EvilCorporations.com — Corporate Accountability Reporting
Securities Fraud · Class Action · Consumer Products
Funko Misled Investors While Dead Inventory Buried Its Only Big Warehouse
While shareholders were told the inventory was “generally high quality,” hundreds of containers full of unsellable collectibles were baking in an Arizona parking lot and the company’s technology had already collapsed.
🔴 Critical Severity
TL;DR
Funko Inc. executives told shareholders their inventory was healthy and their new warehouse was operational, while internally the Buckeye, Arizona distribution center had descended into chaos: product piled on the floor untracked, up to 120 lost-inventory investigations per day, and between 300 and 500 shipping containers sitting in a parking lot baking in the heat. The company had already lived through an almost identical collapse in 2019, so the top executives knew exactly what the warning signs meant. Instead of disclosing the crisis, they filed SEC documents framing catastrophic failures as hypothetical future risks. When the truth broke in November 2022, Funko’s stock fell 59% in a single day and tens of millions of dollars in inventory had to be written off. The Ninth Circuit Court of Appeals ruled in February 2026 that shareholders have viable fraud claims and sent the case back to trial.
Executives who knowingly misled investors while workers scrambled through a collapsing warehouse must be held accountable. Read the full breakdown below.
59%
Single-day stock crash after truth broke
$30–36M
Inventory written off in 2022
$32.5M
Oracle ERP project written down
500
Shipping containers stranded in parking lot
120/day
Daily investigations for lost inventory
50 days
Order fulfillment backlog by August 2022
88.7%
Year-over-year inventory bloat
$16.8M
Nearly identical 2019 write-down (prior fraud case)
⚠️ The Allegations: A Full Breakdown
Core Allegations
What Funko did to shareholders · 6 points
▼
| 01 | Funko executives filed SEC documents throughout 2022 framing inventory collapse and technology failure as hypothetical future risks, while both crises were already actively destroying the company’s operations. | high |
| 02 | CFO Jennifer Jung told investors in August and November 2022 that inventory was “generally high quality” and “in a really good healthy position,” while internally, warehouse staff estimated that 30% of inventory sent to Buckeye DC was already dead and unsellable. | high |
| 03 | Between 300 and 500 rented shipping containers sat in the Buckeye DC parking lot for months, their contents neither scanned nor recorded, which legally meant the product did not exist in the system and could not be shipped to customers. | high |
| 04 | CEO Andrew Perlmutter and CFO Jung signed and certified each SEC filing containing the misleading risk disclosures, meaning both were personally attesting to the accuracy of language that implied known risks had not yet materialized. | high |
| 05 | Funko had experienced an almost identical inventory crisis in 2019, resulting in a $16.8 million write-down and a 40% single-day stock drop. Executives named that incident in their 2022 risk disclosures as a past example while repeating the same behavior. | high |
| 06 | The Ninth Circuit found that investors have a viable claim that these disclosures “create[d] an impression of a state of affairs that differ[ed] in a material way from the one that actually exist[ed],” reversing the district court’s dismissal. | high |
Regulatory Failures
How oversight broke down · 4 points
▼
| 01 | The SEC’s safe harbor provision for forward-looking statements was used as cover: by framing present-tense operational disasters as hypothetical future warnings, Funko attempted to legally immunize executives from accountability for statements they knew were misleading. | high |
| 02 | The district court initially dismissed the entire lawsuit, allowing Funko to avoid a trial entirely; shareholders had to appeal to the Ninth Circuit to restore even the right to have their claims heard. | high |
| 03 | SEC-required Form 10-K and 10-Q filings, certified by top executives, repeatedly described a “could happen” inventory risk while the company was already 50 days behind on fulfillment and renting additional warehouses to store the overflow. | med |
| 04 | No regulatory action was taken against Funko during the class period despite the escalating concealment; the accountability mechanism that finally functioned was private shareholder litigation, not SEC enforcement. | med |
Profit Over People
Revenue prioritized over disclosure · 4 points
▼
| 01 | Funko executives chose to delay the Oracle ERP upgrade, which they framed to investors as a careful strategic decision, while internally the delay was driven by the project being in a state of collapse: no management vision, no timeline, and staff warnings that it was “not in a good place.” | high |
| 02 | Funko accumulated late fees on hundreds of rented shipping containers sitting in a parking lot while continuing to project confidence to the market; the company was paying costs for a crisis it was actively denying existed. | med |
| 03 | The company hired a third-party logistics firm to store dead inventory offsite in September 2022, then rented a second overflow warehouse when that one filled up, all while publicly claiming inventory quality was strong. | med |
