Grab at risk of US class action lawsuits after shares fall

Mar 08, 2022

LISTING in the US is often desired for its vibrant market and access to capital, but on the flip side, it puts the company at risk of potential litigation with class action lawsuits, with recently-listed Grab becoming the latest target.

Grab, which operates ride-hailing, food delivery and financial services businesses, merged with special purpose acquisition company Altimeter on Dec 2 and its shares opened at US$13.06. Since then, Grab's stock has traded in the region of US$5.

The company's share price dived 37 per cent in one day to US$3.17, after the company reported on March 3 that losses deepened in its fourth quarter to US$1.1 billion and revenue fell. Following that, a slew of US law firms put out press releases urging Grab shareholders to contact them to investigate claims on their behalf. At least 6 law firms have announced that they were looking for shareholders to start their investigations.

Grab declined to comment on the matter.

Stock drop lawsuits are legal suits brought against a company when its share price drops sharply, causing substantial losses for shareholders. There are specialised law firms that closely monitor stock movements and pounce on any company that has a statistically significant price drop that is not in tandem with the wider market movement.

The investigations these law firms undertake on behalf of shareholders run the gamut from inaccurate statements to possible fraud to possible violations of US Securities Law. The firms look to garner enough shareholders to bring a class action suit to combine their claims for a bigger potential award from the courts.

Pomerantz Law Firm wants to investigate "whether Grab and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices". Johnson Fistel's investigation will "focus on investors' losses and whether they may be recovered under the federal securities laws".

This is a reality of listing in the US that Grab has to deal with as litigations can be rolled out on contingency, where the law firm is only paid if the lawsuit is won. Often the legal fees are a percentage amount recovered on behalf of the client.

These firms typically try to find a shareholder with the largest losses to become the lead counsel on such suits. In line with presumptions under US law, the shareholder with the largest losses is more incentivised to lead the direction of the lawsuit. Johnson Fistel is looking for shareholders with at least US$20,000 in losses while Schall Law Firm is looking for shareholders with at least US$100,000 in losses.

For a lawsuit to make it to court, the plaintiffs have to make significant allegations to avoid having the motion dismissed. Should a lawsuit make it to court, it often results in a settlement by the company's insurer, rarely making it to trial.

Singapore shareholders might not appear as litigious, but this also boils down to the fact that law firms cannot be retained based on contingency in Singapore. Legal fees can quickly add up to exorbitant sums, preventing most from going down that route.

Calls for class action stock drop lawsuits are commonplace in the US, and a large majority of the calls by law firms rarely result in an actual lawsuit. The US-based law firms did not immediately respond to requests for comment.