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Lawsuit charges Uber negatively impacted investments

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Despite being a private company, a putative class action lawsuit has been filed against Uber Technologies Inc. and its former CEO, Travis Kalanick, charging the company’s actions and culture have negatively impacted investments in it made on behalf of a Texas firefighters union.

Although not unprecedented, such lawsuits against privately held firms are rare, said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C., in Beachwood, Ohio.

The lawsuit, Irving Firemen’s Relief & Retirement Fund vs. Uber Technologies Inc. and Travis Kalanick, was filed Tuesday on behalf of the Irving, Texas-based retirement fund in U.S. District Court in San Francisco by prominent plaintiffs law firm San Diego-based Robbins Geller Rudman & Dowd L.L.P.

The lawsuit, which charges violation of California securities law, states the company induced investors to raise more than $10 billion by 2016, and that by mid-year it had reached a valuation of nearly $70 billion.

“In early 2017, defendants’ story began to unravel,” said the lawsuit.  “In a span of only a few months a shocking litany of corporate misconduct came to the fore and investors learned startling truths about the willingness of Uber’s C-suite executives to flout local, national and international law, stifle competition, misappropriate trade secrets and seek vengeance against detractors.

“And the company’s vaunted corporate culture was revealed to in truth consist of a toxic hotbed of misogyny, sexual discrimination and disregard for the law that threatened the company’s reputation, business and prospects,” said the lawsuit, noting 14 top-level executives have left the company since the beginning of this year.

The lawsuit said the disclosures about the company have caused investors to mark down their Uber investments by as much as 15%, “which translates to more than $10 billion in lost market capitalization alone.”

It was filed on behalf of investors who purchased Uber securities between June 6, 2014, and Sept. 22. The pension fund purchased the securities indirectly through an interest in a Delaware limited partnership managed by a unit of New York-based Morgan Stanley.

Among the lawsuit’s challenges is that investors did not invest directly but through a fund, so there is a question as to whether they can pursue the litigation, Mr. LaCroix said.

The question is whether the plaintiff can persuade a court there is a connection between the disclosures or admissions the company has made and its investments, he said.

The fact that there has been a “cascade of bad things” that have happened to the company “certainly provides a color to the case.” But it remains to be seen “whether that translates into a meritorious claim under California securities laws,” Mr. LaCroix said.