Lawsuits pile up against Groupon
Shareholders fire back as coupon retailer’s stock hits new low
Fallout from Groupon Inc.’s profit restatement Friday appears to be deepening with a U.S. law firm saying “numerous” shareholder lawsuits have been filed against the online coupon retailer, sending its stock to a new all-time low. Hagens Berman Sobol Shapiro LLP also put out a call for investors who believe they were misled into buying Groupon stock to join the complaint and set a deadline to select a lead plaintiff in multiple class actions expected to be consolidated into one. Groupon shares fell 48 cents (U.S.) to $14.54 on the Nasdaq, their lowest level since the company’s initial public offering last November when the stock reached $26.19 for a market value of more than $10 billion. The shares have traded around the $20 IPO price on concerns about Groupon’s novel business model, which involves selling coupons to consumers, splitting the proceeds with retailers and setting aside reserves for customer refunds. A key concern is whether the reserves are adequate to settle future obligations and whether Groupon has properly deducted the amounts from revenue. The stock dropped more than 19 per cent Monday, three days after the Chicago-based company revised its fourth-quarter results in its inaugural earnings report as a public company. The revision increased reserves for refunds to lower revenue and create a bigger loss. Groupon said it had failed to set aside enough refund cash as a result of “material weakness” in its internal controls identified by its external auditor. The restatement amounts to another setback for Groupon, which has struggled with its financial reporting since it filed its IPO registration in June and following regulatory complaints about how it has accounted for receivables. In a note to its investors, JPMORgan analysts said the restatement assures continued stock volatility but may not be quite as bad as it seems. They said the company is beefing up internal and external accounting and instituting a more conservative reserve system after existing controls failed to keep pace with fast growth in a market segment it defined.
According to a complaint filed Tuesday in Illinois federal court, Groupon overstated revenue and issued materially false and misleading financial results. The company has declined to comment.
Groupon was sued by plaintiff Fan Zhang, who said the company issued misleading statements that convinced him to buy 3,000 shares that have since lost more than $9,000 in value.
He said Groupon did not reveal its “poor and inadequate” internal controls in its IPO registration statement and prospectus.
The Zhang suit was the first in a series of actions arising from the restatement, with investor rights law firm Hagens Berman among several other firms expected to file similar complaints.
The suit names banks including lead IPO underwriters Credit Suisse, Goldman Sachs and Morgan Stanley as defendants, along with Groupon chief executive Andrew Mason.