Uber Shareholder Sues Company, Ex-CEO Over Alleged Fraud
September 26 2017 - 11:30AM
Dow Jones News
By Greg Bensinger
A small shareholder of Uber Technologies Inc. on Tuesday sued
the ride-hailing company and its former chief executive for
allegedly covering up "illicit business tactics," the latest legal
challenge following months of scandals at the highflying
startup.
The lawsuit from the Irving Firemen's Relief & Retirement
Fund in Texas claims Uber and former CEO Travis Kalanick knowingly
misled investors while raising capital by failing to reveal the
company had potentially broken laws, revelations that allegedly
cost investors billions of dollars in losses on investments. The
complaint, filed in the U.S. District Court for the Northern
District of California, seeks class-action status on behalf of
Uber's myriad investors, and asks for unspecified damages.
The small retirement fund invested about $2 million in Uber in
February 2016 through a Morgan Stanley fund at a $62.5 billion
valuation.
"The company's vaunted corporate culture was revealed in truth
to consist of a toxic hotbed of misogyny, sexual discrimination,
and disregard for the law that threatened the company's reputation,
business and prospects," according to the complaint. Uber, which is
privately held but was valued at $68 billion in its most recent
fundraising round in June 2106, has lost at least $18 billion in
market capitalization, the fund alleges, citing media reports.
Representatives for Mr. Kalanick, Uber and Morgan Stanley
couldn't immediately be reached for comment. Representatives for
the firemen's fund declined to comment beyond the complaint.
The lawsuit adds to mounting legal issues faced by Uber as its
new CEO Dara Khosrowshahi takes over for Mr. Kalanick, who resigned
under pressure from investors in June. Uber faces three possible
federal probes, including a preliminary investigation by the
Justice Department into alleged violations of the Foreign Corrupt
Practices Act. Uber has said it is cooperating with the
investigations.
Tuesday's shareholder allegations echo a lawsuit filed last
month by one of Uber's directors and largest investors, Benchmark
Capital, which is seeking the ouster of Mr. Kalanick as a director
through the return to the board of three seats he controls. Though
the case has been moved to private arbitration, it has overhung
Uber's board and divided its investors.
Like Benchmark, the firemen's fund specifically pointed to news
reports detailing Uber's use of software to evade regulators, known
as Greyball, a program called Hell used to interfere with rival
Lyft Inc.'s operations, a lawsuit from Google parent Alphabet Inc.
over allegedly stolen trade secrets, and charges of widespread
workplace discrimination.
Class-action shareholder suits targeting private companies are
relatively uncommon, said Kevin LaCroix, an attorney who advises
companies on directors and officers insurance. Unlike with publicly
traded companies, small investors in privately held startups
typically receive limited financial information and other
disclosures.
"It's been these 'unicorn' companies that have attracted these
suits," he said. "The potential range of damages could be very high
for a company of this magnitude and valuation."
Robbins Geller Rudman & Dowd LLP, which is representing the
firemen's fund in the suit, is also involved in a continuing
proposed class-action shareholder suit against privately held
biotech firm Theranos Inc., which was valued by investors at $9
billion in 2014. Theranos has disputed the allegations of
securities fraud.
The firemen's fund invested in Uber through a somewhat unusual
arrangement with Morgan Stanley, which offered clients an
opportunity to invest in a fund known as New Riders LP, while
promising limited financial disclosure. Investors in the New Riders
fund hoped to profit from an eventual Uber IPO, which Mr.
Khosrowshahi has said won't come for at least 18 months.
(END) Dow Jones Newswires
September 26, 2017 11:15 ET (15:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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