AsianFin -- Estée Lauder must face a lawsuit accusing the cosmetics giant of misleading shareholders by downplaying its reliance on gray-market sales in China, a U.S. federal judge ruled on Monday.

U.S. District Judge Arun Subramanian in Manhattan found that shareholders had identified “several misleading omissions” and “half-truths” in Estée Lauder’s disclosures, particularly regarding the negative impact of China’s January 2022 crackdown on the "daigou" market.

The lawsuit alleges that Estée Lauder became increasingly dependent on “daigou” resellers—who buy duty-free goods in bulk for resale—after the COVID-19 pandemic, especially in Hainan province. Investors claim the company failed to fully disclose the risks associated with this reliance, leading to financial losses when Chinese regulators tightened restrictions on the practice.