Buy now, pay later company Klarna was sued in federal court by a shareholder last month in a complaint that seeks class-action status.
The lawsuit lodged in U.S. District Court for the Eastern District of New York alleges investors suffered losses when the Klarna’s stock declined after a September initial public offering. The stock drop followed the company’s failure to disclose “material adverse facts” in its prior filings regarding the stock sale.
“We believe the allegations lack merit,” A Klarna spokesperson said. “We do not have any further comment at this stage.”
The London-based company understated the risks associated with its business, failing to disclose that many of its customers are “experiencing financial hardship,” according to the Dec. 22 complaint filed by the New York City-based Rosen Law Firm.
"Since the IPO, and as a result of the disclosure of material adverse facts omitted from Klarna’s Registration Statement, its share price has fallen substantially below its IPO price, damaging Plaintiff and Class members," the lawsuit said.
A Sept. 10 prospectus filed on the day of Klarna's IPO on the New York Stock Exchange "was materially false and misleading at the time it was made because it materially understated the credit risks involved in lending to Klarna's clients," the complaint says.
Other law firms are also lining up in search of investors who want to sue the company over the stock price drop since the IPO last September. They include Kaplan Fox & Kilsheimer; Robbins Geller Rudman & Dowd; and Portnoy Law.
Klarna had disclosed that the company might incur losses if loans facilitated through its network did not perform as well as expected, according to the prospectus it filed.
Still, Klarna omitted from the document that many of its customers “are not financially sophisticated”and are willing to pay “substantial” interest rates to finance services such as fast food deliveries, according to the complaint.
Klarna said in a news release in July that the delinquency rate on its loans is below 1%.
