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Class Actions Filed against SmileDirectClub for their IPO

Class Action Lawsuits have been launched in various U.S. states on behalf of investors (New York, Michigan, Tennessee) against SmileDirectClub in respect of their Initial Public Offering.

At the time of writing this blog, the shares were trading around $12.00.  When the company IPO’d in September, the shares were priced at $23, representing a significant decline for shareholders who bought early.

The Tennessee lawsuit alleges that SmileDirectClub engaged in false advertising, fraud, negligence, and unfair and deceptive trade practices.

  • Specifically, that lawsuit claims that SmileDirectClub’s assertion that “a treating doctor monitors a member’s progress” is untrue since “SmileDirect[Club] members do not even know the identity of the dentists who are involved in their case (to the extent that they are involved). Smile Direct refuses to disclose the names, addresses, and any identifying information with respect to such dentists, and therefore no patient / doctor relationship is ever actually established.”
  • In addition, that lawsuit alleges that, despite SmileDirectClub stating otherwise, “communications between SmileDirect[Club] and customers are handled by unlicensed administrative personnel” rather than licensed doctors.
  • Finally, this lawsuit alleges that that, in its advertising and marketing materials, SmileDirectClub claims that its product can help “correct bite issues.”  But in its lawsuit, the plaintiffs allege that in actuality, the aligners are more likely to worsen bite issues than correct them, and the aligners manufactured and sold by SmileDirectClub can only address alignment and “will not correct any existing bite issue.”

The New York lawsuit reiterates the allegations of the Tennessee lawsuit.

And the Michigan lawsuit alleges that certain statements that highlighted the company:

  • failed to disclose to investors that admin personnel provide treatment to the company’s customers and monitors their progress;
  • failed to disclose that the company’s practices did not qualify as teledentistry under applicable standards;
  • failed to disclose that the company was subject to regulatory scrutiny for the unlicensed practice of dentistry;
  • over-stated the efficacy of the company’s treatment; and
  • concealed these deceptive marketing practices prior to the IPO.

None of the allegations have not been proven true.

For it’s part, SmileDirectClub has issued a press release, blaming established dental organizations that are threatened by its disruptive business model.  For example, in respect of the Tennessee lawsuit, it responded as follows: “[T]his class action lawsuit is nothing more than an apparent effort to now abuse the judicial system to promote the same falsehoods previously spread by organized dentistry, and to intentionally mislead media, shareholders and potential customers away from the safe, convenient and affordable benefits of SmileDirectClub’s disruptive business model”.

SmileDirectClub is no stranger to lawsuits; it recently started its first lawsuit in Canada, alleging the Manitoba Dental Association was trying to interfere illegally with its business model when it sent out emails to dentists, cautioning dentists to make sure they provide patients with in-person exams before taking impressions of their teeth for retainers (and must be done with a dentist on site).

It’s going to be interesting to see these lawsuits play out… stay tuned…