Citron Research said Etsy Inc had become one of the largest platforms in the world for counterfeit goods, sending shares in the arts and craft marketplace platform down as much as 8.4% on Thursday.
The percentage of counterfeit goods on Etsy has become too large and the company could no longer defend it as a small percentage of revenue, said Citron, which cemented its reputation in the research industry by calling out poor performers and betting against their stocks.
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“Counterfeit items, fraud and other illicit practices are explicitly prohibited on Etsy,” an Etsy spokesperson said in an email, adding that the company had expanded the team dedicated to fighting counterfeits and violations of its policy for handmade goods.
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Citron alleged that Etsy had allowed sellers on the platform to buy “ad words” of brands and then labeled many of them as trusted websites.
Founded by Andrew Left, Citron said Etsy risked running afoul of the Federal Trade Commission, the Department of Justice, the U.S. Securities and Exchange Commission and the Customs and Border Protection.
Some analysts expect Etsy to see a grim holiday-quarter as lower income consumers rein in spending on home goods, clothes, jewelry and accessories, which combined makes about 60% of the company’s gross merchandise value.
In November, the e-commerce firm posted a loss for the third quarter, its first in eight quarters, hurt by higher shipping costs and a strong dollar.
Its stock was marginally down after hours. (Reporting by Ananya Mariam Rajesh in Bengaluru; Additional reporting by Granth Vanaik; Editing by Krishna Chandra Eluri and Subhranshu Sahu)