Vroom Sued Due to Alleged False Business Statements
Investors in a publicly traded eCommerce platform that purchases and sells used vehicles are suing the company, alleging that it misled them about its performance during the pandemic.
The Class Action Lawsuit
Vroom is accused of violating the Securities Exchange Act of 1934 by making materially false and misleading statements about its business, operations, and compliance policies. The nationwide class action lawsuit was filed in the Southern District of New York.
Vroom was then forced to invest tens of millions of dollars in acquiring additional inventory and paying for additional sales support, the claim asserts, “significantly impairing the company’s short-term profitability.”
Losses were increasing at a rapid pace. Vroom’s inventory growth then outpaced its sales support capability, creating a bottleneck and further reducing profits.
Paul J. Hennessy, Chairman of the Vroom Board of Directors, and David K. Jones, Chief Financial Officer of Vroom, who are both named defendants in the class action, allegedly admitted Vroom was operationally constrained and unable to meet demands.
According to the class action, Hennessy allegedly admitted purchasing more inventory than it could process, forcing the company to liquidate aging inventory at a significantly reduced profit margin.
On June 9 of last year, Vroom went public via an initial public offering (IPO).
Before the IPO, the class action alleges, Vroom significantly reduced its inventory to account for an anticipated decline in demand due to the COVID-19 pandemic.
Vroom, on the other hand, failed to inform investors of the ramifications of this decision.
According to the Vroom class action lawsuit, the decision had several consequences, including a reduction in Vroom’s ability to grow revenues in the second quarter of 2020 and meet a surge in customer demand for online used vehicles.
This forced Vroom to put out tens of millions of dollars in additional inventory and sales support, as mentioned, significantly reducing their short-term profitability.
Losses kept increasing and getting out of hand. Vroom’s inventory growth then outpaced its sales support capability. Vroom had been forced to slash prices and liquidate existing inventory.
Vroom was on track to miss its already disappointing fourth-quarter 2020 profit and earnings guidance, which lacked any reasonable basis. As a result of the foregoing, the Company’s public statements were materially false and misleading at all relevant times.
Arif Hudda, a plaintiff and Vroom investor, seeks to represent anyone who purchased Vroom securities between June 9, 2020, and March 3, 2021.
According to the class action lawsuit, investors have sustained substantial losses and damages. Hudda purchased Vroom securities at artificially inflated prices during the Class Period and was harmed when the alleged corrective disclosures were made public.
Hudda is seeking class certification, damages, costs, and fees, as well as any injunctive relief the court deems appropriate and a jury trial.
Editor’s Note on Vroom Class Action Lawsuit 2021:
This article is published to inform you of the latest class action lawsuit filed against Vroom because they allegedly made misleading business statements.
Case Name & No.: Arif Hudda et al., v. Vroom, INC., Paul J, Hennessy, and David K. Jones, Case No. 1:21-cv-03296, in the U.S. District Court Southern District of New York
Products/Services: Vroom, Trading Used Cars
Allegations: Vroom is alleged to have failed to grow its revenue
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