Estee Lauder (EL) is facing a lawsuit accusing the cosmetic company of defrauding shareholders by concealing its reliance on gray-market sales in China, according to a ruling by a federal judge in Manhattan on Monday.
US District Judge Arun Subramanian determined that shareholders had identified several misleading omissions and 'half-truths' in the company's disclosures, particularly regarding the negative impact of a January 2022 crackdown on the 'daigou' gray market.
The lawsuit alleges that Estee Lauder concealed the detrimental effects of the crackdown until Nov. 1, 2023, causing a 19% drop in its stock price.
Judge Subramanian said that Estee Lauder attributed the decline in sales to factors other than the crackdown while reassuring investors that a recovery was imminent.
The defendants also included in the lawsuit are former CEO Fabrizio Freda and former CFO Tracey Travis.
The class action covers shareholders from Feb. 3, 2022, to Oct. 31, 2023.
Estee Lauder did not immediately respond to MT Newswires' request for comment.
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