Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 1 of 26 THE ROSEN LAW FIRM, P.A. Phillip Kim, Esq. (PK 9384) Laurence M. Rosen, Esq. (LR 5733) 275 Madison Avenue, 34th Floor New York, New York 10016 Telephone: (212) 686-1060 Fax: (212) 202-3827 Email: [email protected] Email: [email protected] Lead Counsel for Plaintiffs UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK GERALD DINGEE and MICHAEL LAMP No. 1:15-cv-6941 (TPG) Individually and on Behalf of all Others Similarly Situated, FIRST AMENDED COMPLAINT Plaintiff, JURY TRIAL DEMANDED v. WAYFAIR INC., NIRAJ SHAH, and MICHAEL FLEISHER, Defendants. Lead Plaintiff Gerald Dingee and named plaintiff Michael Lamp (collectively, “Plaintiffs”) by and through their undersigned attorneys, allege the following upon information and belief, except as to those allegations concerning Plaintiffs, which are alleged upon personal knowledge. Plaintiffs’ information and belief are based upon, among other things, counsel’s investigation, which includes, without limitation: (a) a review and analysis of regulatory filings made by Wayfair Inc. (“Wayfair” or the “Company”) with the United States Securities and Exchange Commission (“SEC”); (b) a review and analysis of press releases, conference calls, and media reports issued by and disseminated by Wayfair; (c) a review of other publicly 1 Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 2 of 26 available information concerning Wayfair; (d) a review of public statements by Overstock.com, Inc. (“Overstock”); and (e) interviews with witnesses. Plaintiffs believe that further substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. Most of the facts supporting the allegations contained herein are known only to the Defendants or are exclusively within their control. NATURE OF THE ACTION 1. This is a securities class action on behalf of all persons or entities who purchased or otherwise acquired Wayfair securities between October 2, 2014 and August 31, 2015, inclusive (the “Class Period”), seeking to recover compensable damages caused by Defendants’ violations of federal securities law and to pursue remedies under asserting claims under Sections 10(b) and 20(a) the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. 2. Wayfair is focused on selling furniture and home goods online. Unlike technology or high growth companies like Amazon, valuations for online companies selling home goods and furniture have traditionally been modest. 3. For over a decade, Wayfair’s primary competitor Overstock, has been selling furniture and home goods online using a similar “inventory light” business model where furniture suppliers ship directly to the company’s customers. 4. Overstock, which unlike Wayfair turns a profit, maintained a stock price to sales ratio of in the 0.1 to 0.3 range immediately preceding and during the Class Period. 5. Against this backdrop, in October 2014 Wayfair conducted its initial public offering October of 2014. Wayfair filed its Registration Statement on Form S-1/A with the SEC on September 19, 2014 and the Registration Statement was declared effective by the SEC on October 1, 2014 (the “IPO”). The final Prospectus was filed with the SEC on October 2, 2014. 2 Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 3 of 26 The Registration Statement and Prospectus are collectively referred to herein as the “Registration Statement.” 6. The Registration Statement was materially misleading because it failed to disclose Overstock as a competitor to Wayfair. 7. Defendants were motivated to omit Overstock as competitor and to distance itself from any comparisons to Overstock to command a higher valuation. This enabled Wayfair to price its IPO at $29/share—a rich valuation and several times larger than what it would have been had Wayfair been valued closer to Overstock and not its “competitors” Amazon and eBay. Wayfair raised $319 million in the IPO. 8. Throughout the Class Period, Defendants likewise failed to disclose Overstock as a competitor, rendering of each of the Company’s periodic reports filed with the SEC materially misleading. At the same time, Wayfair insiders sold over 1.2 million shares of Wayfair stock at artificially inflated prices, reaping over $40.7 million in proceeds. JURISDICTION AND VENUE 9. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §240.10b-5). This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §1331, and Section 27 of the Exchange Act (15 U.S.C. §78aa). 10. Venue is proper in this District pursuant to 28 U.S.C. §1391(b), and Section 27(c) of the Exchange Act (15 U.S.C. §78aa(c)) as Defendants maintain an office in this district and a significant portion of Defendants’ actions and the subsequent damages took place within this District. 