Groupon Inc (NASDAQ:GRPN), one of the leading daily deals companies, lost its motion for the dismissal of the securities fraud class action lawsuit filed against it in connection with an initial public offering (IPO) in November, 2011.
Groupon faces securities class action lawsuit
According to report from Bloomberg, Judge Charles Norgle of the United States District Court for the Northern District of Illinois issued a ruling ordering the daily deals company to face the securities class action lawsuit, which was filed in April last year.
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In his ruling, Judge Norgle emphasized that the court found that the “allegations present plausible violations” of federal securities law by Groupon Inc (NASDAQ:GRPN).
The complainants in the securities class action lawsuit alleged that Groupon Inc (NASDAQ:GRPN) misrepresented significant information, such as financial results, accounting practices, and internal controls to investors.
Impermissible refund accounting
According to them, the daily deals company used impermissible refund accounting to increase its revenues in a prospectus related to its IPO, and in a later filing with the Securities and Exchange Commission (SEC).
Based on the complaint, the improper refund accounting of Groupon Inc (NASDAQ:GRPN) was revealed on March 30, 2012, when the company filed its first audited financial report as a public company. In its filing, the company disclosed its failure to account refunds properly, and that it had materially misrepresented its previously reported financial results in Q4 2011 and full year 2011, and had weak internal controls.
Risks concealed by misrepresentations
The complainants pointed out, “These were precisely the risks concealed by defendant’s misrepresentations and omissions.” They noted that the stock price of Groupon Inc (NASDAQ:GRPN) plummeted after disclosing its missteps.
Over the past 52-weeks, the stock value of Groupon Inc (NASDAQ:GRPN) declined to as low as $2.60 per share, but managed to recover after the board of the company ousted its former CEO Andrew Mason. Eric Leftkofsky assumed the leadership and was able to maneuver the company towards profitability.
Groupon Inc (NASDAQ:GRPN) is currently trading around $12.52 per share. The stock is still lower than its $28 price in November 2011. Groupon rose by 9 percent yesterday after Stifel Nicolaus analyst Jordan Rohan upgraded his rating for the shares of the company from hold to buy with a $16 per share price target. According to Rohan, Groupon has the ability grow faster and more profitable in the near future.