More than 40 former and current BuzzFeed employees accused the company in a lawsuit filed Tuesday of missing out on its stock market debut and denying workers the chance to sell their shares for a higher price.
In the complaint filed with the American Arbitration Association, which resolves disputes out of court, employees said the company failed to properly explain to them how to trade their shares immediately after the IPO in December.
The group is seeking compensatory damages estimated at more than $4.6 million, according to the claim, which was viewed by The New York Times.
“The Kafkaesque tribulations into which the plaintiffs were drawn wreaked havoc on their financial lives,” the complaint states.
BuzzFeed did not immediately respond to a request for comment.
BuzzFeed, a news and entertainment publisher, began trading Dec. 6. The company’s stock price fell sharply in the days following its IPO, and the group of employees said they were unable to sell their shares until the price improved. hadn’t fallen close. 60 percent, or less than $5.
Some workers are still unable to sell their shares, according to the complaint.
The arbitration action represents 44 employees, who collectively owned more than 400,000 BuzzFeed shares at the time of its IPO. It was filed with the American Arbitration Association because of a clause in employee contracts that requires certain disputes to be submitted to arbitration instead of going to court. This clause is common in many employment contracts in an attempt to prevent class action lawsuits. Arbitration claims are decided by an impartial third party, although many are settled before that decision.
In addition to naming BuzzFeed and some of its top executives as defendants, including its founder, Jonah Peretti, the suit names Adam Rothstein, the executive chairman of a front company that merged with BuzzFeed, and Continental Stock Transfer, a transfer agent. hired to help with its IPO.
Mr. Rothstein and Continental did not immediately respond to a request for comment.
BuzzFeed was co-founded by Mr. Peretti in 2006. According to the claim, the group of employees, which includes journalists, web developers, editors and salespeople, mostly joined BuzzFeed in its early days, when it was a scrappy start-up. They accepted low wages because they also received stock options, employees said, and Mr. Peretti frequently promoted the company’s eventual IPO plan.
In June of last year, BuzzFeed announced plans to merge with a special purpose acquisition company, or SPAC, called 890 Fifth Avenue Partners to go public. The deal valued BuzzFeed at $1.5 billion. The company is worth about a third now.
At the time of the merger in December, about 94% of the more than $250 million raised by SPAC had been withdrawn by investors, leaving the company with just $16 million. The complaint argued that because of this, BuzzFeed executives had a fiduciary duty to reassess publishing plans. But the IPO went ahead and BuzzFeed began trading on the Nasdaq on December 6 under the symbol BZFD.
The employees, according to the claim, were anxiously awaiting the opportunity to finally cash in their shares, but quickly realized they were unable to because they were not told that further steps were required to convert. their class B shares before they can be sold.
The error is not associated with what is commonly referred to as a “lock-up” agreement that prevents senior executives from selling shares for a set period of time, usually around six months. In this case, employees could sell as soon as they filed the necessary paperwork before the public debut, but they didn’t have enough time to complete the application before the company went public, employees say. .
Communications from Continental and BuzzFeed offered conflicting and vague advice on stock transfers, according to the complaint, and employees were told that stock conversions would take three to five business days. At the same time, BuzzFeed’s share price, which had soared early in the session, was falling rapidly.
“As a result, the plaintiffs – some of whom are still unable to trade their shares as of the date of this filing – lost the opportunity to sell their hard-earned shares at a good price and were left with traded shares at a mere fraction of its IPO price,” the complaint states.
An employee texted Mr. Peretti on December 6 expressing his frustration and, according to the complaint, Mr. Peretti complained that he was unable to cash out his shares at such a high price as he had hoped neither. On Dec. 7, 2021, BuzzFeed emailed employees and said they “sympathize with your frustration with this process.”
BuzzFeed will report earnings on March 22 for the first time since its IPO.