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Insurtech’s stock drop triggers class action

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Root

A putative class action securities lawsuit was filed Friday against auto insurtech company Root Inc. and its directors and officers after its stock price dropped dramatically following an analyst’s negative report.

Columbus, Ohio-based Root raised $724.4 million by selling 26.8 million shares at $27 per share in its October 2020 initial public offering, according to the lawsuit Ilia Kolominsky v. Root Inc., et al. filed Friday in U.S. District Court in Columbus.

The company operates a direct-to-consumer model that serves customers primarily through mobile applications as well as through its website, according to the lawsuit.

Earlier this month, Bank of America securities analyst Joshua Shanker issued a report on Root that said the company is unlikely to be “cash flow positive” until 2027 and will need significant cash infusions.

The report said also competitors would impede the insurer’s profitability and have a “sizable advantage” over Root in the data the insurers use to price their auto insurance.

After the report was published, Root’s stock price dropped to $12.17, or less than half its IPO price.

The lawsuit, which accuses the company of making false and misleading statements, charges the insurer with violating securities law and seeks damages and attorneys fees.

Root did not respond to a request for comment.