A class action lawsuit was filed against Zeta Global Holdings Corp. (ZETA) by Levi & Korsinsky on November 22, 2024. The plaintiffs (shareholders) alleged that they bought ZETA stock at artificially inflated prices between February 27, 2024 and November 13, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Zeta Global Holdings stock during that period can click here to learn about joining the lawsuit.
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Zeta Global is a marketing technology company offering solutions that enable companies to grow, acquire, and retain customers through its proprietary AI (artificial intelligence)-powered cloud and data analytics solutions.
The company’s claims about its robust data bank and the significant revenue growth arising from contracts are at the heart of the current complaint.
Zeta Global’s Misleading Claims
According to the lawsuit, Zeta Global and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the company’s financial results and data collection methods from SEC filings and related material.
For instance, in the annual report for Fiscal 2023, Zeta mentioned that it earned revenue from platform subscription fees, volume-based utilization fees, and professional services fees. Furthermore, the company noted that it had certain purchase and sale of services contracts with the same third party or vendors. Zeta added that it undertakes rigorous measures to ascertain the independent nature of both transactions and accordingly reports the revenues and expenses from these contracts at the fair value of services. The company reiterated its stance on third-party purchase and sale contracts in the earnings report filed on August 1, 2024.
However, subsequent events (discussed below) reveal that Zeta Global failed to accurately ascertain the purchase and sale contracts with the same vendors. This resulted in Zeta reporting solid revenue growth figures during the time in question.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the true nature and extent of the same vendor contracts. The company allegedly knowingly inflated its financials to draw a healthy picture and lure investors into buying the stock.
The information became clear on November 13, 2024, when Culper Research released a report accusing Zeta of knowingly inflating their numbers. The report added that Zeta and its subsidiaries created bogus job boards on the internet to collect personal data of individuals seeking jobs. The report also noted that most of the company’s valuable data came from fake job boards, predatory websites, and dubbed consent farms.
Moreover, Culper alleged that Zeta has created two-way contracts with third-party consent farms through which the company undertakes both buyer and seller services contracts. Thus, resulting in inflated revenue growth and possible “round-tripping” of revenue. Zeta shares plunged over 37% on the news, causing massive damages to shareholder returns.
To conclude, Zeta allegedly misled investors by knowingly inflating its financials from the data set model and undertaking malicious practices to trick customers into sharing their personal data. In the past six months, ZETA stock has lost 9.5%.
