A federal lawsuit alleges that toymaker Funko overstated its growth and profits in the run up to going public last year.
Plaintiff Keith Jacobs seeks class action in the lawsuit filed last week in U.S. District Court in Seattle against Funko, the Everett, Wash., maker of the popular Pop! figurines, as well as the company’s top executives, board members and the companies that underwrote the initial public offering. Jacobs joins at least five other groups that have sued Funko in recent months, alleging the company misrepresented its financials.
The lawsuit alleges Funko produced “misleading and inaccurate” financial statements that violated the Securities Act of 1933. Jacobs seeks class action certification for his claims, a jury trial and “compensatory damages.”
“The IPO Registration Statement was materially false and misleading and omitted to state that Funko’s profits and growth were not as positive as the Company represented; and that, as a result of the foregoing, Defendants’ statements in the Registration Statement regarding Funko’s business, operations, and prospects, were materially false and/or misleading,” according to the suit.
Funko responded to the lawsuit with the following statement:
“The allegations in this suit are wholly without merit. This suit is an opportunistic attempt to misrepresent the facts and we intend to fully defend ourselves. In the meantime, we are excited about our business and our positioning in the market. Funko remains focused on being a leading pop culture products company that enables fans to express their affinity for movies, TV shows, video games, musicians or sports teams through our products.”
Funko’s IPO last November marked the worst first day for a public company in 17 years. Funko priced its shares at $12 when it went public, below its original range of $14 to $16. The freshly minted stock opened much lower at $8. By the end of the day, the stock price sat around $7.
Funko shares hit a low of $6 back in December and has steadily climbed up since, sitting today at a little more than $8.
Jacobs’ suit heavily cites an article from Bloomberg calling out Funko’s finances on the morning of the IPO. Here is the crux of the analysis from Bloomberg’s Stephen Gandel:
In Funko’s IPO prospectus, in a chart with a big arrow pointing up, the company says that an important measure of its income, which it uses to determine the success of its operational strategies, rose by an average of 86 percent in its past two full years. The actual bottom line, though, was up an average of just 16 percent in 2015 and 2016 and has turned negative lately. Funko lost just more than $10 million in the first half of this year. How the toymaker gets a loss of $10 million to reflect back as an 86 percent earnings increase is the latest example of fun-house accounting on Wall Street.
Here is Jacobs’ full complaint: