BROOKLYN, N.Y. (Legal Newsline) - A proposed class action lawsuit has been filed in New York federal court against popular e-commerce website Etsy.
The lawsuit was filed in the U.S. District Court for the Eastern District of New York on May 13, on behalf of all persons or entities who purchased Etsy securities between April 16 and May 10, 2015.
The 17-page complaint alleges that the online marketplace, which was founded in 2005 and focuses on handmade or vintage items and supplies, and its top executives misled investors.
“Throughout the Class Period, defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies,” plaintiff Saleh Altayyar alleges in the complaint.
“Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (1) more than 5 percent of all merchandise for sale on Etsy’s website may be either counterfeit or constitute trademark or copyright infringement; (2) brands are increasingly pursuing sellers on Etsy for trademark or copyright infringement, jeopardizing the Company’s listing fees and commissions; and (3) as a result of the foregoing, Etsy’s public statements were materially false and misleading at all relevant times.”
According to the lawsuit, on May 11, before the market opened for trading, numerous news outlets reported that an equity analyst issued a note downgrading Etsy to “underperform.”
In the note, Gil Luria with Wedbush Securities wrote:
“[O]ur analysis and discussions with IP lawyers lead us to believe questionable seller practices may draw increased scrutiny, eventually limiting volume growth.
“Our research indicates as many as 2 million items on Etsy (>5 percent of all merchandise) may potentially be either counterfeit or constitute trademark or copyright infringement. We believe the share of GMS may be greater considering Etsy has become a go-to destination for counterfeits.”
Luria noted that counterfeit candidates include items infringing on Louis Vuitton, Chanel and Michael Kors, as well as a wide range of Disney and NFL brands.
As a result of the note, shares of Brooklyn-based Etsy fell $1.86, or more than 8 percent, on “unusually heavy volume,” to close at $20.85 on May 11.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” according to the proposed class action.
New York law firm Gainey McKenna & Egleston, which is heading up the lawsuit, noted Etsy’s shares have declined even further on news of the company’s poor quarterly results and that a major intellectual property rights holder has sued the company for infringement.
According to the docket, Judge Allyne R. Ross is presiding over the case.
Altayyar is seeking class action certification, damages, prejudgment and postjudgment interest, attorneys’ fees, expert fees and costs.
A spokeswoman for Etsy declined to comment on the case, saying the company does not discuss pending litigation.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.