ESTEE Lauder must face a lawsuit accusing the cosmetic giant of defrauding shareholders by concealing its overdependence on improper gray-market sales in China, a federal judge in Manhattan has ruled, reports Reuters.

US District Judge Arun Subramanian said shareholders identified "several misleading omissions" and "half-truths" in Estee disclosures, related to the negative sales impact from a January 2022 government crackdown on the "daigou" gray market.

Shareholders in the proposed class action said Estee became dependent in China on "daigou," or duty-free purchases by resellers, after the Covid crisis began, especially in the Hainan province.

They said the New York-based company concealed the truth about how the crackdown was hurting sales until November 1, 2023, causing its shares to plunge 19 per cent and wiping out about US$8.7 billion of market value.