Amazon.com Inc. (AMZN) Sued by Third-party Sellers Over Withholdings

Amazon.com Inc. (NASDAQ:AMZN) – which has become a favorite stock play among equity hedge funds that we track – has been under scrutiny for some of its business practices in recent months, facing some legal scrutiny over competition (or lack of competition) based  on some alleged competition-suppression efforts. But Amazon has been a very popular platform for small sellers to have a wide audience to sell their wares. But is Amazon actually holding third-party sellers’ profits hostage?

Amazon.com Inc. (NASDAQ:AMZN) is facing a class-action lawsuit from a number of small third-party sellers, who claim that the e-commerce market leader violates terms of its own seller agreement by holding funds longer than stipulated in the agreement, and the sellers are seeking interest and damages on top of the base amount they feel they are owed. The suit, filed this week in U.S. District Court in Seattle, cites that Amazon.com had “wrongfully obtained” and held payments longer than the 90 days that Amazon.com claimed it had the “discretion” to determine as per agreement.

One such seller claimed that after it had sold goods on the Amazon.com Inc. (NASDAQ:AMZN) platform, it did not receive its net proceeds (Amazon.com took about 6-25 percent off the top) for 98 days, and another seller claimed more than 100 days before receiving its payments. This lawsuit follows in the wake of an analysis by a Seattle-area newspaper which revealed that withholding payments was the most-common complaint by third-party sellers, with many of those complaints being filed with the Washington state attorney general’s office due to the withholding causing harm to the sellers.

The lawsuit claims that Amazon.com Inc. (NASDAQ:AMZN) makes “many tens of millions of dollars” by withholding the payments. In the suit, the claimant’s attorneys wrote, “By holding on to this daily cash flow for only a few days or weeks, Amazon is able to invest this money in money market funds, marketable securities and other investments, and utilize the cash as working capital in the operation of its business.”

What do you think of this lawsuit? Is Amazon.com Inc. (NASDAQ:AMZN) in violation of its agreement by delaying these payments? Give us your thoughts int he comments section below.

DISCLOSURE: I own no positions in any stock mentioned.

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