Roselli v. Groupon, Inc. et al

Filing 1

COMPLAINT filed by Kathleen Roselli; Jury Demand. Filing fee $ 350, receipt number 0752-7013370. (Attachments: # 1 Civil Cover Sheet)(Dahlstrom, Patrick)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
____________________________________
)
KATHLEEN ROSELLI, Individually And )
On Behalf of All Others Similarly Situated, )
)
Plaintiff,
)
)
vs.
)
)
GROUPON, INC., ERIC P. LEFKOFSKY, )
ANDREW D. MASON, JASON CHILD, )
KEVIN EFRUSY, THEODORE J.
)
LEONSIS, HOWARD SCHULTZ,
)
JOSEPH M. DEL PRETO,
)
MORGAN STANLEY & CO. LLC,
)
GOLDMAN, SACHS & CO., and CREDIT )
SUISSE SECURITIES (USA) LLC,
)
)
Defendants. )
____________________________________)

CIVIL ACTION NO. 12-2460

CLASS ACTION COMPLAINT
FOR VIOLATIONS OF
FEDERAL SECURITIES LAWS

JURY TRIAL DEMANDED

Plaintiff Kathleen Roselli (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by her undersigned attorneys, for her Class Action Complaint against
Defendants, alleges upon personal knowledge as to herself and her own acts, and upon
information and belief as to all other matters, based on, inter alia, the investigation conducted by
and through their attorneys, which included, among other things: a review of wire and press
releases published by and regarding Groupon, Inc. (NASDAQ: GRPN) (“Groupon” or the
“Company”); Defendants’ public statements, documents, conference calls and announcements;
Securities and Exchange Commission (“SEC”) filings; securities analysts’ reports and advisories
about the Company; and information readily obtainable on the Internet.

NATURE OF THE ACTION
1.

This is a securities fraud class action brought on behalf of all persons or entities

who: (1) purchased or otherwise acquired Groupon common stock pursuant and/or traceable to
the Company’s Registration Statement and Prospectus (collectively, the “Registration
Statement”), as amended, issued in connection with to its November 4, 2011 initial public
offering (the “IPO” or the “Offering”) seeking to pursue remedies under §§11, 12(a)(2) and 15 of
the Securities Act of 1933 (the “Securities Act”); and (2) purchased or otherwise acquired the
Groupon common stock during the period from February 8, 2012 through and including March
30, 2012, seeking to pursue remedies under §§10(b) and 20(a) of the Securities Exchange Act of
1934 (the “Exchange Act”) and SEC Rule 10b-5.
2.

Groupon’s IPO was the largest U.S. web IPO since Google. Groupon sold 35

million shares priced at $20.00 per share; thus, the total price to the public of this offering was
$700 million.
3.

Throughout the Class Period (as defined herein), Defendants made false and/or

misleading statements, as well as failed to disclose material adverse facts about the Company’s
business, operations, and prospects. Specifically, Defendants made false and/or misleading
statements about the adequacy of the Company’s lacked internal financial controls, and the
Company’s reported financial results for the fourth quarter of 2011.
4.

On Friday, March 30, 2012, Groupon disclosed: (a) that it had materially

understated refund reserves for fourth quarter 2011 (“Q4 2011”) due to a failure to properly
account for coupon refunds; (b) that, as a result, it had materially misstated previously reported
Q4 2011 and Full-Year 2011 revenue, operating income (loss), operating expense, net income

2

(loss), earnings (loss) per share, and cost of revenue; and (c) that internal controls over its
financial statements had material weaknesses.
5.

As a result of the revelations, Groupon’s stock plummeted. On Monday, April 2,

2012, the first trading day following Groupon’s disclosures, the Company’s stock closed on
extraordinarily high volume of 10.09 million shares at $15.27 – a single-trading-day decline of
$3.11 or 16.9% from its prior close.
6.

As a result of defendants’ wrongful acts and omissions, and the precipitous decline

in the market value of the Company’s stock, Plaintiff and other Class members have suffered
significant losses and damages.
JURISDICTION AND VENUE
7.

The claims asserted herein arise under Sections 11, 12(a)(2) and 15 of the

Securities Act, 15 U.S.C. §§ 77k and 77o and under Sections 10(b) and 20(a) of the Exchange
Act, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5 promulgated thereunder by the SEC,
17 C.F.R. § 240.10b-5.
8.

This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act, 15 U.S.C. § 78aa and Section 22
of the Securities Act, 15 U.S.C. § 77v.
9.

Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15

U.S.C. § 78aa, Section 22 of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. § 1391(b).
Defendant Groupon is headquartered in this district; Defendant Groupon, the Individual
Defendants and/or Underwriter Defendants conduct business in this district, and wrongful
conduct at issue took place in this district.

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PARTIES
10.

Plaintiff Kathleen Roselli, as set forth in the accompanying certification, which is

incorporated by reference herein, purchased shares of Groupon common stock pursuant and/or
traceable to the Company’s materially untrue and misleading Registration Statement during the
Class Period and suffered damages as a result of the federal securities law violations and false
and/or misleading statements and/or material omissions alleged herein.
11.

Defendant Groupon Inc. is a Delaware corporation with its principal executive

offices located at 600 West Chicago Avenue, Suite 620, Chicago, Illinois 60654. Groupon is a
local commerce marketplace that connects merchants to consumers by offering goods and
services at a discount. Groupon is actively traded on NASDAQ GS under the ticker symbol
“GRPN.”
12.

