August 16, 2026  ·  Complaint filed August 14, 2026  ·  nysd, No. 1:26-cv-06961

Newman News, By David Brunk

Read the filing

Stockholder Derivative Suit Alleges Estée Lauder Concealed Travel Retail Risks

Complaint Claims Executives Misled Investors About Sustainability of Sales Growth

A stockholder derivative complaint filed August 14, 2026, in Michael J. Muskopf v. William P. Lauder, et al. alleges that The Estée Lauder Companies Inc.’s board and executives concealed risks associated with the company’s travel retail business, which accounted for nearly a third of its revenue by 2023. The complaint seeks to hold 13 current and former officers and directors liable for alleged misrepresentations about the sustainability of travel retail growth under multiple causes of action, including breach of fiduciary duty and violations of federal securities laws. The Derivative Complaint (Muskopf v. Lauder, et al.) asserts claims for breach of fiduciary duty under Delaware law, violations of §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against the Individual Defendants, wrongful refusal of litigation demand, unjust enrichment, and corporate waste.

The plaintiff, Michael J. Muskopf, a Lauder stockholder since 2018, alleges that executives misled investors by attributing sales growth to "brand strength" while failing to disclose vulnerabilities in the travel retail channel. The complaint cites statements that attributed net sales increases to factors such as "continued strength of our brands with the Chinese consumer," which it claims were materially misleading. The complaint alleges that these statements violated §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. On March 31, 2025, Judge Subramanian denied defendants’ motion to dismiss the Securities Action in its entirety, finding statements "mired in half-truths" and "actionable" (Compl. ¶47).

Travel Retail’s Role in Lauder’s Business

Lauder’s travel retail business expanded significantly over the years, growing from 6% of net sales in 2009 to 28% in 2021, and accounting for approximately 33% of its annual revenue during the Relevant Period (2022–2023) (Compl. ¶94). The complaint alleges that this growth was driven in part by sales in duty-free markets, including those in Hainan, South Korea, and Hong Kong. Lauder’s largest customer, China Duty Free Group (CDFG), represented 14% of its net sales in 2021, up from 7% in 2020 and 5% in 2019 (Compl. ¶13, ¶98). In July 2021, CDFG pledged to address resale practices in Hainan, stating, "it is necessary to maintain the healthy ecology of the offshore duty-free industry, severely cracking down on purchasing agents" (Compl. ¶32).

China’s Hainan Duty-Free Policy, introduced in 2011, initially set a duty-free limit of $4,170.20 USD (30,000 RMB) per person. This limit was expanded to $13,900.67 USD (100,000 RMB) on July 1, 2020, further fueling the daigou gray market (Compl. ¶17). The complaint alleges that Lauder capitalized on these expanded limits to drive unsustainable sales growth. Under China’s E-Commerce Law (ECL), which took effect in 2019, daigou resellers were required to register their businesses, and unlicensed operations could face fines of up to $291,620 USD for illegal daigou business or tax evasion (Compl. ¶106). Confidential witnesses, including former employees, testified that Lauder executives were aware of the company’s reliance on daigou resellers. One witness described Lauder as "much looser" than competitors in supplying retailers, which contributed to market share gains that were later described as unsustainable (Compl. ¶23). Another alleged that Lauder "bulk shipped" overstocks to regions with active resale markets, such as Korea, and used internal systems to track product movements using "pincodes" (Compl. ¶25, ¶30). A third confirmed that Lauder’s executive leadership monitored sales data weekly and monthly, with "clear visibility" into daigou sales (Compl. ¶122). The complaint quotes a confidential witness, FE-2, who stated, "Lauder had 'clear visibility' in its sales because the Company had very detailed sell-through and sales reporting information" (Compl. ¶122).

On February 3, 2022, Lauder reported second-quarter 2022 results, attributing travel retail growth to "continued strength of our brands with the Chinese consumer, the easing of travel restrictions, and the continued strength of our hero product franchises." The complaint alleges that this statement was materially false and misleading, as the growth was driven by unsustainable daigou sales rather than legitimate consumer demand. The complaint quotes the 2Q22 Financial Results as stating, "Net sales increased in our travel retail business... reflecting continued strength of our brands with the Chinese consumer," while omitting the role of daigou (Compl. ¶160). The complaint further alleges that the primary driver of travel retail growth was "not the 'continued strength of our brands with the Chinese consumer' but, in fact, unsustainable and undisclosed daigou sales" (Compl. ¶162).

Since 2019, Lauder has grouped all global travel retail sales under the Europe, the Middle East & Africa (EMEA) region in its financial reporting, which the complaint alleges obscured the regional drivers of sales. The complaint notes that Lauder’s 2022 and 2023 Annual 10-Ks stated that "the net sales from the Company’s travel retail business are included in Europe, the Middle East & Africa region," a practice that the complaint asserts made it difficult for investors to discern the true sources of travel retail growth (Compl. ¶13). This reporting practice, the complaint alleges, concealed the extent of Lauder’s reliance on the daigou gray market, particularly in China, which was the most important end-consumer location for Lauder’s travel retail business (Compl. ¶97). The complaint quotes Lauder’s 10-K filing verbatim: "The net sales from the Company’s travel retail business are included in Europe, the Middle East & Africa region..." (Compl. ¶13).

Executive Knowledge and Misleading Statements

The complaint alleges that Lauder’s executives, including former CEO Fabrizio Freda and former Global President of Travel Retail Israel Assa, were aware of challenges in the travel retail channel but did not fully disclose them to investors. One former employee, identified as FE-3, stated that Mr. Assa "overseen, approved, and activated" product movement into daigou channels (Compl. ¶29, ¶127). Another witness, FE-1, described Lauder’s market share gains during the pandemic as "very jarring" and driven by daigou, adding that the company is now "seeing the 'repercussions' from their reliance on daigou during this period" (Compl. ¶24, ¶117). FE-2 noted that travel retail growth in China during lockdowns was "counterintuitive" and expressed skepticism about the sustainability of the sales trends, stating, "it did not make sense and that the growth was 'counterintuitive'" (Compl. ¶118).

In February 2019, Freda stated during an earnings call that Lauder had policies to avoid gray market sales and was "never benefiting from a lot of the daigou business." The complaint alleges that this statement was inconsistent with the company’s practices, citing testimony from FE-1 that Lauder’s market share gains during the pandemic were driven by resale activity and that the company later faced challenges as a result (Compl. ¶19, ¶117). The complaint quotes Freda’s 2019 statement verbatim: "we are never benefiting from a lot of the daigou business" (Compl. ¶109). On February 5, 2021, Freda touted Hainan as a "star driver" of Lauder’s travel retail growth, stating, "[w]ithin China domestic, Hainan is the star. And it’s driven by the new traffic and by the increased conversion" (Compl. ¶101). The complaint quotes Freda’s 2021 statement in full: "[w]ithin China domestic, Hainan is the star. And it’s driven by the new traffic and by the increased conversion..." (Compl. ¶101).

After regulatory changes in China took effect on January 1, 2022, Lauder executives continued to discuss travel retail growth in optimistic terms. On May 3, 2022, Freda expressed confidence in Hainan’s future during an earnings call, stating, "the confidence into Hainan future is unchanged actually increased given the incredible development of the place" (Compl. ¶138). On June 2, 2022, Freda spoke at the Bernstein Strategic Decisions Conference, attributing travel retail growth to Hainan’s role as a substitute for airport travel. The complaint alleges that this statement was misleading, as Lauder’s growth was driven by daigou resellers rather than legitimate travelers (Compl. ¶139). On August 18, 2022, Freda reiterated this sentiment during Lauder’s fourth-quarter 2022 earnings call, stating that Hainan’s power "remain[s] intact" (Compl. ¶38). The complaint quotes Freda’s August 2022 statement: "the power of Hainan in the future remain[s] intact" (Compl. ¶38).

Lauder’s high-end products, including its La Mer and Estée Lauder brands, were particularly exposed to daigou reselling. The complaint notes that a 2-ounce jar of La Mer Crème de la Mer retailed for $380, while a 16.5-ounce jar retailed for $2,675. A 3.9-ounce bottle of Estée Lauder Advanced Night Repair Serum retailed for $245 (Compl. ¶90). These premium price points made the products attractive for daigou resellers, who could purchase them duty-free and resell them at a profit in mainland China. The complaint alleges that Lauder purposefully pumped product into the daigou gray market to cover slow sales growth, particularly in 2020, when the company became dependent on daigou revenue after China expanded Hainan’s duty-free limits (Compl. ¶111, ¶112). FE-1 noted a shift from South Korea to China and Hainan in travel retail during 2020 due to new regulations, stating that Lauder "overflooded" the market with product for daigou resale (Compl. ¶114, ¶116).

FE-2 described the pressure to deliver sales results at Lauder as "brutal" and noted that there was "huge pressure" to meet unreasonable demands, including moving product launches and changing promotions to drive sales (Compl. ¶27, ¶178). FE-2 also suspected that employees who survived despite poor performance were involved in gray market reselling to meet sales targets (Compl. ¶182). FE-3 alleged that Lauder "bulk shipped" overstocks to regions like Korea with known daigou markets to cover losses and held back "popular" products for daigou channels during fiscal "crunch time," stating that the company would "switch on the daigou market if needed" (Compl. ¶120, ¶183). The complaint quotes FE-3 verbatim: "switch on the daigou market if needed" (Compl. ¶120). FE-1 described Lauder pushing products with upcoming expiration dates "out of warehouses and into the channels" as quickly as possible (Compl. ¶121, ¶184). The complaint quotes FE-1’s statement: "out of warehouses and into the channels" (Compl. ¶121).

FE-2 confirmed that Lauder’s executive leadership knew about daigou reselling practices and monitored sales spikes attributed to daigou, stating that sales spikes in key stores or items were out of sync with historic norms and correlated with daigou or "suitcase trade" and promotions in China (Compl. ¶123, ¶186). FE-3 alleged that a dedicated team led by Mr. Assa analyzed the daigou market, including a team in Singapore and an employee "heading up Korea," and that Mr. Assa "overseen," "approved," and "activated" product movement into daigou channels (Compl. ¶127, ¶187, ¶188). The complaint quotes FE-3’s testimony: "overseen, approved, and activated" (Compl. ¶127).

Stock Price Declines and Market Reactions

Lauder’s stock price declined significantly as challenges in the travel retail channel became apparent. On November 2, 2022, the company issued a press release attributing its reduced 2023 outlook to "tighter inventory management in Asia travel retail, given reduced traffic as a result of COVID-19 restrictions." The complaint alleges that this statement was misleading, as the primary driver of the sales decline was the crackdown on daigou reselling. The complaint quotes the press release verbatim: "primarily to reflect tighter inventory management in Asia travel retail, given reduced traffic as a result of COVID-19 restrictions" (Compl. ¶142). The company’s stock price dropped by $16.80 per share, or 8%, on that day, closing at $189.96 (Compl. ¶16).

Further declines occurred on February 2, 2023, when Lauder lowered its fiscal 2023 outlook and its stock price dropped by $12.39 per share, or 4.5%. On May 3, 2023, the company again lowered its guidance, and its stock price dropped by $42.52 per share, or 17%. On August 18, 2023, Lauder admitted that enforcement actions against daigou had caused "steeply negative" sales trends, and its stock price dropped by 7% over two days. By November 1, 2023, Lauder’s stock had fallen to $104.51, a decline of approximately 50% from its November 1, 2022, price of $206.76. On that day, the company disclosed that regulatory actions had caused "steeply negative" sales trends, and its stock price dropped by an additional $24.36 per share, or 19% (Compl. ¶7). By the time the derivative complaint was filed in August 2026, Lauder’s stock price had declined to approximately $74 per share (Compl. ¶7).

