Retired Texas firefighters sue Uber claiming fraud

A tiny Texas pension fund goes up against a struggling $60 billion behemoth.

Uber's San Francisco headquarters. (CREDIT: AP Photo/Eric Risberg)
Uber's San Francisco headquarters. (CREDIT: AP Photo/Eric Risberg)

Uber defrauded investors by failing to disclose the legal jeopardy their defiance of local transit regulations engenders, a new lawsuit from a small pension fund for retired firefighters in Irving, Texas claims.

The suit’s reasoning is a catch-all for a year of scandalous revelations about Uber’s practices. It cites federal criminal inquiries launched this year into the company’s “Greyball” software, used to deceive public officials about the true number and identity of Uber drivers on the street at any given time, and its “Hell” software, used to identify people who also drive for the rival cab-hailing service Lyft. It also references the harassment and discrimination allegations from Uber staff that prompted founder and former CEO Travis Kalanick to step away from the company.

Uber also “knowingly leased recalled and unsafe vehicles to its drivers in Singapore and continued to do so even after one of its vehicles caught fire,” the suit says, while failing to properly vet drivers in other markets and putting its reputation at risk with “attempts by high-level Uber executives to discredit a sexual assault victim.”

“The company’s vaunted corporate culture was revealed in truth to consist of a toxic hotbed of misogyny, sexual discrimination, and disregard for the law that threatened the company’s reputation, business and prospects,” attorneys for the pension fund wrote in the complaint.

Labor issues with drivers are strikingly absent from the docket of charges that Uber mislead investors. The company’s legal troubles in 2017 — which also include a Foreign Corrupt Practices Act investigation, the loss of a license to do business in London, and a gender discrimination lawsuit from a driver in the U.K. — have centered primarily on specific practices and policies inside the company’s salaried workforce. That’s a shift from earlier headwinds Uber faced over its core business practice of treating drivers as contractors rather than employees, despite significant evidence that Uber’s handling of its workforce fits the definition of traditional W-2 employment.

Uber opted to settle those earlier class-action suits with drivers, leaving core questions of labor law unresolved. Though it paid tens of millions of dollars to settle those cases, they could have easily turned into a headshot for the firm if they’d gone all the way to trial.

Where Uber was previously under pressure from those who furnish its labor, the new suit suggests the company is now on the defensive with those who provide it with capital.

The Irving pension fund only put in $2 million, a rounding error compared to the early investment of Benchmark Capital, which is also suing Uber over alleged misrepresentations. Benchmark’s suit cites much of the same evidence as the new pension fund case, but the two have very different aims; Benchmark hopes to regain its former influence on Uber’s board, while the pension fund seeks to wage a class-action war on behalf of other smaller investors purportedly harmed by buying in at a share price that would have been lower if the company had disclosed its legal risks.

As the venue for legal quandaries shifts from Uber’s interactions with drivers to its pattern of claims to solicit investors, the courts will be asked to consider the company’s core identity and purpose. Uber “portrayed itself as a force for good that was taking on entrenched interests” and claims “the cities in which Uber operated benefited because it would ‘help strengthen local economies, improve access to transportation, and make streets safer,'” the suit reads.

Combined with the company’s runaway valuation, this for-profit socioeconomic justice marketing helped Uber jump from the venture capital class of investors into the broader, more traditional world of business funding. It is far from the only tech firm to engage in that practice in the past few years, as start-ups expanded their funding gaze across the board.

Irving’s firefighter pension fund intends to solicit other traditional investors to join its suit, teeing up a capitalist version of a David and Goliath story. The fund dumped $2 million of its roughly $185 million holdings into Uber in January 2016, through a firm managed by Morgan Stanley. Similar relatively small cash infusions from far-flung traditional investors added $10 billion to Uber’s on-paper value, according to the new complaint.

As depicted in earlier years, Silicon Valley’s marketing pitch to Main Street investors was partly a noble invitation for America’s little guys to get in on the action. But with the shine starting to fade from the industry’s titans, the tech world’s solicitations for mom-n-pop investors threaten to take on a seedier character in suits like this one. In earlier generations, the financial industry helped steer people’s future economic security into dangerous housing securities and junk bonds. It remains to be seen if the tech boom will prove to be a sustainable wealth generator or a damaging bubble.

But either way, the decline and collapse of traditional guaranteed-benefit retirement systems ensures that working people will continue to rely on money managers chasing market returns — and thus remain fundamentally vulnerable to get-rich-quick pitches from whichever corner of the economy manages to turn Wall Street’s head.