Daily discount deals provider
) failed to convince a federal judge to dismiss a lawsuit filed
by an individual investor Michael Carter Cohn. The order, issued
by the U.S. District Judge Charles Norgle, confirmed that Groupon
will have to face the lawsuit filed against it.
The lawsuit, accuses Groupon of misleading investors by giving
improper information about the financial prospects and internal
control issues of the company.
Per the lawsuit filed by the investors in Apr 2012, Groupon
has been accused of securities fraud and for manipulating the
accounts, using illegal refund accounting policies. This helped
the company to inflate its revenues in the prospectus issued for
the IPO and provided to the U.S. Securities and Exchange
Groupon announced its IPO on Nov 4, 2011. A few months later,
Groupon surprised the investor community by reporting a larger
net loss in its fourth-quarter 2011 results, citing "material
weakness" in its internal controls. It also stated its failure to
set aside enough money for customer refunds.
This news dragged down the stock price, which bottomed at
$2.60 last November, although it recovered subsequently.
This incident influenced a group of investors, led by Cohn, to
initiate a lawsuit against the company. Now Cohn is trying to
turn it into a class action suit. On the other hand, Judge Norgle
has postponed his decision to allow Cohn to be the representative
for a class, as he did not actually buy his shares during the
Moreover, the federal judge also turned down the requests made
), to give them a clean chit in the IPO-related proceedings.
Groupon has been making an effort to turn itself into a
serious e-commerce business and replaced Andrew Mason
with Eric Lefkofsky as chief executive.
Although we believe that Groupon is well positioned to gain
from rising e-commerce spending on mobile devices, a profitable
domestic market and an under-penetrated international market,
this pending lawsuit may affect the goodwill and may put a
financial burden on the company if proved guilty.
Currently, Groupon carries a Zacks Rank #3 (Hold).
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