ assertions, Sulichin and Fu argue that they have adequately pleaded “a coordinated campaign of deception” by the defendants, backed by “detailed facts, dates, internal reports containing specific contradictory information, and six corroborating witness accounts, establishing a strong inference of scienter.” With that in mind, the plaintiffs urge the court to reject the motion to dismiss, claiming that their complaint “far exceeds mere corporate optimism or puffery” and meets the legal standards for securities fraud.
An Attempt to Recast Farfetch’s Collapse
In a separate filing also lodged with the Southern District of New York on November 11, Sulichin and Fu object to Farfetch’s request for judicial notice, challenging the company’s attempt to introduce nearly 30 additional documents as evidence to support its motion to dismiss. The plaintiffs describe the inclusion of these documents as an attempt to “recast Farfetch’s collapse as merely an unfortunate business failure” rather than “a series of undisclosed calculated risks worsened by faulty internal controls.” They argue that these exhibits contain disputed facts and irrelevant information intended to distract from the core complaint, stating, “Such facts are improper for consideration” at the motion to dismiss stage.
The plaintiffs specifically object to several exhibits – SEC filings and media articles – as both irrelevant and prejudicial, claiming they introduce “extraneous materials that are outside the scope of the complaint,” and thus, not appropriate to consider at this early stage. They argue that the materials attempt to “undermine the plaintiffs’ allegations” by prematurely presenting facts that should be reserved for trial and at the motion to dismiss stage.
Furthermore, plaintiffs take issue with an appendix included by the defendants, stating that it “circumvent[s] the court’s page limits” and improperly serves as a way to “further Defendants’ arguments” by adding material that goes beyond the scope of the court’s allowance.
The objection filing states that allowing these documents into the record at this stage would set a dangerous precedent, enabling defendants to use “irrelevant or misleading materials to prejudice the case.” The plaintiffs argue that the court’s role in deciding a motion to dismiss is to limit itself to the complaint and its integral materials, not to entertain “improper exhibits that the defendants have attempted to introduce to discredit the allegations.”
The case is In Re Farfetch Limited Securities Litigation, 1:23-cv-10982 (SDNY).
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