11. In connection with the acts, transactions, and conduct alleged herein, Defendants directly and indirectly used the means and instrumentalities of interstate commerce, including the 3 Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 4 of 26 United States mail, interstate telephone communications, and the facilities of a national securities exchange. PARTIES 12. Lead Plaintiff Gerald Dingee (“Dingee”) purchased Wayfair securities during the Class Period, and suffered damages as a result of the federal securities law violations alleged herein. Lead Plaintiff’s PSLRA certification was previously filed with the Court and is incorporated by reference. 13. Named Plaintiff Michael Lamp (“Lamp”), as set forth in the accompanying certification, incorporated by reference herein, purchased Wayfair securities during the Class Period, and suffered damages as a result of the federal securities law violations alleged herein. 14. Defendant Wayfair is a Delaware corporation with its principal executive offices situated at 4 Copley Place, 7th Floor, Boston, MA. It also maintains an office at 155 Sixth Ave, 7th Floor, New York, NY 10013. Wayfair is purportedly one of the largest online retailers of home goods. Wayfair Class A common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “W.” 15. Defendant Niraj Shah (“Shah”) has served as the Company’s Chief Executive Officer and Director at all relevant times. Shah is also a Co-Founder and Co-Chairman of Wayfair. 16. Defendant Michael Fleisher (“Fleisher”) has served as the Company’s Chief Financial Officer at all relevant times. 17. Defendants Shah and Fleisher are referred to herein as the “Individual Defendants.” 18. Wayfair and the Individual Defendants are collectively referred to herein as the “Defendants.” 4 Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 5 of 26 19. Each of the Individual Defendants: a. directly participated in the management of the Company; b. was directly involved in the day-to-day operations of the Company at the highest levels; c. was privy to confidential proprietary information concerning the Company and its business and operations; d. was directly or indirectly involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein; e. was directly or indirectly involved in the oversight or implementation of the Company’s internal controls; f. was aware of or recklessly disregarded the fact that the false and misleading statements were being issued concerning the Company; and/or g. approved or ratified these statements in violation of the federal securities laws. 20. Wayfair is liable for the acts of the Individual Defendants and its employees under the doctrine of respondeat superior and common law principles of agency as all of the wrongful acts complained of herein were carried out within the scope of their employment with authorization. 21. The scienter of the Individual Defendants and other employees and agents of the Company is similarly imputed to Wayfair under respondeat superior and agency principles. RELEVANT NON-PARTY 22. Overstock is a Delaware corporation with its principal executive offices situated at 6350 South 3000 East Salt Lake City, Utah 84121. Overstock was founded in 1999 and its common stock began trading on NASDAQ under the symbol “OSTK” on May 30, 2002. Overstock operates as an online retailer primarily in the United States. 5 Case 1:15-cv-06941-DLC Document 21 Filed 01/11/16 Page 6 of 26 23. Overstock offers furniture, home décor, bedding, housewares, jewelry, apparel, electronics, and a variety of other products for sale online. 24. Overstock uses multiple websites to sell its merchandise including www.overstock.com, www.o.co, and www.o.biz. Likewise, Wayfair operates different websites including www.wayfair.com, www.jossandmain.com, www.allmodern.com, www.birchlane.com, www.dwellstudio.com, and www.wayfairsupply.com to sell its merchandise. 25. Overstock operates niche websites for different aesthetics and consumer’s tastes like Worldstock Fair Trade, a marketplace for artisans to sell their work, and Main Street Revolution, a marketplace for small and minority-owned business owners to sell their products. Likewise, Wayfair operates different websites to target different aesthetics and consumer’s tastes such as AllModern for who prefer modern décor. 26. According to its Form 10-K for the year ending December 31, 2014 filed with the SEC on March 12, 2015, Overstock fulfills approximately 10% of its orders directly to consumers from its warehouse. Overstock’s predominate method of selling merchandise, accounting for about 90% of its sales, is through other retailers or fulfillment partners. Overstock acts as a platform for suppliers to reach customers. The fulfillment partners are responsible for the inventory and shipping of the products while Overstock provides the resources and platform to handle customer service inquiries and returns.