Published:
May 01, 2025
- Corporate Lawsuits
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May 01, 2025
Inside Funko's costly lesson in IPO disclosures
05/14/2025
Funko Inc., the company behind the wildly popular Pop! Vinyl Figurines, has agreed to shell out $14.75 million to settle a class action lawsuit that took aim at its 2017 initial public offering (IPO).
The suit accused Funko of violating the Securities Act of 1933 by making materially false and misleading statements in its IPO registration statement and prospectus.
The settlement brings closure to a legal battle that began just days after Funko went public on November 1, 2017.
The company had high hopes for its IPO, priced at $12 per share and expected to generate over $100 million in proceeds. But Funko's Wall Street debut quickly turned into a nightmare.
Funko held its highly anticipated IPO on November 1, 2017, selling over 10.4 million shares to the public at $12 apiece.
The company's IPO filings touted strong growth and profitability, fueled by the craze for its licensed vinyl figures depicting everything from Marvel superheroes to Harry Potter characters.
But Funko's public debut quickly went south after the stock price plummeted 41% on its first day of trading, making it one of the worst IPO openings in nearly two decades.
The offering became a rude awakening for the many eager Funko enthusiasts who had snapped up shares early.
Funko's IPO filings painted a rosy picture of the company's financials and growth prospects. The collectibles maker touted its strong sales and profit numbers, fueled by seemingly insatiable consumer demand for its licensed figurines depicting pop culture icons.
But according to the lawsuit, the company’s growth story was just a mirage. The plaintiffs alleged that Funko's IPO documents were filled with materially misleading statements and omissions about the company's true financial health.
In particular, the complaint targeted Funko's use of an accounting metric called "adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization). Funko allegedly inflated its adjusted EBITDA by improperly excluding certain expenses, making its profits look better than they were.
The suit also claimed that Funko failed to disclose key risks, including problems with its inventory management and reliance on a concentrated group of customers. By omitting these material facts, the plaintiffs argued, Funko's IPO filings created a misleadingly positive impression of the company.
When the truth began to emerge, Funko's stock price tanked. Shares closed at just $7.07 on the first day of trading, down a staggering 41% from the IPO price. It was one of Wall Street’s worst first-day IPO performances in history.
The dramatic stock drop prompted several Funko investors to take legal action.
In November 2017, plaintiff Robert Lowinger filed a securities class action against Funko in Washington state court, alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act.
Other plaintiffs, including the Ronald and Maxine Linde Foundation, soon joined Lowinger, consolidating MDL claims for all investors who bought Funko stock pursuant to or traceable to the company's IPO.
The Funko class action also named the IPO's underwriters as defendants. Lowinger accused big banks like Goldman Sachs and J.P. Morgan Securities of failing to do proper due diligence on Funko's financials before marketing the IPO to investors.
While Funko denied any wrongdoing, defending against the investor lawsuits proved costly and time-consuming. The company and the plaintiffs spent years locked in contentious litigation, with Funko unsuccessfully getting the case dismissed.
After extensive negotiations, the parties finally reached a $14.75 million settlement agreement in February 2025 to resolve all Securities Act claims.
The proposed deal, which still needs court approval, would release Funko, its executives, and the underwriters from the IPO litigation in exchange for the multimillion-dollar payout.
Under the settlement terms, investors who purchased or acquired Funko common stock from the IPO through August 8, 2018 (the "Settlement Class") will be eligible for a share of the $14.75 million fund, minus attorneys' fees and expenses.
The estimated average recovery per share is $0.57 to $0.91, but the amount each investor receives will depend on the number of claims filed, the dates of their Funko stock purchases, and the total number of shares bought.
The settlement also caps the combined attorneys' fees and litigation expenses at $4,937,500.
The settlement discloses several key dates for investors:
Claimants can visit the official settlement website at www.FunkoSecuritiesSettlement.com for full details and legal documents regarding this Securities class action.
Eligible investors must submit a completed claim form to get a payout, which they can file online or by mail.
Claimants may also sue Funko separately by opting out of the settlement by May 16, 2025, and hiring an attorney to represent their interests.
The IPO lawsuit is not the only legal trouble Funko has faced in recent years.
In 2019, the company was hit with a separate class action alleging that it engaged in channel stuffing and other deceptive practices to inflate its sales and earnings.
Funko was also sued in 2020 by a former executive, claiming wrongful termination after raising concerns about the company's accounting practices and corporate governance.
While Funko has denied wrongdoing in these other cases, the repeated legal challenges suggest a pattern of questionable conduct beyond its IPO Securities litigation.
This lawsuit offers some sobering lessons for investors eyeing hot stock offerings. It's a reminder to always look behind the hype and carefully vet a company's financials before buying in.
Pay especially close attention to any "adjusted" earnings numbers that don't follow the generally accepted accounting rules. While not illegal per se, companies sometimes use these customized metrics to gloss over problems.
The Funko fiasco also highlights the legal risks of going public. Strict liability provisions in the Securities Act mean that investors can sue IPO issuers directly for materially misleading statements in their offering documents, even without any intent to deceive.
As Funko learned the hard way, the costs of securities litigation are usually high.
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