| 04 | Analysts who reported on Funko took CFO Jung’s misleading statements at face value, writing that costs “should be complete by end of 2Q22.” Institutional credibility was manufactured through investor calls and certified SEC filings, not operational reality. | high |
Worker Exploitation
Conditions inside Buckeye DC · 5 points
▼
| 01 | Warehouse workers at Buckeye DC were asked during job interviews to begin working immediately to help unload incoming trucks, before they had been formally hired, trained, or given operating procedures. | high |
| 02 | Workers were told to place inventory on any open rack without scanning or tracking, which they were warned would become a serious operational problem; those warnings were reported to management and ignored. | high |
| 03 | The conveyor belt system installed in Buckeye DC was too tall for most employees to use; critical equipment was still being acquired months after the warehouse opened, leaving workers without the tools needed to do their jobs. | med |
| 04 | Workers were forced to track inventory using Excel spreadsheets and handwritten notes because the company’s ERP software had already failed; the resulting chaos meant staff spent hours each shift searching for misplaced product. | med |
| 05 | Operations staff were conducting up to 120 investigations per day to find lost inventory by June 2022; an Operations Lead formally documented the dysfunction in a written letter to management, which produced no remediation. | med |
Economic Fallout
Financial harm to shareholders and retail partners · 5 points
▼
| 01 | Funko’s share price dropped 59% in a single day on November 4, 2022, when the reality of the inventory crisis became public, destroying the retirement savings and investment portfolios of pension funds and ordinary shareholders who had relied on executives’ assurances. | high |
| 02 | The company announced it was abandoning the Oracle project entirely in March 2023, writing down $32.5 million in associated costs after years of promises to investors that it would be operational imminently. | high |
| 03 | Between $30 and $36 million in inventory was written off in early 2023; the crisis mirrored the 2019 write-down of $16.8 million almost precisely, suggesting no genuine corrective action was ever taken. | high |
| 04 | Retail customers began canceling orders in autumn 2022 when Funko could no longer fulfill complete orders; in one documented case, a retailer needed Valentine’s Day product by October and was told it would not ship until May of the following year. | med |
| 05 | The Construction Laborers Pension Trust of Greater St. Louis, representing workers’ retirement funds, is one of the lead plaintiffs; the fraud harmed institutional investors managing the savings of working-class people, not just wealthy speculators. | high |
Corporate Accountability Failures
Weak consequences, no exec accountability yet · 4 points
▼
| 01 | CEO Perlmutter was demoted back to president in December 2022, and CFO Jung resigned, but neither executive faced criminal charges or immediate civil penalties; demotion and resignation are not accountability. | high |
| 02 | The district court’s initial dismissal of the entire lawsuit gave Funko and its executives a full year of legal shield against shareholder claims before the Ninth Circuit reversed the decision in February 2026. | high |
| 03 | Funko had already been sued for nearly identical inventory fraud in 2019; the earlier litigation ended in a settlement with no admission of wrongdoing, leaving the same executive culture in place to repeat the behavior. | high |
| 04 | The Ninth Circuit explicitly rejected Funko’s argument that vague optimistic language about inventory quality constituted legally protected “puffery,” establishing that concrete false impressions created through repeated SEC filings can form the basis of securities fraud. | med |
The Language of Legitimacy
How corporate language neutralized the harm · 4 points
▼
| 01 | CFO Jung described the Oracle delay as a choice not to “impair the momentum that we have today,” reframing a project collapse driven by chaos and internal warnings as a disciplined strategic decision. | high |
| 02 | Repeated use of phrases like “generally high quality,” “in a really good healthy position,” and “very healthy right now” created a consistent positive impression without technically stating a specific falsifiable fact, a deliberate strategy the court partially accepted as unactionable puffery for some statements. | med |
| 03 | Risk factor disclosures in SEC filings used the language of future possibility (“could,” “may,” “if”) to describe operational disasters that were already happening, legally framing present failures as hypothetical concerns. | high |
| 04 | The Ninth Circuit identified this pattern as a known fraud technique, citing Facebook and Alphabet precedents where companies similarly used risk disclosure language to imply that known problems had not yet occurred. | med |
🕐 Timeline of Events
2019
Funko accumulates 10–12 million units of dead inventory, writes down $16.8 million, stock falls 40% in a single day. Shareholders sue. Case settles with no admission of wrongdoing.