Defendant Eric P. Lefkofsky (“Lefkofsky”) was at all relevant times the

Company’s Chairman of the Board of Directors (“Board”). Defendant Lefkofsky is also a CoFounder of Groupon. Defendant Lefkofsky signed and caused to be filed with the SEC the
materially false and misleading Registration Statement in connection with the IPO.
13.

Defendant Andrew D. Mason (“Mason”) was at all relevant times the Company’s

Chief Executive Officer (“CEO”). Defendant Mason is also a Co-Founder of Groupon. He
signed and caused to be filed with the SEC the materially false and misleading Registration
Statement in connection with the IPO.
14.

Defendant Jason Child (“Child”) was at all relevant times the Company’s Chief

Financial Officer. Defendant Child signed and caused to be filed with the SEC the materially
false and misleading Registration Statement in connection with the IPO.

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15.

Defendant Kevin Efrusy (“Efrusy”) was at all relevant times a member of the

Company’s Board and an Audit Committee Member. Defendant Efrusy signed and caused to be
filed with the SEC the materially false and misleading Registration Statement in connection with
the IPO.
16.

Defendant Theodore J. Leonsis (“Leonsis”) was at all relevant times a member

of the Company’s Board and the Chairman of the Audit Committee. Defendant Leonsis signed
and caused to be filed with the SEC the materially false and misleading Registration Statement in
connection with the IPO.
17.

Defendant Howard Schultz (“Schultz”) was at all relevant times a member of the

Company’s Board and an Audit Committee Member. Defendant Schultz signed and caused to be
filed with the SEC the materially false and misleading Registration Statement in connection with
the IPO.
18.

The Registration Statement stated that under the Audit Committee charter to be

effective upon completion of the IPO, the Audit Committee was to be responsible for, inter alia,
“monitoring the integrity of our financial statements and our compliance with legal and
regulatory requirements as they relate to financial statements or accounting matters,” “reviewing
the adequacy and effectiveness of our internal control policies and procedures,” and “reviewing
with management and the independent auditors our interim and year-end operating results.”
19.

Defendant Joseph M. Del Preto was at all relevant times the Company’s Chief

Accounting Officer (“CAO”). He signed and caused to be filed with the SEC the materially false
and misleading Registration Statement in connection with the IPO.
20.

Defendants Lefkofsky, Mason, Child, Efrusy, and Del Preto are sometimes

collectively referred to herein as the “Individual Defendants.”

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21.

Defendant Morgan Stanley & Co. LLC (“Morgan Stanley”) was a primary

underwriter of the Company’s IPO and assisted in the preparation and dissemination of
Groupon’s IPO materials. Additionally, Morgan Stanley acted as representative for all of the
underwriters involved in the Groupon IPO. Morgan Stanley’s main offices are located at 1585
Broadway, New York, NY 10036.
22.

Defendant Goldman, Sachs & Co. (“Goldman Sachs”) was an underwriter of the

Company’s IPO and assisted in the preparation and dissemination of Groupon’s IPO materials.
Additionally, Goldman Sachs acted as representative for all of the underwriters involved in the
Groupon IPO. Goldman Sachs’s headquarters are located at 200 West Street, New York, NY
10282.
23.

Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) was an

underwriter of the Company’s IPO and assisted in the preparation and dissemination of
Groupons’ IPO materials. Additionally, Credit Suisse acted as representative for all of the
underwriters involved in the Groupon IPO. Credit Suisse has its principal U.S. location at 11
Madison Avenue, New York, New York 10010.
24.

Defendants Morgan Stanley, Goldman Sachs, and Credit Suisse are sometimes

collectively referred to herein as the “Underwriter Defendants.”
25.

Defendant Groupon, the Individual Defendants, and the Underwriters Defendants

are sometimes collectively referred to herein as “Defendants.”

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SUBSTANTIVE ALLEGATIONS
Groupon’s False and Misleading IPO Registration Statement
26.

Groupon is self-described on the Company website as “a local e-commerce

marketplace and the leading daily deal site worldwide, connecting millions of subscribers around
the world with merchants by offering goods and services at a discount.”
27.

Incorporated in 2008, Groupon today has more than 10,000 employees working at

its offices in the United States, Europe, Latin America, Asia and around the world.
28.

The Registration Statement set forth the Groupon’s accounting policy for

recognition of refunds upon coupons as follows:
At the time revenue is recorded, we record an allowance for estimated customer
refunds primarily based on historical experience. We accrue costs associated with
refunds in accrued expenses on the consolidated balance sheets. The cost of
refunds where the amount payable to the merchant is recoverable is recorded in
the consolidated statements of operations as a reduction to revenue. The cost of
refunds under the Groupon Promise, when there is no amount recoverable from
the merchant, are presented as a cost of revenue. To the extent the refund is
provided to a subscriber, we record the expense within selling general and
administrative expense in the consolidated statements of operations.
29.

The Company stressed the importance of accurate assessment of the likely rate of

customer refunds:
If our judgments regarding estimated customer refunds are inaccurate, reported
results of operations could differ from the amount we previously accrued.
30.

That assessment of the rate of return was all the more critical given that

Company’s acknowledgement that its refunds were increasing as a result of offering higher
priced and potentially more lucrative coupon deals (referred to as the “deal mix”)
Our revenue for the third quarter of 2011 increased 426% year-over-year to
$430.2 million from $81.8 million in the third quarter of 2010. On a sequential
quarterly basis, our revenue increased 9.6% from $392.6 million in the second
quarter of 2011 to $430.2 million in the third quarter of 2011. We retained less of
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the gross billings paid by our customers on a percentage basis in the third quarter
of 2011 compared with the second quarter of 2011. This was the result of a
change in deal mix within the quarter.
31.

These statements lead investors to mistakenly believe that Groupon had adequate

financial controls for assessing its likely rates of refunds given changes in its deal mix that had
been introduced, and would be in the coming quarter.
32.

To the contrary, however, the Registration Statement was false and misleading

because it failed to disclose material weaknesses in Groupon’s internal controls over its financial
statements.
33.

In its IPO, Groupon sold 35 million shares, priced at $20 each, raising $700

million in exchange for just over 5% of the Company. The price effectively valued the Company
at $12.8 billion – more than twice what Google had offered to buy it a year before. The
Company’s IPO – the ninth-largest ever according to the Wall Street Journal (“WSJ”) – was
viewed at the time as a resounding success. The Company’s stock jumped as high as 40% that
day before closing up 31% at $26.11. The WSJ added that its first-day closing price valued
Groupon at $16.6 billion, making it more valuable that Adobe Systems, Inc. and nearly the size
of Yahoo, Inc.
Groupon’s False and Misleading Q4 2011 and Full-Year Reported Results
34.

On February 8, 2012, Groupon issued a press release announcing Q4 2011 and

Full-Year 2011 results for the periods ending December 31, 2011 (the “February 8, 2012 Press
Release”), which it filed with the SEC the same day as an attachment to a Form 8-K/A (the
“February 8, 2012 8-K”). The February 8, 2012 8-K was signed by Defendant Child.
35.

The February 8, 2012 Press Release was for the most part upbeat and met or

exceeded analyst expectations. Among other things, it reported:

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a.

Revenues. Groupon’s Q4 2011 revenue increased 194% to $506.5 million, as

compared against $172.2 million in the fourth quarter of 2010. For Full-Year 2011, it reported
revenue of $1.62 billion, up 419% from $312.9 million in 2010.
b.

Operating income. Groupon’s Q4 2011 operating income was $15 million, as

compared with an operating loss of $336.1 million in the fourth quarter of 2010. Significantly,
the February 8, 2012 Press Release highlighted this performance metric, touting, “This marks the
company’s first quarter of operating profitability since Groupon began its international
operations in the second quarter of 2010.” For Full-Year 2011, it reported operating loss of
$203.4 million, down from a loss of $420.3 million in 2010.
c.

Operating expenses. Groupon reported total operating expenses of $491.4 million

in Q4 2011, down from $508.4 million in the fourth quarter of 2010. For Full-Year 2011, it
reported total operating expenses of $1.828 billion.
d.

Cost of revenue. Groupon reported Q4 2011 cost of revenue of $87.3 million and

Full-Year 2011 cost of revenue of $249.9 million.
36.

The only disappointing reported result was the Company’s earnings per share,

with respect to which Groupon reported Q4 2011 pro-forma net loss of $9.8 million, which
translated into a pro-forma loss of $0.02 per share, below the consensus projection of a $0.03
profit per share. The Company attributed this shortfall to “$34.8 million of tax expense, an
effective tax rate of approximately 1,600%, related to profitability in certain international
countries as well as additional income tax provisions related to the establishment of the
company's international headquarters in Switzerland. This resulted in an unusually high effective
tax rate as compared to the company's current average statutory rate of approximately 33%.” For

9

Full-Year 2011, Groupon reported pro-forma net loss of $261.8 million, equating to a pro-forma
loss of $0.72 per share.
37.

The Company’s February 8, 2012 Press Release was false and misleading in that

it understated reserves, operating expenses and cost of revenue; overstated revenues, operating
income, and earnings per share; and failed to disclose material weaknesses in Groupon’s internal
controls.
38.

Still in the dark about these problems and about the Company’s true financial

performance, analyst reaction to the Company’s February 8, 2012 Press Release was largely
favorable or tempered. For instance:
a.

Benchmark Capital rated the Company a Buy, noting that:

Groupon reported 4Q11 results that topped expectations. Operating metrics were
generally positive including a 41% take rate which contributed to 194% y/y
revenue growth. 1Q12 guidance was also above the street for both revenue and
EBITDA. We temper our revenue growth forecast but raise our EBITDA
estimates materially. Our price target is $32 per share.
b.

Barrington Research rated Groupon as Outperform, noting that the Adjusted loss

per share of negative $0.02 was “below our forecast of positive $0.02 and the Street’s positive
$0.03” but explained that the shortfall was due to “higher-than-expected taxes [which] reduced
the bottom line by $0.07 per share.”
The Truth Revealed: Groupon’s Q4 2011 and Full-Year 2011 Revised Results
39.

On March 30, 2012, after the market closed, Groupon issued a press release (the

“March 30, 2012 Press Release”), which it filed with the SEC the same day as an attachment to a
Form 8-K/A (the “March 30, 2012 8-K”), announcing a significant revision of its reported
financial results for its Q4 2011 and Full-Year 2011.

