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Shareholders of online luxury-goods marketplace The RealReal have filed a class action lawsuit alleging that members of the company’s executive team, board of directors, and underwriting banks lied to shareholders, artificially inflating share prices.
An amended class action lawsuit was filed in California on April 30 by lead Plaintiff Michael Sanders, and named Plaintiffs Nubia Lorelle and Garth Wakeford. The trio, who are all shareholders in the company, allege that the company’s registration statement contained false and misleading statements and omissions about the company’s authentication process of its luxury goods.
As a result, the market price of the company’s common stock was artificially inflated, and, when the truth came out about The RealReal’s authentication process, shareholders were damaged by plummeting share prices.
The class action was filed against The RealReal, Inc., its President, CEO, and Chairperson of the Board of Directors Julie Wainwright, CFO Matt Gustke, and underwriters Credit Suisse, BofA, UBS, KeyBanc, Stifel, Cowen, and Raymond James, amongst others.
According to the class action lawsuit, together the group violated the Securities Act in its IPO offering. According to the prospectus, RealReal takes in used luxury goods from various consignors, processes those items at its facilities, then sells the items on the RealReal’s website for varying commission fees.
“RealReal purports to ‘authenticate, write the associated copy, photograph, price, sell and handle all fulfillment and returns logistics’ for the items it receives from consignors,” the class action lawsuit states.
However, the claim says that in truth the company’s authentication process fell far short of its description.
“Only a small proportion of the thousands of items processed by the Company each day actually go to its small group of expert authenticators – specifically only certain brands and items deemed to face a particularly high risk of counterfeiting,” the class action lawsuit alleges.
“The vast majority of items supposedly ‘authenticated’ by the Company were actually reviewed only by the Company’s copywriters. These copywriters were low-wage hourly employees, often with little or no experience in fashion or luxury products.”
It adds that those underwriters received at best 1-3 hours of training on the immense number of products and brands they were expected to authenticate, and much of the training was focused on how to process the items for sale on the company’s website as fast as possible to reach quotas.
According to the claim, as a result of the quotas, which former RealReal copywriters reported as ranging from 120 up to as much as 300 items per day, copywriters could only devote approximately two to four minutes to any given item.
“As the inevitable result of this highly-pressurized ‘authentication’ process, hundreds of counterfeit items were processed and sold to RealReal customers.”
In the months following the IPO, the truth about RealReal’s authentication process leaked out through a series of media articles, culminating in an extensive investigative report conducted and published by CNBC, the class action lawsuit claims. It adds that the investigation revealed that these “untrained, inexperienced, and overworked copywriters” were performing the bulk of the authentication efforts at the company.
“As a result, RealReal’s stock price has declined significantly since the IPO, damaging investors,” the lawsuit states, adding that former employees of RealReal have corroborated the claims.
Sanders is filing the federal securities class action lawsuit on behalf of any person or entity who purchased RealReal common stock from June 27, 2019 through November 20, 2019,
He is suing for violations of the Securities Act and is seeking certification of the Class, damages, legal costs, and a jury trial.
RealReal and those behind its IPO aren’t alone in facing legal action over allegedly artificially inflating stock prices. In April, an investor in shares of the Infinity Q Diversified Alpha Fund filed a nationwide class action lawsuit against the issuer, advisor and trustees of the fund, alleging they made false and misleading statements in a prospectus that artificially inflated its value.
Have you invested in the RealReal? How have your stocks fared over time? Let us know in the comments section!
Sanders is represented by Laurence M. Rosen, Phillip Kim, and Josh Baker of The Rosen Law Firm, P.A.
The RealReal Inflated Stock Class Action Lawsuit is Michael Sanders, et al. v. The Realreal, Inc., et al., Case No. 5:19-cv-07737, in the United States District Court Eastern District of New York.
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One thought on The RealReal Lied About its Authentication Process, Artificially Inflating Stock Prices, Class Action Claims
I sent in seven luxury bags to the REAL REAL they denied all seven claiming them to be inauthentic they sent back three of my bags two of them were not even the same bags as they had different stitching and hardware and then own offered to pay me $2,660 for the damages on authentic bags that they said were inauthentic and now are refusing to send back the other four saying they are sequestering them however I never signed or agreed to any of these things what they told me he was very misleading and had nothing to do with sequestering or keeping bags. Why would they send back three and keep four? The bags they sent me back were not my bags my bags were authentic what they sent me I wouldn’t sell to anybody.