2020
Funko begins planning an ERP upgrade from Microsoft NAV to the Oracle platform. Microsoft NAV, designed for small companies, can no longer support Funko’s growing needs.
Sept 2021
Funko leases an 860,000 square foot warehouse in Buckeye, Arizona. The facility is designed around the yet-to-be-completed Oracle system. Occupancy begins April 1, 2022.
Jan 2022
An employee tells CFO Jung the Oracle project is not going well and is unlikely to finish on time. UK staff warn the project is “not in a good place.” IT management has no go-live date for employees.
Mar 3, 2022
Funko files FY21 Form 10-K. CEO Perlmutter and CFO Jung sign and certify it. Risk disclosure describes inventory failure as a hypothetical future risk, referencing 2019 as a past example.
Apr 2022
Buckeye DC opens. Only 12 of 84 loading bays are operational. Incoming inventory arrives with missing, extra, or wrong product. Workers track inventory with handwritten notes. Oracle is not functional.
May 2022
Storage racks reach full capacity. Disorganized inventory piles up on the floor, untracked. An Operations Manager estimates half the inventory from Washington has been misplaced. Funko files 1Q22 10-Q reiterating that inventory failure is a hypothetical risk.
Jun 2022
VP of Operations quits. COO Sansone begins spending one to two weeks per month at Buckeye DC. Lost-inventory investigations increase to 120 per day. Warehouse operates at over 95% capacity.
Jul 2022
Between 300 and 500 rented shipping containers pile up in the parking lot as delayed pandemic-era inventory arrives. None of it can be scanned or recorded. Late fees accumulate daily.
Aug 4, 2022
Funko files 2Q22 10-Q. CFO Jung tells investors inventory is “generally high quality” and “in a really good healthy position.” Stock drops 18% following the call. Funko is 50 days behind on order fulfillment.
Sept 2022
Sales team cannot meet quotas due to missing product. Retail customers begin canceling orders. Funko hires a third-party logistics firm to store dead inventory in a second Arizona warehouse.
Nov 3, 2022
Funko files 3Q22 10-Q. CFO Jung reiterates that inventory is “generally high quality.” The disclosure causes analysts to warn of a “credibility issue.” Stock falls 59% the next day.
Dec 2022
CEO Perlmutter is demoted to president. CFO Jung steps down. Neither faces criminal charges.
Mar 2023
Funko abandons the Oracle project entirely, writing down $32.5 million. Between $30 and $36 million in inventory is written off. Workers finally unload Christmas inventory from containers that have been in the parking lot for months.
Jun 2023
Shareholders file class action lawsuit. Construction Laborers Pension Trust of Greater St. Louis is appointed lead plaintiff.
May 2024
District court dismisses the lawsuit for failure to adequately allege falsity and scienter. Shareholders decline to amend and appeal directly.
Feb 4, 2026
Ninth Circuit reverses in part. The court reinstates fraud claims related to inventory management disclosures and technology disclosures, finding shareholders plausibly allege executives knew their statements were misleading. Case is remanded for trial.
💬 Direct Quotes from the Legal Record
QUOTE 1
CFO Jung on inventory quality, August 2022
Core Allegations
“We believe that inventory is generally high quality and leave[s] us well positioned to meet our consumer demand and support our strong second half growth forecast.”
💡 This statement was made while the warehouse was 50 days behind on fulfillment, with 300–500 containers of unscannable inventory sitting in a parking lot. The Ninth Circuit found shareholders have a viable claim that it misled investors about the present state of the company.
QUOTE 2
CFO Jung framing the Oracle delay as strategic, August 2022
Language of Legitimacy
“We recently made the difficult decision to delay the remaining steps until 2023 [because] we did not want to impair the momentum that we have today by shifting to a platform that we felt wasn’t yet fully ready to support our business.”
💡 Internal records showed the Oracle project was already in collapse, with no management vision, no timeline, and employee warnings dating to January 2022 that it was “not in a good place.” This statement reframed a project failure as a careful executive choice.