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40.

The March 30, 2012 Press Release and the March 30, 2012 8-K corrected the

litany of material misstatements regarding the Company’s financial performance that had been
set forth in its February 8, 2012 Press Release. To wit, the Company revised all of the following
financial metrics:
a.

Revenues. Groupon’s Q4 2011 and Full-Year revenue were revised downward by

$14.3 million.
b.

Operating income. Directly negating the Company’s prior boasts about Q4 2011

being its first quarter of operating profitability, Groupon’s Q4 2011 operating income was
changed to an operating loss of $15 million. Full-Year 2011 operating loss was also revised to
$233.4 million.
c.

Operating expenses. Groupon’s total operating expenses were revised upward to

$507.1 million in Q4 2011 and $1.84 billion for Full-Year 2011.
d.

Cost of revenue. Groupon’s cost of revenue was revised upward to $96.3 million

for Q4 2011 and $258.9 million for Full-Year 2011.
e.

Pro-forma net income (loss) / Earnings per share. Groupon’s Q4 2011 pro-forma

net loss was revised to $32.5 million, which translated into a larger pro-forma loss of $0.06 per
share. The Company’s Full-Year 2011 pro-forma net loss was also revised to $284.4 million,
which equated to a larger pro-forma loss of $0.79 per share.
41.

The March 30, 2012 Press Release attributed these revisions to a host of

previously undisclosed problems regarding Groupon’s business, operations, management, and
internal controls. It stated:
The revisions resulted in a reduction to fourth quarter 2011 revenue of $14.3
million. The revisions also resulted in an increase to fourth quarter operating
expenses that reduced operating income by $30.0 million, net income by $22.6
million, and earnings per share by $0.04. …
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The revisions are primarily related to an increase to the Company’s refund reserve
accrual to reflect a shift in the Company’s fourth quarter deal mix and higher
price point offers, which have higher refund rates. The revisions have an impact
on both revenue and cost of revenue.
42.

Groupon had failed to sufficiently account for refunds it encountered when it

offered higher-priced product and service offerings. A Company spokesman told Forbes that
such offerings include LASIK eye surgery, laser hair removal, and multi-visit spa packages.
Given that those higher-end products and services, which are more profitable for Groupon, carry
with them a greater likelihood of customer dissatisfaction, they have a correlating higher refund
rate, which in turn forces the Company to withhold more of its money in a refund reserve.
43.

The March 30, 2012 Press Release also disclosed the bombshell announcement

that the Company’s outside auditor had included a statement of material weakness regarding
Groupon’s internal controls in its audit of Groupon’s 2011 financials:
In conjunction with the completion of the audit of Groupon’s financial statements
for the year ended December 31, 2011 by its independent auditor, Ernst & Young
LLP, the Company included a statement of a material weakness in its internal
controls over its financial statement close process in its Annual Report on Form
10-K for year ended December 31, 2011. The Company has been working for
several months with another global accounting firm in preparation for reporting
on the effectiveness of its internal controls by the end of 2012, as required
following Groupon’s initial public offering last year. The Company continues to
implement process improvement initiatives and augment its staffing, and is
expanding the accounting firm’s engagement scope to address the underlying
causes of the material weakness. Further discussion of the material weakness can
be found in the Company’s Form 10-K, filed today with the SEC.
44.

Final results for Groupon’s Full-Year 2011 were included in Groupon’s Form 10-

K for the year ended December 31, 2011, also filed with the SEC on March 30, 2012 (the “2011
10-K”) elaborated on these negative disclosures. The 2011 10-K also stated under “Item 9A.
Controls and Procedures” as follows:
Our management, with the participation of our Chief Executive Officer and our
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
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procedures as of December 31, 2011. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), means controls and
other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that
it files or submits under the Exchange Act is accumulated and communicated to
the company's management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost benefit relationship of possible controls and procedures. Based
on this evaluation, management concluded as of December 31, 2011 that our
disclosure controls and procedures were not effective at the reasonable
assurance level due to a material weakness in our internal control over
financial reporting, which is described below.
In connection with the preparation of our financial statements for the year
ended December 31, 2011, we concluded there is a material weakness in the
design and operating effectiveness of our internal control over financial
reporting as defined in SEC Regulation S-X. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected
on a timely basis. The primary factors contributing to the material weakness,
which relates to our financial statement close process, were:
•

We did not maintain financial close process and procedures that were
adequately designed, documented and executed to support the accurate
and timely reporting of our financial results. As a result, we made a
number of manual post-close adjustments necessary in order to prepare
the financial statements included in this Form 10-K.

•

We did not maintain effective controls to provide reasonable assurance
that accounts were complete and accurate and agreed to detailed
13

support, and that account reconciliations were properly performed,
reviewed and approved. While these activities should be performed in the
ordinary course of our preparing our financial statements, we instead
needed to undertake significant efforts to complete reconciliations and
investigate items identified in those reconciliations during the course of
our financial statement audit.
•

45.

We did not have adequate policies and procedures in place to ensure
the timely, effective review of estimates, assumptions and related
reconciliations and analyses, including those related to customer
refund reserves. As noted previously, our original estimate disclosed on
February 8 of the reserve for customer refunds proved to be inadequate
after we performed additional analysis.
Negative reaction to the Company’s disclosures was swift and devastating.

