Starbucks shareholders sue over alleged stock inflation by $227 million

October 25th, 2024

Starbucks shareholders are suing the company’s executives, alleging they misled investors about future growth and revenues, which artificially inflated the stock buyback program.

Multiple shareholders have filed a derivative complaint in Washington federal court, alleging that misleading projections by the company’s former CEO and current and former directors led to a stock buyback program that was overinflated by more than $227 million.

The alleged misrepresentations about projected performance influenced corporate lenders to repurchase 8.9 million shares of common stock between November 2023 and April 2024 at a cost of more than $890 million.

However, with the stock trading at only $74.44 per share by market close on May 1, 2024, lenders overpaid by more than $227.5 million in total for these repurchases.

The truth was revealed in April when a Starbucks press release disclosed the company’s poor quarterly performance, highlighting declines in global sales and revenue. The company also signalled it might struggle to meet its projected financial targets.

The lawsuit claims that Starbucks benefitted financially from misrepresentations, with executives receiving bonuses, stock options or other compensation tied to the company’s performance or valuation.

It asserts that Starbucks’ actions violated the Securities Exchange Act, including Section 14(a) which regulates misrepresentations and omission made in shareholder proxy statements.

The claim also alleges breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and a waste of corporate assets.

The shareholders seek unspecified damages and legal fees, along with changes to Starbucks' corporate governance policies, including a provision to allow shareholders to nominate at least five board candidates.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.