QUOTE 3
SEC risk disclosure, March and May 2022
Regulatory Failures
“If we are not successful in managing our inventory, our business, financial condition and results of operations could be adversely affected.”
💡 This language, repeated in four separate SEC filings throughout 2022, framed an ongoing operational crisis as a hypothetical future risk. The Ninth Circuit ruled this constitutes a plausible basis for securities fraud because the risk had already materialized when the words were published.
QUOTE 4
Analyst reaction after November 2022 earnings call
Economic Fallout
“It feels like we were hit with a bomb.”
💡 This was the reaction of a market analyst after the November 3, 2022 earnings call revealed the scale of the inventory crisis. The stock fell 59% the next day. Analysts had previously relied on Funko executives’ statements and given the company a positive outlook.
QUOTE 5
Operations Lead warning to management, spring 2022
Worker Exploitation
One Operations Lead saw that incoming inventory was being placed in the warehouse without review by stockers of shipping documentation or inventory count checks; he reported to management that the gaps would be a problem if not addressed.
💡 Frontline workers saw the collapse coming and reported it up the chain. That report produced no corrective action. Executive leadership later claimed they were unaware of the scale of the problems, a claim the Ninth Circuit found implausible given the evidence of their direct involvement in monthly operations meetings.
QUOTE 6
Ninth Circuit on scienter, February 2026
Corporate Accountability Failures
“A reasonable trier of fact could find that it would be absurd to believe that CEO Perlmutter and CFO Jung did not know that their statements related to Funko’s inventory and information technology system were misleading at the time that they were made.”
💡 This is the Ninth Circuit directly stating that the executives’ claims of ignorance are not credible. The court found that inventory management and technology were so central to Funko’s business that knowing about the collapse was essentially part of the executives’ jobs.
QUOTE 7
UK employees warning about Oracle, January 2022
Core Allegations
IT systems and logistics employees in Funko’s United Kingdom office warned that it was “quite clear” the Oracle project was “not in a good place” given the lack of clear management or vision.
💡 These warnings came in January 2022, the same month CFO Jung received a direct report that the Oracle transition was unlikely to complete on time. Despite this, Funko continued to tell investors throughout the year that the ERP upgrade was proceeding as planned.
QUOTE 8
CFO Jung on distribution center needs, September 2022 Investor Day
Regulatory Failures
“Obviously, down the road, we’ll eventually need probably more distribution capabilities to continue to support the growth, but that’s more of a future down the road within the 5-year plan, but not directly related within the next, call it, 12 months or so.”
💡 This statement was made at a public investor event on September 13, 2022. Two weeks later, Funko hired a third-party logistics company to store overflow inventory in a second Arizona warehouse. The court classified this statement as a protected forward-looking statement.
💬 Commentary
How bad was the situation at Buckeye DC really?
▼
By any operational measure, it was a total systems failure. Workers were being recruited off the street during job interviews to immediately unload trucks they had not been trained to handle. Inventory arrived in the wrong quantities, with no documentation checks, and was piled on any available surface. By May 2022, the racks were full and product was stacked on the floor with no tracking whatsoever. By the summer, staff were spending hours each shift just trying to find items that had already been received. Between 300 and 500 shipping containers sat baking in the Arizona sun because no one could process them. The entire holiday season’s inventory: Halloween products, Christmas figurines, sat inaccessible in that parking lot. None of this was disclosed to investors. Instead, executives called it “momentum.”
Did executives actually know how bad things were?
▼
The Ninth Circuit’s answer to this question is unambiguous: yes, they almost certainly did. Both CEO Perlmutter and CFO Jung attended monthly Sales Operations meetings where inventory and distribution were discussed directly. CFO Jung received a personal report in January 2022 that Oracle was failing. COO Sansone spent one to two weeks per month at Buckeye DC from June onward, walking the floor and seeing the disaster firsthand, and he attended the same executive meetings as Perlmutter and Jung. The court found it would be “absurd” to suggest they were unaware. Funko had also just lived through a nearly identical collapse in 2019, which Funko’s own risk filings referenced. These were not uninformed executives managing a surprise. They were informed executives who chose not to tell investors the truth.
Why is this case legally significant beyond Funko?
