Lyft is being sued by shareholders for alleged securities fraud after errors in recent earnings reports on key profit metrics sent the ride-hailing company’s stock price wildly up and then down.
Shareholders allege in a proposed class action lawsuit Tuesday that Lyft initially predicted on Feb. 13 that its profit margins would expand by 500 basis points (5 percentage points) in 2024, when in reality He argued that he was careless in expecting the stock to expand by 50 basis points.
The mistake, disclosed at 4:05 p.m. ET, sparked a buying frenzy that sent Lyft stock up 67% in 30 minutes.
“It was a terrible mistake, and it’s my responsibility,” CEO David Risher told CNBC the next day.
Shareholders said much of the stock’s gains were erased after Chief Financial Officer Erin Brewer provided accurate profit margin forecasts on a conference call with investors at 4:47 p.m. They said they waited another seven minutes before Lyft officially acknowledged the error.
“The misrepresentations are so obvious that they go beyond mere negligence and amount to reckless indifference to the truth,” the complaint filed in San Francisco federal court said.
Lyft did not immediately respond to a request for comment Wednesday.
The lawsuit seeks damages from investors who bought Lyft stock at “inflated prices” between 4:05 p.m. and 4:51 p.m. on February 13.
During this period, Lyft’s market value increased by $3.2 billion, but approximately $2.9 billion of that increase has since declined.
Shareholders also said Mr. Risher and Mr. Brewer had an “incentive” to delay correcting their mistakes in order to increase their stock-based performance bonuses, as investors who had bet on Lyft’s stock price falling were forced to cover their short positions. He said he had.
As of Jan. 31, about 13% of Lyft’s stock was sold short, compared to 3% for larger rival Uber.
The case is Chen v Lyft Inc et al, U.S. District Court for the Northern District of California, No. 24-01330.
