In a massive legal blow to Amazon, investors have filed a shareholder derivative lawsuit against the company’s board, CEO Jeff Bezos, and other senior executives for their lack of oversight and management regarding reported violations of antitrust laws, and allegedly unsustainable business decisions.
The financial hit incurred by Amazon due to the company’s rushed expansion and allegedly anticompetitive behavior was immense, with the lawsuit claiming that the company misled investors and put its stockholders at risk.
The accusations in the legal document are wide-ranging. Bezos and his team allegedly lied about the nature of Amazon’s private-label business, an area where the tech giant is increasingly selling in competition with third-party merchants.
The company touted its private-label brands as organic and sustainable, yet it was hiding its dependency on anti-competitive data practices towards third-party sellers. This apparently led Amazon to rig its own search algorithms to prioritise its own products, a practice which is currently the subject of multiple investigations and lawsuits.
Furthermore, Amazon’s drive to expand its fulfillment and delivery services should have been done at a more measured pace, rather than the rapid approach that the company opted for, which put intense strain on its own resources.
The confluence of antitrust allegations and the problems caused by accelerated expansion caused Amazon’s stock prices to plunge at different stages. The case is a shareholder derivative claim, with Amazon’s board and management reportedly acting on behalf of the internet giant and being held liable for losses.
Echo Wang, a correspondent at Reuters covering U.S. equity capital markets, stated: “Amazon investors sued Jeff Bezos and other senior company leaders, claiming they exposed the e-commerce giant to a ‘massive financial hit’ through antitrust violations and breakneck expansion.”
Anirban Sen, the Editor in Charge for U.S. M&A at Reuters in New York, added: “The lawsuit accuses them of lying about the tech giant’s practices in its private-label business selling products in competition with third-party merchants, and the ultra-fast delivery that’s critical to the company’s identity.”
In the face of the lawsuit, Amazon is also being forced to move forward with additional business decisions. This includes talks to invest in SoftBank Group Corp’s Arm Ltd ahead of its public listing. In a move hoped to boost the proposed IPO’s popularity, the company has also been in negotiations with about 10 technology companies, such as Intel, Alphabet, and Nvidia, about taking up a role as a cornerstone investor.
Whether these additional decisions will be enough to regain investor confidence is yet to be seen. While Amazon’s stock prices remain confused, its senior management and board still face the prospect of explanation for the legal issues they have caused.
Source: News Bloomberg Law