Juul Labs, Inc. and its board of directors have been named in a proposed class action filed on behalf of the e-cigarette company and its minority stockholders, who the case says were injured by a $19 billion loss in share value. According to the 31-page complaint, the drop in value stemmed mainly from the executives’ decision to spend portions of Altria’s $12.8 billion investment in Juul on “massive” payouts for themselves instead of diverting more capital toward handling the impending regulations and government scrutiny the company has faced in recent months.
The plaintiff in the derivative suit alleges that the defendants “abused their control” of Juul Labs in order to benefit themselves instead of protecting the interests of minority stockholders, who hold no voting power in the private company. After negotiating Altria’s investment in Juul, the company’s board of directors paid themselves a “disproportionate amount” in dividends and bonuses without sharing the proceeds with all shareholders, the case claims. Moreover, the suit argues that Juul’s co-founders have cashed out “hundreds of millions of dollars” of their company stock while minority shareholders were not permitted to sell their stock without board approval, which, according to the lawsuit, “has rarely if ever been granted.”
The lawsuit further claims that although Juul’s board of directors was “well aware” that the company’s popular e-cigarette products would come under government scrutiny and regulation, the board failed to invest “sufficient capital” in order to better position Juul Labs in light of recent events, including lawsuits and a federal investigation, that have caused the company’s stock value to drop by nearly $20 billion. Instead, the case alleges, the defendants have caused Juul to continue marketing its products as safer than traditional cigarettes even after being issued a warning letter from the FDA.
The plaintiff claims he and other minority stockholders were unaware of Juul’s irresponsible actions until the news broke, given that the company has allegedly failed to hold annual stockholder meetings and issue annual reports as required under California law.