Lyft Earnings Gaffe Nets Investor Suit for 46-Minute ‘Fraud’ (1)

Lyft Inc. may want to move on from last month’s earnings gaffe, but a shareholder is making a federal case out of it.

An investor filed a proposed class-action securities suit over the typo in a Feb. 13 company press release that caused the stock to briefly surge 67% in after-hours trading.

Read More: A ‘Clerical Error’ in Lyft Outlook Triggered 67% Jump

The complaint filed late Tuesday in San Francisco federal court alleges the ride-share company defrauded investors when it mistakenly said it expected adjusted earnings margins, calculated as a percentage of bookings, to expand by 500 basis points — when it was actually 50 basis points.

The gaffe was corrected within an hour and attributed to a “clerical error,” but shareholder Yuan Chen claims he bought 20,000 shares during the 46 minutes that the stock traded at “artificially inflated” prices.

“To company insiders who were responsible for ensuring the accuracy of the press release and supplemental data, the misrepresentation was so apparent that it went beyond mere negligence, and amounted to a reckless indifference to the truth,” Chen’s lawyers wrote in the complaint.

Lyft didn’t acknowledge the mistake until an analyst asked Chief Financial Officer Erin Brewer about it 24 minutes into the quarterly earnings call, according to the complaint. The delay in correcting the statement “is corroborating evidence that the initial misstatement was either knowing or severely reckless,” according to the complaint.

In an interview with Bloomberg Television the day after the earnings report, Lyft Chief Executive Officer David Risher took responsibility for the error and claimed it was corrected “within seconds of finding it.”

WATCH: (Feb. 14) Lyft CEO David Risher says “my bad” on a clerical error in the company’s fourth-quarter earnings.

Source: Bloomberg

Both Brewer and Risher were named as defendants in Chen’s complaint. Chen is seeking unspecified damages for the losses he and other shareholders suffered.

Lyft is not alone in recently admitting to an earnings typo. Planet Fitness Inc., Mister Car Wash Inc. and Rivian Automotive Inc. had to correct earnings figures about a week after Lyft’s mistake. Like Lyft, all three companies blamed a “clerical error” in regulatory filings.

Legitimate mistakes generally aren’t treated as securities fraud. But Chen claims Brewer and Risher were financially motivated to misrepresent the numbers since Lyft is one of the most heavily shorted stocks.

Short sellers have weighed down Lyft stock and hurt the executives’ ability to achieve performance bonuses, according to the complaint. When the stock surged on the misrepresentation, the short sellers were forced to buy Lyft stock to cover their short position, Chen alleged.

“Defendants knew that many if not most of the shares that traded in the aftermarket were shorts that were covering their positions and therefore were motivated not to move promptly to correct the press release,” Chen’s lawyers wrote in the complaint.

At least one short seller rode out the stock surge and ultimately notched a small profit.

Representatives of Lyft didn’t respond to a request for comment.

The case is Chen v. Lyft, Inc., 24-cv-01330, US District Court, Northern District of California (San Francisco).

(Updates with other companies correcting earnings mistakes.)

To contact the reporter on this story:
Rachel Graf in San Francisco at rgraf27@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Peter Blumberg, Steve Stroth

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