StubHub Faces Investor Class Action Lawsuit Over ‘False and Misleading’ IPO

StubHub has been hit with a class action lawsuit alleging the secondary ticketing company hid key cash flow changes from investors who bought into its $758 million initial public offering (IPO) in September.

The legal complaint, filed in New York federal court on Monday (Nov. 24) by class action law firm Glancy Prongay & Murray, is the first of what’s likely to be multiple lawsuits stemming from StubHub’s disappointing third-quarter earnings report. At least four other law firms have announced that they’re also investigating the company’s numbers.

Monday’s lawsuit was brought on behalf of Daniel Salabaj, an investor who bought StubHub stock during its IPO on Sept. 17. StubHub sold roughly 34 million shares that day at $23.50 a pop, netting $758 million after underwriter discounts and fees.

StubHub released its first earnings as a public company on Nov. 13, and some of the numbers were less than optimal. The company revealed that it had free cash flow of negative $4.6 million that quarter, down from a positive $10.6 million in the same period a year earlier. The market reacted negatively, with the StubHub stock at one point tumbling as low as $10.31 per share, a 56% decline from the IPO price.

Salabaj’s lawsuit alleges he and other investors were blindsided by the news of StubHub’s cash flow decrease, which the company attributed to changes in its vendor payment schedules. He says that while StubHub’s pre-IPO registration statement warned quarterly earnings could fluctuate due to the timing of major sporting events and concerts, this particular factor was glaringly omitted from the regulatory paperwork.

“The registration statement was materially false and misleading and omitted to state: (1) the company was experiencing changes in the timing of payments to vendors; (2) those changes had a significant adverse impact on free cash flow,” wrote Salabaj’s attorneys. “As a result of the foregoing, defendants’ positive statements about the company’s business, operations and prospects were materially misleading.”

Salabaj wants to represent a class of all investors who bought StubHub stock during the IPO, and he’s seeking a financial award for the “significant losses and damages” these traders suffered during StubHub’s “precipitous” post-earnings decline.

The lawsuit targets StubHub as well as various company executives, including CEO Eric Baker. The banks that underwrote StubHub’s IPO, including JPMorgan, Goldman Sachs and Bank of America, are also listed as defendants.

Reps for StubHub did not immediately return a request for comment on Tuesday (Nov. 25).