Coupang Inc., a company listed on the New York Stock Exchange, has seen a class-action lawsuit alleging it provided false information during its initial public offering move to the appellate stage. Coupang, which recently faced a personal data leak that raised the prospect of a domestic class action, is also responding to IPO-related litigation in the United States.
According to ChosunBiz's reporting on the 4th, the U.S. Court of Appeals for the Second Circuit is reviewing setting a date for oral arguments in an appeal filed by New York City public pension shareholders—including the civil service pension, police pension, and teachers pension—who said Coupang wrote false information in its IPO registration statement submitted when it listed on the New York Stock Exchange.
The public pension shareholders, dissatisfied with the first-instance ruling, filed a notice of appeal in October. A hearing date has not yet been set. After the notice of appeal was filed, Coupang Inc. and Chair Kim appointed legal counsel to respond.
Earlier, the public pension shareholders filed suit against Coupang Inc. and Coupang board Chair Bom Kim. They argued that although Coupang described itself at the time of the IPO as a "workplace with a good labor environment," in reality it was investigated in Korea for ▲ poor working conditions and concealing risks of overwork and death ▲ manipulating search results ▲ directing the writing of reviews for private-brand (PB) products ▲ forcing prices on suppliers, and that its share price fell by more than half within a year after listing.
On the New York Stock Exchange, Coupang Inc.'s share price rose to as high as $69 intraday on March 11, 2021, the day of its listing, but fell below $10 in May the following year and at one point hovered at $20.
In September, the court of first instance dismissed the case with prejudice, saying, "Shareholders failed to prove that Coupang and its management intended to deceive them." A dismissal with prejudice bars refiling the same claim, though an appeal is possible.
The court found that issues such as Coupang's working environment and worker overwork and deaths were already knowable through the media, and therefore could not be deemed material falsehoods or fraud that would mislead shareholders or others.
It also found that the plaintiffs' claims regarding search result manipulation and directions to write PB product reviews did not establish material falsehoods or an intent to defraud. Legally, these were not specific statements that could be evaluated as false.
As the case moves to the appellate stage, Coupang faces the burden of litigation. With a recent personal data breach exceeding 30 million cases in Korea, there are signs of moves to file a class action domestically.
There are also expectations in the United States that a class action could be filed if the stock price falls because of this incident. The U.S. Securities and Exchange Commission (SEC) requires U.S.-listed companies to make an official disclosure within four business days of recognizing a material cybersecurity incident. Although Coupang recognized the personal data leak on the 18th of last month, it did not make a separate disclosure.
However, experts see a low likelihood that the first-instance ruling will be overturned in litigation surrounding the IPO. An appellate court does not reexamine facts but looks for "clear error" in the lower court's legal determinations, and this case was dismissed with prejudice because it lacked facts sufficient to prove Coupang's intent to defraud or a material false disclosure.
A legal industry source said, "The core issue of proving whether there was a false disclosure and whether the falsehood led to a stock price decline was not accepted," adding, "Because the appellate structure does not allow shoring up arguments with new evidence, cases that fail to meet basic requirements from the outset have even less room for a different outcome."