Mar 15, 2022 - Economy & Business

Second BuzzFeed employee complaint filed over botched IPO

Animated illustration of a dumpster on fire.

Illustration: Aïda Amer/Axios

Dozens of current and former BuzzFeed employees have sued the media company alleging that its mismanaged public listing process cost them millions of dollars, according to copies of two separate complaints obtained by Axios.

Why it matters: It's the latest wrinkle in an ongoing saga surrounding BuzzFeed's volatile public debut in December. BuzzFeed's stock has fallen more than 40% since its public debut to less than $5, leaving many employees that bought their shares underwater.

The initial complaint, first reported on by the New York Times, alleges that BuzzFeed prevented current and former employees from selling their shares when the company first went public.

  • That suit, filed with the American Arbitration Association, claims the alleged stock transfer blunder "caused massive losses" for the claimants and "wreaked havoc on their financial lives."

A second, similar complaint, which also was filed as a mass arbitration complaint to the American Arbitration Association, alleges "BuzzFeed—either negligently or intentionally—botched its IPO process so badly that Claimants were unable to trade their shares when the Company hit the market."

  • The second complaint's claimants are mostly former writers and other members of the BuzzFeed editorial staff.
  • Both complaints target BuzzFeed CEO Jonah Peretti, other senior executives, and BuzzFeed's principal transfer agent Continental.

What they're saying: BuzzFeed denied any wrongdoing in the matter in a statement sent to Axios on Tuesday.

  • "BuzzFeed prioritized communication with former and current employees last year to provide them with the information they needed to manage their equity as we merged with 890 5th Avenue Partners and became a public company," a spokesperson for BuzzFeed Inc. said. "It’s regrettable that the stock price declined, but there is no merit to the claims and we intend to rebut them vigorously.”
  • Sources tell Axios that Continental is still BuzzFeed's transfer agent, and that Continental has yet to be served either complaint. Continental declined to comment on the pending legal action.

By the numbers: The first complaint represents 44 former and current BuzzFeed employees with 400,000 company shares. It says BuzzFeed collectively owes them more than $4.6 million in damages.

  • Additional claimants are expected to come forward, sources say, noting the complaint's addition of one individual with 100,000 shares.
  • The second complaint represents 33 former employees with around 500,000 shares, who are seeking $4 million in damages, according to a source familiar with the filing.

Catch up quick: Many early BuzzFeed employees were unable to sell their shares when the company went public in December due to a clerical error. BuzzFeed blamed the error on Continental, the stock transfer agent it hired ahead of the IPO, and Continental basically blamed the error on BuzzFeed.

  • BuzzFeed gave no indication that it planned to compensate its former employees for their accelerating losses.
  • BuzzFeed employee contracts prevent the filing of class action complaints, which is why mass arbitration complaints were filed instead. Continental, however, isn't party to the same arbitration agreements.
  • The second complaint notes that many Claimants "are still are unable to trade their shares as of this filing—lost the opportunity to sell their hard-earned shares."

The big picture: BuzzFeed went public by merging with a SPAC called 890 Fifth Avenue in December.

  • The vast majority of money the SPAC raised was pulled ahead of the deal closing, a signal that investors weren't very optimistic about BuzzFeed's future prospects.
  • BuzzFeed is currently valued at roughly $610 million dollars, versus the $1.15 billion it was worth as the end of its first day as a public company and the $1.7 billion valuation when it raised $200 million from NBCUniversal in 2016.

Go deeper: Blunder prevents early BuzzFeed employees from selling their shares

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