NEW YORK (Legal Newsline) - A company that designs online ordering systems for restaurants will face a shareholder class action lawsuit after a drop in its stock price.
New York federal judge Jed Rakoff on April 10 rejected Olo, Inc.'s motion to dismiss the case. In a two-page order, he said he will explain his reasoning in an opinion issued in the future.
Rakoff ruled against Olo's February motion to dismiss that said it repeatedly warned investors that any one of its more than 600 customers could stop or decrease usage of its modules.
The litigation, which is led by the firm Scott + Scott, seeks compensation for investors like lead plaintiff Steamship Trade Association - International Longshoreman's Association.
Suits allege that in August of 2021, Olo reported its "active locations" to demonstrate its business growth as having approximately 15,000 Subway locations, which caused its stock price to "soar" above $45 per share.
The plaintiffs claim Olo misled investors and omitted material facts about the company's success by citing Subway locations that were set to end their relationship with Olo.
Olo counters by claiming Subway generated only a few million dollars of its 2021 revenue of $150 million. The company receives a fee on online transactions from other large chains like Jimmy John's, Jack in the Box and Panda Express.
"Despite Olo's repeated warnings to investors that customers may stop or decrease usage of their modules, Plaintiff now claims fraud because a single well-known restaurant brand - Subway - did exactly as Olo warned," the Feb. 3 motion to dismiss says.
Though plaintiffs say the company was aware its Subway agreement was in peril and should have disclosed it to shareholders earlier, Olo says securities laws do not require disclosure of ongoing customer discussions "that could potentially sabotage an evolving business relationship before the outcome of those discussions was certain."
Lawsuits said Olo's misleading of the investing public led to the inflated price of the company's stock and that Olo "engaged in a scheme to deceive the market." The plaintiff alleges Olo's actions caused it to purchase Olo stock at artificially inflated prices since the stock price fell to $12.99 per share on Aug. 11 and fell to $8.26 per share on Aug. 12.