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The tobacco giant Altria faces a class action lawsuit over JUUL, alleging that investors were misled about its stake in the controversial e-cigarette manufacturer, and the financial risks the company may face as a result of problems facing JUUL, which have resulted in sharp drops in Altria’s stock price in recent months.
Altria Group, which is one of the world’s largest tobacco companies, made a $12.8 billion investment in JUUL Labs, Inc. in December 2018, acquiring a 35% stake in the market-leader for e-cigarette products.
Amid concerns over the rising teen vaping and JUUL addiction epidemic in the United States, over the past several months the e-cigarette manufacturer has been forced to add new nicotine warnings, stop selling it’s popular flavored products and suspend all advertising in the United States. In addition, the JUUL CEO was forced to step down in September 2019, and was replaced by an Altria executive.
According to allegations raised in a complaint (PDF) filed this week in the U.S. District Court for the Eastern District of New York, Altria conducted insufficient due diligence prior to investing in JUUL, failed to inform investors about the material risks associated with JUUL products and marketing practices, or the impact JUUL problems may have on Altria’s reputation and operations.
Plaintiff Patrick F. Cipolla seeks class action status to pursue damages on behalf of all investors who acquired shares in Altria between October 25, 2018 and September 24, 2019, indicating that the value of the investment has precipitously dropped following several revelations over the past year.
JUUL Risks Not Adequately Disclosed
JUUL and it’s disposable vaping pod system were first introduced in 2015, and quickly grew to dominate the electronic cigarette market in the United States, with widespread advertisements on the internet that featured young users and social media influencers, which were primarily directed toward teens and prior non-smokers.
The JUUL pens were designed to look like USB thumb drives, and emit little-to-no visible vapor, making teen vaping addictions difficult to detect by parents, schools and other adults.
Recent FDA data has found that teen e-cigarette use has reached epidemic levels in the United States, and JUUL Labs has been accused of fueling the growing teen nicotine addiction problems in the United States, through the design and marketing of their vape pen.
The company now faces federal criminal probes alleging that JUUL pods were intentionally marketed toward children, and hundreds of JUUL lawsuits are now being pursued by families of addicted users, as well as school districts that have incurred costs combating the widespread use of the e-cigarettes among students
The new JUUL CEO, K.C. Crosthwaite, was previously Altria’s Chief Growth Officer, in charge of its efforts to find alternative products to traditional cigarettes. He had been an “observer” on JUUL’s board of directors since Altria’s investment in the company, which investors now claim appears to be a complete takeover of JUUL, which is the opposite of what it told investors.
“Throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects,” the lawsuit states. “Following Altria’s multi-billion dollar investment into JUUL, e-vapor products and JUUL increasingly became the subject of public and regulatory scrutiny throughout the country. Mounting skepticism, fear, and negative publicity in the media regarding e-cigarettes’ safety led to increased scrutiny by government authorities into vaping products, and municipalities throughout the country began tightening sales practices related to those products.”
The lawsuit notes numerous statements by Altriam which it claims are now shown to be false, such as indicating that it’s investment into JUUL was investment into a growth company dedicated to reducing the harm of nicotine products and preventing underage use.
The class action lists numerous times where bad news about JUUL emerged throughout the year, and Altria stock values took a hit as a result. In April, Altria’s stock price was about $54. By September it had fallen to about $40.