Etsy Counterfeit Problems Grow as Investors Allege Fraud

Etsy
Etsy's initial public offering, in New York on April 16, 2015. Photographer: Michael Nagle/Bloomberg

Etsy Inc. is facing fraud claims from investors after allegations that millions of items sold through its online crafts and specialty wares marketplace likely violate trademarks.

Investors filed a proposed class action against the Brooklyn, New York-based company and its executives after an analyst said this week that more than 5 percent of about 40 million listings may be counterfeit or otherwise infringe well-known brands.

Etsy went public in April and its value rapidly climbed to more than $3 billion. The share price has fallen amid fears of brands increasingly cracking down on the sales of infringing merchandise, cutting into the site’s fees and commission, investors alleged.

Investors acquired Etsy securities “in ignorance of the adverse facts concerning Etsy’s business and financial condition which were concealed by defendants,” shareholders said in the complaint filed in Brooklyn federal court Wednesday against the company, Chief Executive Officer Chad Dickerson and Chief Financial Officer Kristina Salen.

The executives were “were personally motivated” to make false statements or omissions “in order to personally benefit from the sale of Etsy securities from their personal portfolios,” investors alleged.

Sara Cohen, a spokeswoman for Etsy, declined to comment on the lawsuit. Etsy fell as much as 5.3 percent Friday, closing at $20.05.

Jewelry, Collectibles

Etsy’s website is a platform for sellers of items such as handmade clothing, jewelry and collectibles, some of which sport likenesses of popular logos and characters. Would-be buyers can find anything from Captain America-themed earrings to celebrity or movie-inspired wedding-cake toppers.

The site appears to list items that may infringe brands such as Louis Vuitton, Chanel, Michael Kors, Disney and NFL brands, equity analyst Gil Luria of Wedbush Securities said in a note May 11.

According to TMZ, Beyoncé threatened to sue Etsy this year over sale by some of its vendors of products emblazoned with “Feyoncé,” a play on her name and the word “fiance,” evoking the pop star’s hit “Single Ladies.” An e-mail to a publicity firm for Beyoncé, Schure Media Group, wasn’t immediately returned.

The investors lawsuit seeks unspecified damages on behalf of all shareholders who bought securities in Etsy from April 16 to May 10.

The case is Altayyar v. Etsy Inc., 1:15-cv-02785, U.S. District Court, Eastern District of New York (Brooklyn).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE