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Drivers have filed a lawsuit against New York ride-hail player Juno for securities fraud

Juno promised drivers equity. When it got acquired by Gett, the equity program was extinguished.

  • Drivers said they joined Juno on the premise that they would receive equity from the company.
  • Gett acquired Juno for $200 million and the equity program was done away with.
  • Drivers are suing for breach of contract, false advertising and securities fraud.
Co-founder and CEO of Juno, Talmon Marco
Noam Galai | Getty Images
Co-founder and CEO of Juno, Talmon Marco

Drivers have filed a federal class action lawsuit against New York-based ride-hail service Juno for breach of contract, false advertising and securities fraud.

The three drivers suing the company allege that the service lured away high-performing drivers from Uber and Lyft on the premise that they would receive equity from the company. When Juno was acquired by competing New York player Gett in April, that equity program was done away with.

As part of the acquisition, drivers who accumulated shares during the few months Juno operated would be cashed out, the company wrote in an email.

As Recode reported, drivers were receiving around $100 on average regardless of how many shares they'd accumulated. One driver who reached out to Recode had roughly 1,600 shares, another more than 3,500 and another had more than 6,000.

The suit reads:

"As part of the announcement, Juno announced that drivers who had received shares in the Company would either: have those shared extinguished with no compensation, or receive an amount per share to be determined based on each driver, with each share not being valued the same, and being valued by Juno with no disclosure of the method of valuation. Plaintiffs were victims of the classic "bait and switch" scheme – promised equity and then paid off at pennies on the dollar when all other shareholders/investors made out handsomely."

Gett acquired the company for $200 million, which included the company's assets and its founding team. As part of the purchase, Juno continued to operate as its own platform, now called Juno by Gett.

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The drivers are alleging that Juno simply used the program as a means to quickly increase their supply of drivers in New York City's competitive ride-hail market. However, the company admitted that it was considering changes to its equity program ahead of the acquisition to ensure compliance with SEC laws.

The suit reads:

It became immediately clear that Juno's promises and statements were false. It is evident that Juno had undertaken a business plan aimed at luring Uber and Lyft's best drivers based on false representations, using those drivers to achieve market penetration, and sell the company for as soon as an attractive offer came around. It was not pro-driver. It was not the socially responsible rideshare company it tried so hard to position itself as. And, most importantly—it did not make drivers equity partners who would share proportionately in the profits of the company if there was ever a buyout. Drivers didn't get what they bargained for. And, consumers were never transacting with a company that operated the socially responsible way or afforded its drivers ownership interests.

Drivers that Recode spoke with when the company was acquired said they were outraged; the main reason they joined the company was for the possibility of ownership.

"I joined Juno because the promise of the RSUs were very enticing," Juno driver Steven Savader told Recode. "Driverless cars will be around someday; it's good to have the future taken care of."

The business model seemed unsustainable, as we've previously written, but drivers were easily enticed by the promise of a company that would prioritize their interests.

Before cars started carrying riders, the company was paying drivers $50 a week to be on the platform. When Juno launched, riders were given a 35 percent discount and drivers were only charged a 10 percent commission. Meanwhile, Juno had secured office space in the Freedom Towers as well as driver offices at LaGuardia.

This strategy worked for a bit. The company, which launched in May, performed a million rides by September. However, drivers say that when the rider promotions went away, so did the riders.

We've reached out to Juno and will update when we hear back.

Here's the full suit:

By Johana Bhuiyan, Re/code.net.

CNBC's parent NBCUniversal is an investor in Recode's parent Vox, and the companies have a content-sharing arrangement.