Tech Companies Who Go Public Tend To Encounter IPO-Related Lawsuits

It has not even been a year since Uber and Lyft went public on the New York Stock Exchange but their Wall Street membership has been considered a benchmark in this generation of “unicorn” stocks.  

Unfortunately, what has sort of become a rite of passage for tech companies—the fateful initial public offering (IPO)—might not be everything it was cracked up to be. First and foremost, acquiring a publicly-traded status means accountability to shareholders; and that is not necessarily something that is easy for every company to maintain.  

This not to say that Uber or Lyft is intentionally trying to deceive anyone, but a private company has a little more freedom to make important decisions than a company who has to constantly answer to a group of people who only care about profit. And then, of course, when your company continues to post heavy losses, this profit-focused groups begins to question your business practices.

The irony, of course, is that overcoming this hurdle is pretty common across the tech industry. Lyft—who went public in late March at $72 per share with a valuation of more than $24 billion—saw its share value plummet in just its first few days. By the middle of May—so barely one month later—the company had to deal with a class action lawsuit issued by shareholders, claiming Lyft had misled them in their initial S-1 prospectus, ahead of the IPO.  Facebook, Twitter, and Snap, had all encountered similar issues. 

Lyft’s lawsuit—which is actually only one of three separate class action complaints that have been filed against them, so far—alleges that the ride-share company actually made a handful of inaccurate or misleading statements in that S-1 prospectus.  These allegations include Lyft misrepresenting its share of the ride-hailing market in North America.  Apparently, Lyft had claimed 39 percent market share at a time when Uber claimed 65 percent.  It also seems Lyft did not account for 1,000 electric bicycles in its NYC-based bike-sharing programs. 

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