Analysts pounced, slamming the Company not only for the revisions of financial results, but also
for the underlying, pervasive hit to confidence such egregious errors represented. For instance:
a.

On March 30, 2012, an analyst at Susquehanna Financial Group commented to

Reuters, “When you’re a public company, there’s a certain level of expectations for financial
controls. It’s probably because it’s such a fast growing business that it doesn’t have all the
systems in place. Maybe they don’t have enough financial personnel.”
b.

On April 2, 2012 Ascendiant Capital Markets issued a report rating Groupon as

Sell. As the report noted:
Restatement and lack of controls presents more uncertainty: In our view, the
Q4 restatement and weakness in controls are likely to bolster the pervasive
skepticism as to the company’s valuation, growth prospects, and profit potential.
Profitability has already been weak, and higher refund levels will further
challenge this. We question whether Groupon can sustain its high growth and
begin to generate sizeable profits while scaling back marketing and other
operating costs.

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c.

Also on April 2, 2012, the WSJ quoted the head of financial reporting policy for

the CFA Institute, which represents chartered financial analysts who work with individual
investors, as questioning whether Groupon was even ready to be a public company that has to
produce reliable financial reports: “It really demonstrates, for an IPO, were they really ready to
go? Did they have the financial systems, did they have the processes and procedures in place?”
The WSJ also quoted a Morningstar analyst as saying, “We’re playing with the big boys now.
You can recover but it isn’t altogether confidence inspiring.” It likewise quoted an Evercore
Partners analyst as saying that the Company’s disclosures were “going to definitely unsettle a lot
of investors.”
46.

The financial press was equally scathing in its assessment. For example:

a.

A March 30, 2012 Forbes piece said, “The issue here is not the specifics of the

restatement; the issue is that Groupon’s management is going to be viewed with squinty-eyed
skepticism for some time to come. Investors do not like it when companies are deemed to have
material accounting deficiencies.”
b.

The New York Times Deal Book called the restatement “unexpected” and said

that it “raised questions about the accounting practices of the newly public company.” It added
that the material weakness disclosure “highlights current concerns about the reliability of
Groupon’s financial statements.”
c.

On April 2, 2012, the WSJ said, “The surprise announcement raised questions

about the reliability of Groupon’s numbers at a moment when it is trying to build confidence of
Wall Street investors.” It cited unnamed analysts who viewed the Company’s disclosures as
“likely to intensify investor worries about how Groupon conducts business, and whether its core
operations are as strong as advertised.”

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47.

As a direct and proximate result of these revelations, Groupon’s stock price fell

nearly 17%.
48.

This outcome is even more shocking given that, following its IPO, Groupon was

required by SEC regulations to engage an independent accounting firm to prepare a report by the
end of 2012 concerning the effectiveness of its internal controls. Yet, only after it had to revise
its reported financials did the Company affirmatively instruct this accounting firm to address the
material weakness in its internal controls regarding reserves for refunds. At minimum, these
circumstances illustrate reckless disregard on the part of Groupon and the Individual Defendants.
CLASS ACTION ALLEGATIONS
49.

Plaintiff brings this action as a class action pursuant to Fed. R. Civ. P. 23(a) and

(b)(3) on behalf a Class consisting of all those persons or entities who purchased or otherwise
acquired the common stock of Groupon from and including November 4, 2011 through and
including March 30, 2012 (the “Class Period”). Excluded from the Class are Defendants herein,
the officers and directors of the Company, members of their immediate families and their legal
representatives, heirs, successors or assigns, and any entity in which Defendants have or had a
controlling interest.
50.

The Class members are so numerous that joinder of all is impracticable.

Groupon’s IPO involved the sale of 35 million shares of its common stock, which throughout the
Class Period were actively traded on the NASDAQ. While the exact number of Class members
is unknown to Plaintiff at this time and can be ascertained only through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record
owners and other members of the Class may be identified from records maintained by Groupon

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or its transfer agent, BNY Mellon. Class members may be notified of the pendency of this action
by mail, using the form of notice similar to that customarily used in securities class actions.
51.

Plaintiff’s claims are typical of the claims of the Class members, as all are

similarly affected by Defendants’ wrongful conduct in violation of federal securities law that as
alleged herein.
52.

Plaintiff will fairly and adequately protect the interests of the Class members and

has retained counsel competent and experienced in class and securities litigation. Plaintiff has no
interests antagonistic to or in conflict with those of the Class.
53.

Common questions of law and fact exist as to all Class members and

predominate over any questions solely affecting individual Class members.

Among the

questions of law and fact common to the Class are:



whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations,
financial performance, management, and internal controls of Groupon;



whether the Individual Defendants caused Groupon to issue false and
misleading statements during the Class Period;



whether the Registration Statement, the February 8, 2012 Press Release, and
the February 8, 2012 8-K were false and misleading;



whether the price of Groupon common stock during the Class Period was
artificially inflated because of Defendants’ conduct complained of herein; and


54.

whether the federal securities laws were violated by Defendants’ acts as
alleged herein;

whether the Class members have sustained damages and, if so, what is the
proper measure of damages.

A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all Class members is impracticable.
Furthermore, as the damages suffered by individual Class members may be relatively small, the
expense and burden of individual litigation make it impossible for Class members to individually

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redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
55.

