Estee Lauder faces lawsuit over gray market sales in China
The allegations against Estée Lauder Companies resulted in significant financial losses for investors.
CHINA – A federal judge in Manhattan has ruled that Estee Lauder Companies must face a lawsuit accusing it of defrauding shareholders over its alleged failure to disclose its reliance on gray market sales in China.
ELC, former CEO Fabrizio Freda, and former CFO Tracey Travis are set to face a lawsuit.
Shareholder Bridgett McAlice has filed a lawsuit against ELC and its executives on behalf of all investors who bought shares between February 2022 and October 2023.
According to the plaintiffs, ELC misled investors with overly optimistic forecasts and concealed the effects of government crackdowns on daigou sales.
According to the Reuters report, the plaintiffs claim ELC withheld information until November 2023 about the negative impact of the Daigou crackdown on sales, leading to a 19% drop in its share price and a $8.7 billion loss in market value.
U.S. District Judge Arun Subramanian ruled that Estée Lauder Companies withheld crucial sales information about the January 2022 government crackdown on the ‘daigou’ grey market, leading to a significant drop in share prices by November 1, 2023.
Meanwhile, the ELC recently collaborated with Startup India, an initiative under the Indian government, to elevate beauty innovation and support Indian entrepreneurs in the personal care industry.
This collaboration was formalized through a Memorandum of Understanding between Estée Lauder’s Indian subsidiary and the Department for Promotion of Industry and Internal Trade (DPIIT) under India’s Ministry of Commerce and Industry.
Similarly, e.l.f. Beauty, Inc. recently became the subject of a class-action lawsuit filed in the United States District Court for the Northern District of California.
The lawsuit alleged that the company and certain officers violated federal securities laws by making false or misleading statements about its operations and financial health during the class period, which spanned November 2023 to November 2024.
The allegations included claims that e.l.f. Beauty overstated its revenue, profits, and inventory levels over several quarters to maintain investor confidence.
The company reportedly attributed rising inventory levels to changes in sourcing practices, which plaintiffs argue concealed the actual cause of flagging sales.
These actions allegedly led to inflated financial prospects and misrepresentation the company’s business performance.
The lawsuit gained traction following a November 2024 report by Muddy Waters Research, which accused e.l.f. Beauty of materially overstating revenue and inventory.
This revelation caused a significant drop in the company’s stock price, eroding investor trust.
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