Virtual care company Teladoc may be facing another class action lawsuit filed on behalf of Teladoc investors who claim the company made false or misleading statements and failed to disclose that it continued to increase marketing spending, particularly regarding its mental health offering BetterHelp.
The lawsuit, Stary v. Teladoc Health, Inc. et al., was filed on May 17 in the U.S. District Court for the Southern District of New Year and names defendants as Teladoc Health, Inc.; Jason Gorevic, who stepped down as the company’s CEO in April after 15 years; and Mala Murthy, who held the position of chief financial officer before stepping in as acting CEO upon Gorevic’s departure.
Gorevic stepped down in April after the company’s stock price plummeted 22% following missed fourth-quarter earnings estimates and projected decreased revenue in 2024.
Stary v. Teladoc alleges that the company publicly acknowledged that increasing marketing spend on BetterHelp would be inefficient due to market saturation while allegedly expanding its marketing spend on the online therapy platform throughout 2023.
The suit claims that such increased spending deteriorated the company’s revenue, leading to a substantial fall in its stock price.
The lawsuit also alleges the company made public statements that it had a “long runway” for BetterHelp’s membership growth, all while membership remained unchanged or decreased throughout last year.
The class action additionally alleges that upon releasing its fourth quarter 2023 earnings, the company demonstrated substantially increased advertising costs driven by digital and media advertising costs related to BetterHelp.
The suit further claims the company’s “revenue fell $1 million compared to the year prior and fell about $10 million from the third to the fourth quarter of 2023; that BetterHelp lost members for two consecutive quarters, despite that increased advertising spend; and that Teladoc’s revenue was flat compared to the prior year and down 3% sequentially – well below expectation.”
According to a press release from the law firm representing the plaintiff, the class action suit seeks to represent purchasers of Teladoc Health, Inc. stock (NYSE: TDOC) between November 2, 2022 and February 20, 2024.
MobiHealthNews reached out to Teladoc for comment, and a company spokesperson said, “While we are aware of the filing, we’ve not been served. We won’t comment on pending litigation other than to say that the company will vigorously defend itself.”
THE LARGER TREND
In March of last year, the Federal Trade Commission (FTC) fined BetterHelp $7.8 million for allegedly sharing consumer data with third parties like Facebook and Snapchat for advertising purposes and banned the company from disclosing health data for advertising purposes.
The FTC alleged BetterHelp didn’t maintain policies to protect user data, obtain consumers’ consent before disclosing it or place any limits on how third parties could use the information. It also noted the company had misled users in 2020 by denying news reports that the company had shared data with third parties.
Four months later, a federal judge dismissed a securities class-action lawsuit filed against Teladoc Health pertaining to its $18.5 billion merger with chronic care company Livongo.
That suit, originally filed by shareholder Jeremy Schneider in 2022 on behalf of parties that purchased Teladoc shares between Feb. 2021 and July 2022, alleged the virtual care company’s representatives misled investors by downplaying the challenges it faced integrating Livongo after its acquisition.
The suit also claimed the company’s misleading statements “artificially inflated the price of Teladoc’s stock” during those 17 months.
The judge who dismissed the case cited Teladoc’s S-4 registration statement filed with the U.S. Securities and Exchange Commission in connection with the Livongo merger as part of the reason for the dismissal.
In the SEC filing, the virtual care company reported, “Combining the business of Teladoc and Livongo may be more difficult, costly or time-consuming than expected,” and “the failure to integrate successfully the businesses and operations of Teladoc and Livongo in the expected time frame may adversely affect the combined company’s future result.”