To the extent that Plaintiff’s claims are based on violations of the Exchange Act,

Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-themarket doctrine in that:



the omissions and misrepresentations were material;



Groupon common stock is traded in efficient markets;



the Company’s shares were liquid and traded with moderate to heavy volume
during the Class Period;



the Company traded on the NASDAQ, and was covered by multiple analysts;



the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s securities; and



56.

Defendants made public misrepresentations or failed to disclose material facts
during the Class Period;

Plaintiffs and Class members purchased and/or sold Groupon common stock
between the time the Defendants failed to disclose or misrepresented material
facts and the time the true facts were disclosed, without knowledge of the
omitted or misrepresented facts.

Based upon the foregoing, Plaintiff and the Class members are entitled to a

presumption of reliance upon the integrity of the market.
CLAIMS FOR RELIEF
COUNT I
(Against All Defendants)
For Violation of Section 11 of the Securities Act
57.

Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, excluding all allegations above that contain facts necessary to prove any
elements not required to state a Section 11 claim, including without limitation, scienter.

18

58.

This claim is asserted by Plaintiff against all Defendants by, and on behalf of,

persons who acquired shares of the Company's common stock pursuant to and/or traceable to the
false Registration Statement issued in connection with the November 4, 2011 IPO.
59.

The Individual Defendants as signatories of the Registration Statement, as

directors and/or officers of Groupon and controlling persons of the issuer, owed to the holders of
the common stock obtained through the Registration Statement the duty to make a reasonable
and diligent investigation of the statements contained in the Registration Statement at the time
they became effective to ensure that such statements were true and correct and that there was no
omission of material facts required to be stated in order to make the statements contained therein
not misleading.
60.

The Underwriter Defendants owed to the holders of the common stock obtained

through the Registration Statement the duty to make a reasonable and diligent investigation of
the statements contained in the Registration Statement at the time they became effective to
ensure that such statements were true and correct and that there was no omission of material facts
required to be stated in order to make the statements contained therein not misleading.
61.

Defendants knew, or in the exercise of reasonable care should have known, of

the material misstatements and omissions contained in or omitted from the Registration
Statement as set forth herein. As such, defendants are liable to the Class.
62.

None of the Defendants made a reasonable investigation or possessed reasonable

grounds for the belief that the statements contained in the Registration Statement were true or
that there was no omission of material facts necessary to make the statements made therein not
misleading.

19

63.

Defendants issued and disseminated, caused to be issued and disseminated, and

participated in the issuance and dissemination of, material misstatements to the investing public
which were contained in the Registration Statement, which misrepresented or failed to disclose,
inter alia, the facts set forth above. By reason of the conduct herein alleged, each Defendant
violated and/or controlled a person who violated Section 11 of the Securities Act.
64.

As a direct and proximate result of Defendants' acts and omissions in violation of

the Securities Act, the market price of Groupon's common stock sold in the IPO was artificially
inflated, and Plaintiff and the Class suffered substantial damage in connection with their
ownership of Groupon's common stock pursuant to the Registration Statement.
65.

Groupon is the issuer of the common stock sold via the Registration Statement.

As issuer of the securities, the Company is strictly liable to Plaintiff and the Class for the
material misstatements and omissions therein.
66.

At the times they obtained their shares of Groupon, Plaintiff and Class members

did so without knowledge of the facts concerning the misstatements or omissions alleged herein.
67.

This action is brought within one year after discovery of the untrue statements

and omissions in and from the Registration Statement, which should have been made through the
exercise of reasonable diligence, and within three years of the effective date of the Prospectus.
68.

By virtue of the foregoing, Plaintiff and the other Class members are entitled to

damages under Section 11 as measured by the provisions of Section 11(e), from the Defendants
and each of them, jointly and severally.

20

COUNT II
(Against All Defendants)
For Violations of Section 12(a)(2) of the Securities Act
69.

Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, excluding all allegations above that contain facts necessary to prove any
elements not required to state a Section 12(a)(2) claim, including without limitation, scienter.
70.

Defendants were sellers, offerors, underwriters and/or solicitors of sales of the

Groupon common stock IPO pursuant to the November 4, 2011 Registration Statement.
71.

The Registration Statement contained untrue statements of material facts,

omitted to state other facts necessary to make the statements made not misleading, and concealed
and failed to disclose material facts. Defendants’ actions of solicitation included participating in
the preparation of the false and misleading Registration Statement.
72.

Defendants owed, to the purchasers of Groupon common stock sold in the

November 4, 2011 IPO, the duty to make a reasonable and diligent investigation of the
statements contained in the Registration Statement, to insure that such statements were true and
that there was not omission to state a material fact required to be stated in order to make the
statements contained therein not misleading.

Defendants knew of, or in the exercise of

reasonable care should have known of, the misstatements and omissions contained in the
Registration Statement as set forth above.
73.

Plaintiff and other Class members purchased or otherwise acquired Groupon

common stock pursuant to and traceable to the defective Registration Statement. Plaintiff did
not know, or in the exercise of reasonable diligence could not have known of the untruths and
omissions.

21

74.

Plaintiff, individually and representatively, hereby offers to tender to Defendants

those shares of common stock which Plaintiff and other Class members continue to own, on
behalf of all Class members who continue to own such common stock, in return for the
considerations paid for such stock together with interest thereon.
75.

