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Southern District Of New York Grants Motion To Dismiss Putative Securities Class Action Against Fashion E-Commerce Company
10/06/2025On September 30, 2025, Judge Edgardo Ramos of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action against a fashion e-commerce company (the “Company”), its subsidiary, as well as certain of the Company’s executive officers (the “Individual Defendants”). In re Farfetch Ltd. Sec. Litig., No. 23-cv-10982 (ER) (S.D.N.Y. Sept. 30, 2025). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by making misleading statements about the Company’s long-term financial prospects. The Court granted defendants’ motion to dismiss, holding plaintiffs failed to adequately plead any actionable misstatement or scienter.
Plaintiffs alleged that the Company issued a series of material misstatements and omissions regarding its acquisitions strategy, business model, and internal controls over financial reporting. Plaintiffs further alleged that defendants’ statements set unrealistic public expectations regarding the Company’s growth, by reassuring investors of the Company’s liquidity strength and operating strength, and by maintaining short-term fiscal targets of profitability. For example, plaintiffs alleged that the Company made a series of acquisitions but failed to successfully integrate the new businesses into the Company’s existing platform or to ensure that the future cash needs of the acquired businesses would not negatively impact the Company’s overall health, despite at the same time reporting a positive outlook of its acquisition strategy to investors. Plaintiffs alleged that the truth was revealed in August 2023, when the Company reported negative results and announced that it would discontinue certain of its strategic partnerships and that it was exploring “strategic options” related to the allegedly poor performing acquisitions. Plaintiffs alleged that upon this announcement the Company’s stock price declined, thereby causing shareholders losses.
The Court granted defendants’ motion to dismiss, finding that the complaint included “impermissible puzzle pleading.” According to the Court, plaintiffs filed a “186-page, 525-paragraph Complaint, of which 171 paragraphs spanning 80 pages are dedicated to reciting Defendants’ alleged statements during the Class Period,” and that, despite the length of the complaint, plaintiffs failed to adequately plead fraud with particularity. Rather, the Court found that the complaint merely contained lengthy block quotations from the Company’s public disclosures over a two-year period, followed by a “conclusory assertion that they were falsely made due to a laundry list of generalized reasons,” which does not meet the particularity requirements under the PSLRA. Nevertheless, the Court held that many of the challenged statements—such as that the Company was “on track to deliver on [its] plan for 2023”—constituted non-actionable corporate optimism or puffery, and that other challenged statements were inactionable opinions because they were prefaced with qualifiers like “we expect” and “we believe,” and therefore could not form the basis of an actionable misstatement or omission.
Turning to scienter, the Court rejected plaintiffs’ theory that the Company had motive to commit fraud to ensure it would continue raising capital, holding that this represents “nothing more than the ordinary motives possessed by virtually all corporate insiders.” The Court similarly rejected plaintiffs’ argument that defendants had a personal incentive to artificially inflate the Company’s stock price due to the Company’s compensation structure, because the desire for the corporation to keep stock prices high to increase officer compensation is common to all companies and therefore insufficient to establish a fraudulent motive. The Court further found that plaintiffs’ scienter allegations of conscious misbehavior or reckless disregard for the truth failed to contain the level of specificity necessary to meet the heightened pleading requirements for fraud, noting that plaintiffs failed to specifically allege through confidential witnesses or otherwise that defendants had access to or knowledge of any specific facts contrary to those set forth in the Company’s public statements.
Having found that plaintiffs failed to adequately plead an underlying Section 10(b) claim, the Court dismissed plaintiffs’ control person liability claims under Section 20(a).
