Boohoo struggles to keep co-founder away from $100-m US lawsuit

Summary 

  • The US $100-million lawsuit has accused the online retailer of using fake sales and promotions to mislead shoppers in the US.
  • The lawsuit has been filed by US firms Almadani and AI LawLawyers.
  • If the claims are proven, Boohoo may face a total damages bill of around US $100 million.

Until recently, Boohoo (LON: BOO) was one of the upcoming fashion retailers in the UK. But things drastically changed for the AIM-listed company after it got entangled into some cases, one being the working conditions of its workers, and the second one being the US $100-million lawsuit that accused the online retailer of using fake sales and promotions to mislead shoppers in the US for at least four to five years.

Boohoo is known for its extremely low prices and made sales of more than £1.2 billion in the last financial year till February 2021. Last year, US firms Almadani and AI LawLawyers accused the British fashion company and its brands PrettyLittleThing and NastyGal for misleading shoppers by creating “sham sales” by faking prices on products, which were intentionally inflated.

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According to a report in The Telegraph, documents filed in a Californian court had clearly highlighted that “all the reference prices on Boohoo’s website were fake. The prices mentioned were not original, regular, retail, or former prices. The prices were inflated and posted to lure unsuspecting customers into jumping into a fake bargain”.

A recent media report stated that Boohoo’s co-founder Mahmud Kamani has been asked to produce evidence in the case. Sources within the company said there is discontent over Kamani’s appearance in the case as it might just give a sneak peek into company’s inner workings. Last week, in a document filed in the Los Angeles court confirmed that an internal email in 2018 from the executive chair to staff and executives got leaked, which had some crucial information about the false pricing tactics used in almost all of its markets.

 

The pricing lawsuit also mentioned that Boohoo was accused by the UK Advertising Standards Office for misleading offers such as ‘countdown timers’ to encourage customers to purchase before the discount ended on certain products. If the claims are proven, Boohoo may face a total damages bill of around US$100 million.

Also read: Why FCA has slapped a fine of £91M on Lloyds (LON: LLOY)

 

The lawyers want Karmani to file evidence in this case as he has unique, direct knowledge of the facts related to the case based on the 2019 email. They said that the particular email is the evidence that “false advertising and pricing tactics” were used in all its markets as mentioned in the California case.

According to media reports, Kamani had questioned company’s marketing strategy and encouraged the core team to “display large offers on their websites” and added that “all marketing expenses had to be approved by him directly”. Bith the co-founder Carol Kane and CEO John Lyttle were copied in the mail.

The company tried covering up the case in November 2020 but failed after the opposition party insisted that Kamani should answer their queries.

Earlier, Boohoo had said that Kamani “is not usually involved in setting prices for individual items or making advertising decisions” and added that junior staff was directly involved in the campaign.

This is the second case in which the company has got entangled. The company was previously accused of engaging in modern slavery after a damning expose revealed poor working conditions at its workshops and numerous examples where its suppliers were paying less than minimum wage.

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