On October 14, a federal judge approved a $210 million settlement ending shareholder litigation alleging Estée Lauder concealed its dependence on prohibited gray-market sales in China during the pandemic and misled investors about the impact of tighter enforcement on that business. The settlement includes no admission of wrongdoing.
Judge Arun Subramanian denied the company’s motion to dismiss in March 2025. In that opinion, he described shareholders’ allegations that Lauder’s sales and stock price “cratered” after China tightened enforcement against gray-market resellers in 2022.
Gray-market resellers known as daigou, active in China and South Korea, buy luxury goods at duty-free prices and resell them at a markup. In 2019, the Chinese government attempted to curb daigou’s ability to profit from tax exemptions by issuing tighter regulations. When former Lauder CEO Fabrizio Freda was asked on a 2019 earnings call how the new rules affected Lauder’s sales, he claimed Estée Lauder Companies had a long-standing policy limiting the number of products shoppers can buy duty-free. “So we were never benefiting from a lot of the daigou business because of our strict policies to avoid any phenomenon like this and, obviously, to limit any risk of gray market around the world.”
According to shareholders’ allegations, when the Chinese island province of Hainan, a hotbed for daigou activity, increased its duty-free spending limits in 2020, Lauder responded by shipping large volumes of products into the daigou market to offset pandemic-related sales weakness.
The Hainan high didn’t last long. In mid-2021, China Duty Free Group, which the court described as Lauder’s largest customer, said it was “severely cracking down” on daigou. That December, the Chinese government announced further restrictions that took effect on January 1, 2022.
A company does not have to disclose everything. But what it leaves out cannot make what it tells investors misleading.
According to the opinion, the judge said that the plaintiffs successfully identified several misleading omissions, and that “even the allegedly forward-looking statements and opinions at issue are mired in half-truths.”
The judge found that the complaint plausibly alleged Freda and former Chief Financial Officer Tracey Travis acted at least recklessly in misleading investors. The ruling allowed the claims to proceed; it did not establish liability.
The judge also found that shareholders plausibly alleged a causal connection between the concealed regulatory risk and their losses. According to the opinion, that risk materialized in 2022, when tighter enforcement against daigou hurt Lauder’s sales and, consequently, its stock price.
The final judgment dismisses the claims with prejudice, preventing them from being brought again. Lauder and the individual defendants, Freda and Travis, continue to deny wrongdoing. The settlement does not constitute an admission of liability.
