Judge Arun Subramanian found that the plaintiffs had identified "several misleading omissions" and "half-truths" in Estée Lauder's financial communications, notably on the negative effects linked to Beijing's crackdown on the grey market in January 2022. This market, known as "daigou", consists of tax-free purchases made by resellers for onward resale in China, particularly from Hainan province.
Shareholders claim that the New York-based group hid the impact of this crackdown until November 1, 2023, when the stock collapsed by 19%, wiping out around $8.7bn in market capitalization.
"Executives attributed the drop in sales to everything but the crackdown, assuring investors that a rebound was imminent," the judge wrote. "What market laws do not tolerate are half-truths."
Former executives Fabrizio Freda (CEO) and Tracey Travis (CFO) are among those charged. According to the judge, they should have identified the repression of "daigou" as a major cause of the drop in sales, especially as Estée Lauder had a team dedicated to analyzing this distribution channel.
The proposed class action covers shareholders between February 3, 2022 and October 31, 2023. Since that date, Estée Lauder shares have lost almost half their value, largely due to the situation in China, which accounted for around a quarter of sales in 2024.