▼
The Ninth Circuit’s ruling clarifies a critical and frequently abused loophole in securities law: the safe harbor for “forward-looking statements.” For years, corporations have used risk disclosures written in future-tense language (“could,” “may,” “if”) to describe problems that were already happening, hoping to avoid fraud liability by framing present failures as hypothetical warnings. This ruling, building on the earlier Facebook and Alphabet decisions, directly confronts that practice. The court held that when a company tells investors a risk “could” materialize, it implicitly represents that the risk has not yet materialized. If that is false, it is fraud. This gives shareholders across every industry stronger tools to challenge the specific kind of laundered deception that has become standard practice in corporate SEC filings.
Who was actually harmed by this fraud?
▼
Three categories of people paid the price. First, retail investors and institutional shareholders who bought Funko stock between March 2022 and March 2023, relying on executive statements, and watched their holdings collapse 59% in a single day. The Construction Laborers Pension Trust of Greater St. Louis is the lead plaintiff: a fund representing blue-collar construction workers whose retirement security was damaged by executives’ lies. Second, warehouse workers at Buckeye DC who were sent into an operational disaster zone without adequate training, equipment, or support. Third, retail customers, including small businesses, who had orders canceled or delayed for months, in some cases missing entire selling seasons for time-sensitive product.
How did Funko try to excuse its behavior?
▼
Funko deployed three overlapping defenses. First, it argued that statements about inventory quality were “puffery,” vague optimism that no reasonable investor would rely on. The court accepted this for some statements but rejected it for the formal risk disclosures. Second, it argued that risk disclosures were forward-looking and protected by the PSLRA’s safe harbor. The court rejected this for disclosures about existing technology systems, ruling that the safe harbor does not protect language that creates a false impression of present-day conditions. Third, it argued that executives could not have known about the “granular details” of warehouse operations. The court rejected this entirely, citing the executives’ direct participation in operations meetings, CFO Jung’s personal briefing in January 2022, and COO Sansone’s extended presence at the warehouse from June onward.
Why did Funko repeat the same mistake it made in 2019?
▼
The 2019 inventory collapse ended with a settlement that included no admission of wrongdoing. No executives faced personal financial consequences. The lesson the company’s culture absorbed was not “fix your inventory management” but “survive the lawsuit and move on.” This is the predictable outcome when corporate accountability operates through settlement rather than sustained reform. The same executives who watched the 2019 crisis unfold were running the company in 2022 and making the same decisions. The risk disclosures in 2022 literally cited 2019 as a past example while the same failure pattern was repeating. The system rewarded survival over correction, and shareholders paid for it a second time.
Is this connected to broader patterns of corporate wrongdoing?
▼
Absolutely. The Funko case is a textbook example of a widely documented corporate playbook: certify SEC filings that technically satisfy disclosure requirements while framing active failures as hypothetical risks; use optimistic language vague enough to claim as protected opinion; accept personal demotion or resignation instead of legal accountability when the fraud is exposed; settle shareholder litigation without admission of guilt; and repeat. This pattern is not unique to Funko. The Ninth Circuit’s decisions in Facebook (Cambridge Analytica data breach), Alphabet (Google privacy bug), and now Funko collectively document how major corporations routinely use the formal language of investor protection to conceal material information from the shareholders they are legally obligated to inform.
What can I do to prevent this from happening again?
▼
Several concrete actions are available. If you hold or have held Funko stock during the class period (March 3, 2022 to March 1, 2023), contact the plaintiffs’ counsel (Robbins Geller Rudman and Dowd LLP) to learn whether you may be included in the class. More broadly: contact your congressional representatives and urge stronger penalties for individual executives who certify fraudulent SEC filings, including criminal prosecution rather than settlements. Support organizations like Better Markets, Public Citizen, and the Consumer Federation of America that advocate for stronger securities enforcement. If you work at a publicly traded company and observe the kind of concealment described in this case, familiarize yourself with the SEC Whistleblower Program, which provides financial rewards and legal protections for reporting securities violations. Corporate fraud persists because the cost of committing it remains lower than the cost of preventing it; changing that calculus requires political pressure, legal participation, and informed public accountability.
Construction Laborers Pension Trust of Greater St. Louis v. Funko, Inc., No. 24-4909 (9th Cir. 2026)Download
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