BuzzFeed I.P.O. Illegally Shortchanged Employees, Dozens Claim – The New York Times


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The group is asking for compensatory damages estimated at more than $8.7 million.

Nearly 80 former and current employees of BuzzFeed accused the company in complaints on Tuesday of bungling its stock market debut and denying the workers the chance to sell their shares at a higher price.
In two claims, made to the American Arbitration Association, which resolves disputes out of court, the employees said the company had failed to properly instruct them on how to trade their shares immediately after the initial public offering in December.
The groups are asking for compensatory damages estimated at more than $8.7 million, according to the claims, which were viewed by The New York Times.
“The Kafkaesque tribulations through which the claimants were dragged have wreaked havoc on their financial lives,” one complaint said.
A BuzzFeed spokesman said in a statement on Tuesday that “BuzzFeed prioritized communication with former and current employees last year to provide them with the information they needed to manage their equity.”
“It’s regrettable that the stock price declined, but there is no merit to the claims and we intend to rebut them vigorously,” the spokesman added.
BuzzFeed, a news and entertainment publisher, began trading on Dec. 6. The company’s stock price fell sharply in the days after it went public, and employees say they were not able to sell their shares until the price had dropped nearly 60 percent, to less than $5.
Some workers are still unable to sell their shares, according to the complaints.
The arbitration actions represent 77 employees, who collectively had more than 900,000 shares of BuzzFeed stock when it went public. The two claims were filed separately before the American Arbitration Association because a clause in the employees’ contracts requires certain disputes to go to arbitration instead of court. That clause is common in employment contracts as an effort to prevent class-action lawsuits. Arbitration claims are decided by an impartial third party, though 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 complaints name Adam Rothstein, the executive chairman of a shell company that merged with BuzzFeed, and Continental Stock Transfer, a transfer agent hired to help with its initial public offering.
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 claims, the employees, which includes reporters, web developers, editors and salespeople, had mostly joined BuzzFeed in its early days when it was a scrappy start-up. They accepted low salaries because they were also given stock options, the employees said, and Mr. Peretti frequently promoted the eventual plan to take the company public.
In June last year, BuzzFeed announced its plans to merge with a special purpose acquisition company, or SPAC, called 890 Fifth Avenue Partners in order to go public. The deal valued BuzzFeed at $1.5 billion. The company is worth about one-third of that now.
By the time of the merger in December, about 94 percent of the over $250 million raised by the SPAC was withdrawn by investors, leaving the company with only $16 million. The complaints argued that because of this, BuzzFeed executives had a fiduciary duty to re-evaluate the plans to go public. But the I.P.O. went ahead, and BuzzFeed began trading on Nasdaq on Dec. 6 under the ticker symbol BZFD.
The employees, the claims said, were looking forward to finally cashing in their shares but quickly realized that they were unable to do so because they had not been told extra steps were needed to convert their Class B shares before they could sell them.
The blunder is not associated with what is commonly known as a “lockup” agreement that prevents top executives from selling shares for a specified period, typically about six months. In this case, employees could sell as soon as they filed necessary paperwork ahead of the public debut, but they were not given enough time to complete the application until after the company hit the stock market, the employees say.
Communications from Continental and BuzzFeed offered contradictory and vague advice about the stock transfers, according to the complaints, and employees were told the conversion of shares would take three to five business days. At the same time, BuzzFeed’s stock price, which had spiked in early trading, was rapidly dropping.
“As a result, claimants — some of whom still are unable to trade their shares as of the date of this filing — lost the opportunity to sell their hard-earned shares for good value and have been left with stock trading at a mere fraction of its I.P.O. price,” one of the complaints said.
One employee texted with Mr. Peretti on Dec. 6 to express his frustration, and, according to the complaint, Mr. Peretti complained that he had not been able to cash out his shares at as high a price as he had hoped, either. On Dec. 7, BuzzFeed emailed employees and said they “sympathize with your frustration with this process.”
BuzzFeed will report earnings next Tuesday for the first time since going public.
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