Casper Sleep Inc. Class Action Lawsuit
- Company Name
- Casper Sleep Inc.
- Stock Symbol
- Class Period
- Initial public offering conducted on or around February 7, 2020 (“IPO”)
- Eastern District of New York
The Casper Sleep Inc. class action lawsuit alleges violations of the Securities Act of 1933 by Casper Sleep, certain of Casper Sleep’s officers and directors, and the underwriters of Casper Sleep’s initial public offering conducted on or around February 7, 2020 (“IPO”). The Casper Sleep class action lawsuit was commenced in the Eastern District of New York on behalf of purchasers of Casper Sleep securities pursuant and/or traceable to Casper Sleep’s IPO and is captioned Lematta v. Casper Sleep Inc., No. 20-cv-02744.
Casper Sleep purports to sell mattresses, sleep aids, and other sleep-related products and services. On January 10, 2020, Casper Sleep filed its Registration Statement on Form S-l for the IPO, which, after several amendments, was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on February 5, 2020 (the “Registration Statement”). On February 7, 2020, Casper Sleep filed its Prospectus on Form 424B4 with the SEC. In the IPO, defendants sold 8.35 million shares of Casper Sleep common stock at $12 per share, generating over $100 million in gross proceeds.
The Casper Sleep class action lawsuit alleges that the Registration Statement issued in connection with the IPO failed to disclose the following adverse facts that existed at the time of the IPO: (i) that Casper Sleep’s profit margins were actually declining, rather than growing; (ii) that Casper Sleep was changing an important distribution partner, costing it 130 basis points of gross margin in the first quarter of 2020 alone; (iii) that Casper Sleep was holding a glut of old and outdated mattress inventory that it was selling at steeply discounted clearance prices, further impairing Casper Sleep’s profitability; (iv) that Casper Sleep was suffering accelerating losses, further placing its ability to achieve positive cash flows and profitability out of reach; (v) that Casper Sleep’s core operations were not profitable, but were causing Casper Sleep to suffer over $40 million in negative cash flows during the first quarter of 2020 alone and doubling its quarterly net loss year over year; (vi) that, as a result, Casper Sleep’s ability to achieve profitability, implement its growth initiatives, and expand internationally had been misrepresented in the Registration Statement, as Casper Sleep needed to shutter its European operations, halt all international expansion, jettison over one fifth of its global corporate workforce, and significantly curtail new store openings in order to avoid an imminent cash and liquidity crisis, let alone achieve positive operating cash flows; and (vii) that, as a result, Casper Sleep’s revenue growth rate was not sustainable and had not positioned Casper Sleep to achieve profitability.
On April 21, 2020, Casper Sleep announced that it was taking significant actions to improve its cash position and business model, notwithstanding the fact that Casper Sleep had raised more than $100 million in gross offering proceeds from the IPO less than three months previously. Casper Sleep stated that it was reducing the size of its global operations and sales team and completely winding down its European operations, leading to the loss of 21% of its entire corporate workforce globally. Casper Sleep also revealed that defendant Gregory Macfarlane, Casper Sleep’s Chief Financial Officer and Chief Operations Officer, was resigning.
Then, on May 12, 2020, Casper Sleep issued a release providing its financial results for the quarter ended March 31, 2020 – the same quarter during which defendants conducted the IPO. Casper Sleep stated that it had suffered a net loss of $34.5 million, a 98% increase year over year, and an adjusted EBITDA loss of $22.9 million, a 60% increase year over year. In addition, Casper Sleep stated that its gross margin had actually fallen during the quarter by 190 basis points. Defendant Philip Krim, Casper Sleep’s Chief Executive Officer, further revealed that the decrease in net margin was due to a change in one of Casper Sleep’s logistics providers and an abnormally high number of clearance sales needed to get rid of old mattress inventory that had built up prior to the IPO. Defendant Krim also stated that Casper Sleep was substantially reducing the number of planned retail openings, further crimping its growth prospects.
Also on May 12, 2020, Casper Sleep filed its quarterly report on Form 10-Q in which it stated that its cash and cash equivalents had only increased $48.5 million during the quarter, despite the fact that Casper Sleep received over $88 million in net cash proceeds from the IPO. The Form 10-Q stated that during the quarter Casper Sleep had suffered over $40 million in negative cash flows from operating and investing activities. As Casper Sleep had only $116 million in cash on hand as of March 31, 2020, at this rate Casper Sleep was on track to run out of cash entirely within a year. As of market close on June 4, 2020, Casper Sleep stock was trading 32% below the IPO price.
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