In August 2023, Freda acknowledged that enforcement actions had impacted sales but suggested that the challenges were temporary, stating that the company anticipated "sequential acceleration... as these pressures begin to abate" (Compl. ¶144). The complaint quotes Freda’s statement verbatim: "anticipate[d] sequential acceleration . . . as these pressures begin to abate" (Compl. ¶144). Analysts expressed concerns about the company’s reliance on travel retail, with Barclays noting that Lauder’s "brand equities are already impaired" due to its exposure to the daigou gray market (Compl. ¶157). Deutsche Bank and Jefferies also expressed concerns about Lauder’s inventory levels and sales trends, with Deutsche Bank noting that the company’s inventory issues were more severe than those of competitors like L’Oréal (Compl. ¶143).

Board Response and Parallel Securities Litigation

The complaint also alleges that Lauder’s board failed to adequately respond to a litigation demand sent by Muskopf on January 23, 2025. The board did not investigate the allegations, which the complaint claims amounted to a breach of fiduciary duty. This inaction occurred despite a parallel securities fraud class action, In re The Estée Lauder Companies Inc. Securities Litigation, filed on March 22, 2024. On March 31, 2025, U.S. District Judge Arun Subramanian denied the defendants’ motion to dismiss the Securities Action in its entirety, finding that the defendants’ statements were "mired in half-truths" and "actionable" (Compl. ¶47, ¶48). The Securities Action resulted in a proposed $210 million settlement, which remains pending as of the filing of the derivative complaint (Compl. ¶55, ¶56). The complaint quotes Judge Subramanian’s ruling verbatim: "mired in half-truths" and "actionable" (Compl. ¶48).

The derivative complaint alleges that the Board’s failure to investigate the Litigation Demand for over a year and a half, despite the heightened pleading standards met in the Securities Action, amounts to a wrongful refusal and breach of fiduciary duties. The complaint quotes the court’s ruling in the Securities Action, stating that the allegations "supported a complete denial of defendants’ motion to dismiss... leading to a proposed $210 million settlement" (Compl. ¶56). The complaint further alleges that the Board’s inaction occurred despite the fact that the Securities Action had already established that Lauder’s statements were "mired in half-truths" and "actionable" (Compl. ¶48).

Lauder’s board, which included William P. Lauder, Charlene Barshefsky, Stephane de La Faverie, Paul J. Fribourg, Jennifer Hyman, Gary M. Lauder, Jane Lauder, Arturo Nunez, Barry S. Sternlicht, Jennifer Tejada, and Richard F. Zannino, is accused of wrongfully refusing to investigate the allegations in the Litigation Demand. The complaint alleges that this refusal constituted a breach of the Board’s fiduciary duties, as the Board failed to protect corporate assets and pursue claims against the Individual Defendants (Compl. ¶56). The complaint quotes the court’s ruling, stating that the defendants’ statements were "mired in half-truths" and "actionable" (Compl. ¶48). The complaint further alleges that the Board’s failure to investigate the Litigation Demand for over a year and a half, despite the proposed $210 million settlement in the Securities Action, demonstrates a breach of the duty of loyalty and good faith (Compl. ¶55, ¶56).

Claims and Sought Relief

The derivative complaint asserts five counts against the Individual Defendants:

1. Count I: Breach of fiduciary duty for failing to disclose risks associated with travel retail and misrepresenting its sustainability. The complaint alleges that the Individual Defendants breached their fiduciary obligations of good faith, loyalty, due care, and diligence by concealing the company’s reliance on the daigou gray market and making materially misleading statements about the sustainability of travel retail growth. The complaint states that the Individual Defendants "owed fiduciary duties of good faith, loyalty, due care, and diligence to Lauder and its stockholders" (Compl. ¶81). The complaint quotes the fiduciary obligations verbatim: "the fiduciary obligations of good faith" (Compl. ¶81).
2. Count II: Violations of federal securities laws for materially false and misleading statements under §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint alleges that the Individual Defendants made materially false statements in Lauder’s SEC filings, earnings calls, and press releases, including the 2Q22 Financial Results, 2Q22 Earnings Press Release, and 3Q22 Earnings Call. The complaint cites specific statements, such as the 2Q22 Financial Results, which stated, "Net sales increased in our travel retail business... reflecting continued strength of our brands with the Chinese consumer," while omitting the role of daigou (Compl. ¶160, ¶161). The complaint alleges that these statements were materially false and misleading, as the travel retail growth was driven by unsustainable daigou sales rather than legitimate consumer demand. The complaint further alleges that the Individual Defendants concealed the company’s reliance on daigou to achieve high-volume gray market sales (Compl. ¶161).
3. Count III: Breach of fiduciary duty for wrongfully refusing the litigation demand. The complaint alleges that the Board’s failure to investigate the Litigation Demand for over a year and a half constitutes a wrongful refusal and breach of fiduciary duties. The complaint states that the Board’s inaction occurred despite the fact that the Securities Action had already established that Lauder’s statements were materially misleading (Compl. ¶56). The complaint alleges that the Board’s failure to investigate the Litigation Demand, despite the proposed $210 million settlement in the Securities Action, demonstrates a breach of the duty of loyalty and good faith (Compl. ¶55, ¶56). The complaint quotes the allegations supporting the Securities Action: "allegations which supported a complete denial of defendants’ motion to dismiss in the Securities Action, leading to a proposed $210 million settlement" (Compl. ¶56).
4. Count IV: Unjust enrichment for retaining compensation derived from the alleged misconduct. The complaint seeks disgorgement of compensation and benefits received by the Individual Defendants during the period of the alleged misconduct, alleging that they were unjustly enriched by their actions (Compl. ¶5).
5. Count V: Corporate waste for failing to pursue claims against the Individual Defendants. The complaint alleges that the Board’s failure to pursue claims against the Individual Defendants constitutes corporate waste, as the Board neglected its duty to protect corporate assets (Compl. ¶5).

The complaint seeks damages, including the recovery of compensation paid to the Individual Defendants, disgorgement of profits, and equitable relief to reform Lauder’s corporate governance. Specifically, the plaintiff requests that the court order Lauder to implement governance reforms, such as enhanced disclosure practices and independent oversight of the travel retail business. The complaint also seeks to hold the Individual Defendants liable for the losses suffered by the company as a result of their alleged misconduct, including the decline in stock price and reputational harm.

The allegations in the complaint are unproven, and no defendant has yet responded to the claims. Lauder, a Delaware corporation with principal executive offices in New York, NY, trades on the New York Stock Exchange under the ticker symbol EL (Compl. ¶64). As of January 2024, Lauder held a 13.6% share of the global beauty market, making it the second-largest company in the industry (Compl. ¶86). The company’s prestige reputation is critical to its brand, and it sells its products through selective distribution channels to reinforce its luxury image (Compl. ¶91). However, the complaint alleges that Lauder’s reliance on the daigou gray market has damaged its brand equity, citing LVMH’s public condemnation of daigou as "basement" exchanges that are "dreadful" for luxury companies. LVMH stated, "there is nothing worse" for prestige brand equity (Compl. ¶18). The complaint quotes LVMH’s statement verbatim: "there is nothing worse" (Compl. ¶18).

In February 2024, Lauder announced layoffs expected to result in a 3–5% net reduction in its global workforce, further signaling challenges in the company’s operations (Compl. ¶158). The complaint alleges that these challenges are directly linked to the company’s overreliance on the daigou gray market and the subsequent crackdown by Chinese regulators. The complaint notes that Lauder’s net sales in mainland China and travel retail accounted for 36% of consolidated net sales in fiscal year 2021, 34% in fiscal year 2022, and 28% in fiscal year 2023, reflecting the declining contribution of this channel to the company’s overall revenue (Compl. ¶94).

The allegations described here are taken from the filing and remain unproven; no responsive pleading is reflected in the source document.

David Brunk is a civil litigation attorney. He can be reached at david@newmanbrunk.com.