More than 40 former and current BuzzFeed employees filed a lawsuit Tuesday, accusing the company of botching its IPO and depriving workers of an opportunity to sell their shares at a higher price.
In the lawsuit before the American Arbitration Association, which settles disputes out of court, employees said the company failed to properly train them to trade their shares immediately after the December IPO.
The group is seeking damages estimated at more than $4.6 million, according to the lawsuit, seen by the New York Times.
“The Kafkaesque tribulations through which the plaintiffs have been dragged have devastated their financial lives,” the complaint reads.
BuzzFeed did not immediately respond to a request for comment.
BuzzFeed, a news and entertainment publisher, became the first digital media company to go public when it went public on December 6th. The company’s share price fell sharply in the days following the IPO, and the group of employees said they were unable to sell their shares until the price fell nearly 60 percent, or less than $5.
According to the complaint, some employees are still unable to sell their shares.
The arbitration request represents 44 employees who collectively owned more than 400,000 BuzzFeed shares at the time of the IPO. It was filed with the American Arbitration Association over a clause in employees’ contracts that required certain disputes to be submitted to arbitration rather than to court. This clause is common in many employment contracts to prevent class action lawsuits. Arbitration claims are decided by an impartial third party, although many are settled prior to that decision.
In addition to naming BuzzFeed and some of its top executives as defendants, including its founder Jonah Peretti, the complaint names Adam Rothstein, the CEO of a shell company that merged with BuzzFeed, and Continental Stock Transfer, a transfer agent hired to help help with his IPO.
Mr. Rothstein and Continental did not immediately respond to a request for comment.
BuzzFeed was co-founded in 2006 by Mr. Peretti. According to the allegation, the group of employees, which includes reporters, web developers, editors and salespeople, mostly joined BuzzFeed in its early days when it was a rocky start-up. They accepted low salaries because they also received stock options, employees said, and Mr. Peretti often promoted later plans to take the company public.
Last June, BuzzFeed announced its plans to merge with a special acquisition company, or SPAC, called 890 Fifth Avenue Partners to go public. The deal valued BuzzFeed at $1.5 billion. The company is now worth about a third of that.
updated
March 15, 2022 1:00 PM ET
At the time of the merger in December, about 94 percent of the more than $250 million raised by SPAC had been withdrawn from investors, leaving the company with just $16 million. The complaint argued that because of this, BuzzFeed executives had a fiduciary duty to reevaluate the IPO plans. But the IPO went ahead, and BuzzFeed began trading on the Nasdaq on Dec. 6 under the ticker symbol BZFD.
The employees, the allegation said, were looking forward to finally redeeming their shares, but quickly realized that this was not possible as they had not been told that additional steps were required to convert their class B shares before they could sell them.
The flaw is not related to a so-called “lockup” agreement, which prevents top executives from selling shares for a period of time, usually around six months. In this case, employees were able to sell once they submitted the required paperwork before the public debut, but they weren’t given enough time to complete the application until the company went public, employees say.
Communications from Continental and BuzzFeed offered conflicting and vague advice about the stock transfers, according to the complaint, and employees were told the stock conversion would take three to five business days. At the same time, BuzzFeed’s stock price, which had risen sharply in early trading, fell rapidly.
“As a result, claimants – some of whom are still unable to trade their shares as of the date of this filing – missed an opportunity to sell their hard-earned shares at a good price and left the shares trading at a fraction of theirs.” IPO price,” the complaint reads.
An employee wrote to Mr. Peretti on December 6 to express his frustration, and according to the complaint, Mr. Peretti complained that he was also unable to cash out his shares at the high price he had hoped for. On December 7, 2021, BuzzFeed emailed employees saying they “sympathize with your frustration with this process.”
BuzzFeed will report results on March 22 for the first time since the IPO.
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