By reason of the conduct alleges herein, Defendants violated, and/or controlled a

person who violated, section 12(a)(2) of the Securities Act. Accordingly, Plaintiff and Class
members who hold Groupon common stock purchased pursuant and/or traceable to the
November 4, 2011 IPO have the right to rescind and recover the consideration paid for their
Groupon stock and, hereby elect to rescind and tender their Groupon securities to the Defendants
sued herein. Plaintiff and Class members who have sold their Groupon common stock are
entitled to rescissionary damages.
76.

Less than three years elapsed from the time that the Company common stock

upon which this count is brought was sold to the public to the time of the filing of this action.
Less than one year elapsed from the time when Plaintiff discovered or reasonably could have
discovered the facts upon which this count is based to the time of the filing of this action.
COUNT III
(Against the Individual Defendants)
For Violation of Section 15 of The Securities Act
77.

Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, excluding all allegations above that contain facts necessary to prove any
elements not required to state a Section 15 claim, including without limitation, scienter.
78.

The Individual Defendants, by virtue of their offices, directorship and specific

acts were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of
Groupon within the meaning of Section 15 of the Securities Act. The Individual Defendants had
22

the power and influence and exercised the same to cause Groupon to engage in the acts described
herein.
79.

The Individual Defendants' position made them privy to and provided them with

actual knowledge of the material facts concealed from Plaintiff and the Class.
80.

By virtue of the conduct alleged herein, the Individual Defendants are liable for

the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages suffered.
COUNT IV
(Against Defendant Groupon and the Individual Defendants)
For Violations of Section 10(b) And Rule 10b-5 Promulgated Thereunder
81.

Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.
82.

This Count is asserted against all Defendants and is based upon Section 10(b) of

the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
83.

During the Class Period, Defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other Class members; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to,
and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and
other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of
Groupon common stock; and (iii) cause Plaintiff and other Class members to purchase Groupon

23

common stock at artificially inflated prices. In furtherance of this unlawful scheme, plan and
course of conduct, Defendants, and each of them, took the actions set forth herein.
84.

Pursuant to the above plan, scheme, conspiracy and course of conduct,

Defendant Groupon and the Individual Defendants, and each of the them, participated directly or
indirectly in the preparation and/or issuance of the February 8, 2012 Press Release and/or the
February 8, 2012 8-K, which were false and misleading in that they failed to disclose material
adverse information and misrepresented the truth about Groupon’s business, operations, financial
performance, management, and internal controls.
85.

Moreover, by virtue of their positions at Groupon, the Individual Defendants had

actual knowledge of the materially false and misleading statements and material omissions
alleged herein and intended thereby to deceive Plaintiffs and the other members of the Class, or,
in the alternative, they acted with reckless disregard for the truth in that they failed or refused to
ascertain and disclose such facts as would reveal the materially false and misleading nature of
the statements made, although such facts were readily available to them.
86.

The acts and omissions of Defendant Groupon and the Individual Defendants as

alleged herein were committed willfully or with reckless disregard for the truth. In addition,
each of them knew or recklessly disregarded that material facts were being misrepresented or
omitted as described above.
87.

Information showing that Defendant Groupon and the Individual Defendants

acted knowingly or with reckless disregard for the truth is peculiarly within their knowledge and
control. As the senior managers and/or directors of Groupon, the Individual Defendants had
knowledge of the details of its internal affairs.

24

88.

The Individual Defendants are liable both directly and indirectly for the wrongs

complained of herein.

Because of their positions of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of
Groupon. As officers and/or directors of a publicly-held company, the Individual Defendants
had a duty to disseminate timely, accurate, and truthful information with respect to Groupon’s
business, operations, financial performance, management, and internal controls. As a result of
the dissemination of the false and misleading February 8, 2012 Press Release and February 8,
2012 8-K, the market price of Groupon common stock was artificially inflated. In ignorance of
the adverse facts concerning Groupon that were concealed by Defendant Groupon and the
Individual Defendants, Plaintiff and the other Class members purchased Groupon common stock
at artificially inflated prices and relied upon the price of the common stock, the integrity of the
market for the common stock, and/or upon statements disseminated by Defendant Groupon and
the Individual Defendants and were damaged thereby.
89.

During the Class Period, Groupon securities were traded on an active and

efficient market. Plaintiff and the other members of the Class, relying on the materially false and
misleading statements described herein, which Defendant Groupon and the Individual
Defendants made, issued or caused to be disseminated, or relying upon the integrity of the
market, purchased shares of Groupon common stock at prices artificially inflated by Defendant
Groupon’s and the Individual Defendants’ wrongful conduct. Had Plaintiff and the other Class
members known the truth, they would not have purchased Groupon’s common stock or would
not have purchased it at the inflated prices that were paid. At the time of the purchases by
Plaintiff and the Class, the true value of Groupon common stock was substantially lower than the
prices paid by Plaintiff and the other Class members. The market price of Groupon common

25

stock declined sharply upon public disclosure of the facts alleged herein, to the injury of Plaintiff
and Class members.
90.

By reason of the conduct alleged herein, Defendant Groupon and the Individual

Defendants knowingly or recklessly, directly or indirectly, have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
91.

As a direct and proximate result of Defendant Groupon and the Individual

Defendants’ wrongful conduct, Plaintiff and the other Class members suffered damages in
connection with their respective purchases and sales of Groupon’s common stock during the
Class Period.
COUNT V
(Against the Individual Defendants)
For Violations of Section 20(a) of the Exchange Act

92.

Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.
93.

During the Class Period, the Individual Defendants participated in the operation

and management of Groupon, and conducted and participated, directly and indirectly, in the
conduct of Groupon’s business affairs. Because of their senior positions, they knew the adverse
non-public information about Groupon’s misstatements and omissions regarding its business,
operations, financial performance, management, and internal controls.
94.

As officers and/or directors of a publicly owned company, the Individual

Defendants had a duty to disseminate accurate and truthful information with respect to
Groupon’s business, operations, financial performance, management, and internal controls, and
to promptly correct any public statements issued by themselves or by Groupon that had become
materially false or misleading.
26

95.

Because of their positions of control and authority as senior officers, the

Individual Defendants were able to, and did, control the contents of the February 8, 2012 Press
Release and the February 8, 2012 8-K, and the various other reports, press releases and public
filings which Groupon disseminated in the marketplace during the Class Period concerning
Groupon’s business, operations, financial performance, management, and internal controls.
Throughout the Class Period, the Individual Defendants exercised their power and authority to
cause Groupon to engage in the wrongful acts complained of herein. The Individual Defendants
therefore, were “controlling persons” of Groupon within the meaning of Section 20(a) of the
Exchange Act.

In this capacity, they participated in the unlawful conduct alleged which

artificially inflated the market price of Groupon common stock.
96.

Each of the Individual Defendants, therefore, acted as a controlling person of

Groupon. By reason of their senior management positions and/or being Directors of Groupon,
and as regards the Registration Statement by reason of their need to sign it before its filing with
the SEC, each of the Individual Defendants had the power to direct the actions of Groupon, and
exercised the same to cause Groupon to engage in the unlawful acts and conduct complained of
herein. Each of the Individual Defendants exercised control over the general operations of
Groupon and possessed the power to control the specific activities which comprise the primary
violations about which Plaintiff and the other Class members complain.
97.

By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by Groupon.

27

PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.

Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B.

Awarding compensatory damages in favor of Plaintiff and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C.

Awarding Plaintiff and the other Class members prejudgment and post-judgment

interest, as well as their reasonable attorneys’ fees, expert fees and other costs;
D.

Awarding rescissionary damages; and

E.

Awarding such equitable, injunctive or other relief as this Court may deem just

and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff hereby demands
trial by jury of all issues that may be so tried.
Dated: April 3, 2012
POMERANTZ HAUDEK GROSSMAN
& GROSS LLP
By:___/s/ Patrick V. Dahlstrom_________
Patrick V. Dahlstrom
Bar # 6269196
Leigh Handelman Smollar
Joshua B. Silverman 10 South LaSalle
Street, Suite 3505
Chicago, IL 60603
Phone: [phone]
Fax: [phone]
28

POMERANTZ HAUDEK GROSSMAN
& GROSS LLP
Marc I. Gross
Jeremy A. Lieberman
Matthew L. Tuccillo
100 Park Avenue, 26th Floor
New York, New York 10017
Telephone: [phone]
Facsimile: 212-661-8665

BRONSTEIN GEWIRTZ &
GROSSMAN LLC
Peretz Bronstein
Edward N. Gewirtz
Neil D. Grossman
60 East 42nd Street
Suite 4600
New York, NY 10165
Phone: [phone]
Fax: [phone]
Counsel for Plaintiff

29

Certification of Plaintiff

Pursua nt to Federal Securities laws

1. I, Kathleen Roselli, make this declaration pursuant to Section 101 of
the Private Securities Litigation Reform Act of 1995 as required by Section 21D
(a) (2) of Title I of the Securities Exchange Act of 1934.

2.

I have reviewed a Complaint against Groupon, Inc. ("Groupon"), and

authorize a filing of a comparable complaint on my behalf.

3.

I did not purchase my Groupon securities at the direction of plaintiffs'

counselor in order to participate in any private action arising under Title I of the
Securities Exchange Act of 1934.

4. I am willing to serve as a representative party on behalf of a class as set
forth in the Complaint, including providing testimony at deposition and trial, if
necessary. I understand that the Court has the authority to select the most
adequate lead plaintiff in this action.
5. To the best of my current knowledge, the attached sheet lists all of my
purchases and sales in Groupon securities during the Class Period as specified in
the Complaint.

6.

During the three-year period preceding the date on which this
certification is signed, I have not sought to serve as a representative party on
behalf of a class under the federal securities laws, except as follows:
7,
I agree not to accept any payment for serving as a representative party
on behalf of the class as set forth in the Complaint, beyond my pro rata share of
any recovery, except such reasonable costs and expenses (including lost wages)
directly relating to the representation of the class as ordered or approved by the
Court.
8.
The matters stated in this declaration are true to the best of my current
knowledge, information and belief.

I declare under penalty or perjury that the foregoing is true and correct.

Executed

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Summary of Purchases and Sales

IDATE

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TYPE OF
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PURCHASE OR

!PRICE OF SECURITY

SALE
11109/2011

Purchase

1100

$29.91

1110912011

Purchase

200

$29.96

i 11/09/2011

Purchase

318

$30.88

lll/09/2011

I Purchase

482

$30.87

80

$17.50

J

01111/2012

Purchase

02/07/2012

Sale

0312612012

Purchase

' 130

22.50

500

,

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