Pedrow v. Groupon, Inc. et al
Filing
1
COMPLAINT Class Action Complaint for Violations of Federal Securities Laws filed by John Pedrow; Jury Deman. Filing fee $ 350, receipt number 0752-7053223. (Attachments: # 1 Certification of Named Plaintiff Pursuant to Federal Securities Laws)(Kurowski, Daniel)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOHN PEDROW, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
v.
CASE NO:
GROUPON, INC., ANDREW D. MASON,
JASON E. CHILD, JOSEPH M. DEL
PRETO,
ERIC
P.
LEFKOFSKY,
THEODORE J. LEONSIS, PETER J.
NARRIS, KEVIN J. EFRUSY, MELLODY
HOBSON, BRADLEY A. KEYWELL,
HOWARD
SCHULTZ,
MORGAN
STANLEY & CO. LLC, GOLDMAN,
SACHS & CO., CREDIT SUISSE
SECURITIES (USA) LLC, ALLEN &
COMPANY LLC, MERRILL LYNCH,
PIERCE,
FENNER
&
SMITH
INCORPORATED,
BARCLAYS
CAPITAL INC., CITIGROUP GLOBAL
MARKETS INC., DUETSCHE BANK
SECURITIES INC., J.P. MORGAN
SECURITIES LLC, WELLS FARGO
SECURITIES LLC, WILLIAM BLAIR &
COMPANY L.L.C., LOOP CAPITAL
MARKETS, INC., RBC CAPITAL
MARKETS LLC and THE WILLIAMS
CAPITAL GROUP, L.P.,
Defendants.
492009V1
CLASS ACTION COMPLAINT
FOR VIOLATIONS OF FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
TABLE OF CONTENTS
NATURE OF THE ACTION ..................................................................................................................... 3
JURISDICTION AND VENUE ................................................................................................................. 6
PARTIES .................................................................................................................................................... 6
FRAUDULENT SCHEME AND COURSE OF BUSINESS .................................................................. 12
BACKGROUND ...................................................................................................................................... 12
DEFENDANTS’ FALSE AND MISLEADING STATEMENTS MADE IN .............................................
CONNECTION WITH THE IPO ............................................................................................................. 13
ADDITIONAL SCIENTER ALLEGATIONS ......................................................................................... 26
LOSS CAUSATION/ECONOMIC LOSS ............................................................................................... 27
NO SAFE HARBOR ................................................................................................................................ 27
CLASS ACTION ALLEGATIONS ......................................................................................................... 28
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON .....................................................
THE MARKET DOCTRINE.................................................................................................................... 30
COUNT I .................................................................................................................................................. 30
COUNT II ................................................................................................................................................. 32
COUNT III ................................................................................................................................................ 32
COUNT IV ............................................................................................................................................... 33
PRAYER FOR RELIEF ........................................................................................................................... 34
DEMAND FOR TRIAL BY JURY .......................................................................................................... 34
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This is a federal class action on behalf of investors who purchased or otherwise acquired
the common stock of Groupon, Inc. (“Groupon” or the “Company”) between November 4,
2011 and March 30, 2012 (the “Class Period”). Plaintiff has alleged the following based upon
the investigation of plaintiff’s counsel, which included a review of United States Securities and
Exchange Commission (“SEC”) filings by Groupon, as well as regulatory filings and reports,
securities analysts’ reports and advisories about the Company, press releases and other public
statements issued by the Company, and media reports about the Company, and plaintiff
believes that substantial additional evidentiary support will exist for the allegations set forth
herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1.
During the Class Period, Groupon and the defendants harmed those who
purchased or otherwise acquired shares of Groupon by including false and misleading
information in the Registration Statement and Prospectus issued in connection with Groupon’s
November 4, 2011 initial public offering (“IPO”). As a result of the damages plaintiff
sustained, plaintiff seeks to pursue remedies under the Securities Act of 1933 (“1933 Act”) and
the Securities Exchange Act of 1934 (“1934 Act”).
2.
Groupon is a local e-commerce marketplace that connects merchants to
consumers by offering goods and services at a discount. Groupon’s IPO was the largest U.S.
web IPO since Google.
3.
During the Class Period, defendants issued materially false and misleading
statements regarding the Company’s business practices and financial results. Specifically,
defendants failed to disclose negative trends in Groupon’s business and made false statements
as to Groupon’s financial results and failed to reveal that Groupon had inadequate internal
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financial controls. As a result of these false statements, defendants were able to successfully
complete Groupon’s IPO at $20.00 per share, and subsequently Groupon’s stock traded at
artificially inflated prices during the Class Period, reaching its peak intraday trading price of
$31.14 on November 4, 2011. Groupon’s all-time high adjusted closing price of $26.19 per
share was reached on November 18, 2011.
4.
On November 3, 2011, Groupon announced the pricing of its IPO of 35 million
shares of common stock at $20 per share (not including an overallotment option granted to the
underwriters to purchase up to an additional 5.25 million shares), for net proceeds of $658
million, pursuant to the IPO. The total price to the public of the IPO was $700 million.
5.
As part of the Prospectus and Registration Statement issued in connection with
the IPO and during the Class Period, defendants represented that the Company had competitive
advantages which would benefit its business. To bolster this image, the Company repeatedly
reported financial results which showed dramatic growth.
6.
On Friday, March 30, 2012, after the market closed, Groupon disclosed (a) that
it had materially understated refund reserves for fourth quarter 2011 due to failure to properly
account for coupon refunds; (b) that, as a result, it had materially misstated previously reported
fourth quarter and full year 2011 revenue, operating income (loss), operating expense, net
income (loss), earnings (loss) per share, and cost of revenue; and (c) that internal controls over
its financial statements had material weaknesses.
7.
The March 30 disclosure revealed that the Company needed to revise its fourth
quarter and full year 2011 financial results. The Company reported a reduction in its fourth
quarter 2011 revenue of $14.3 million after initially reporting sales of $506.5 million. This
resulted in an increase to Groupon’s fourth quarter 2011 operating expenses that reduced
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operating income by $30 million, net income by $22.6 million, and earnings per share (“EPS”)
by $0.04. Groupon attributed the revisions to a shift in the Company’s fourth quarter deal mix
and higher price point offers, which resulted in higher refund rates.
8.
On this news, Groupon’s stock dropped $3.11 per share to close at $15.28 per
share on April 2, 2012, a decline of 17% on extraordinarily high volume of 10.09 million
shares.
9.
The true facts, which were known by the defendants but concealed from the
investing public during the Class Period, were as follows:
(a)
(b)
Groupon’s revenues were overstated in violation of GAAP;
(c)
Groupon’s business was not growing to the extent represented by
defendants and was not nearly as resistant to competition as suggested by
defendants;
(d)
The IPO Registration Statement and Prospectus concealed that Groupon
was not in compliance with the laws and regulations of some of the
countries in which it operated, including the United Kingdom; and
(e)
10.
Groupon’s financial results were materially false and misleading in
violation of Generally Accepted Accounting Principles (“GAAP”);
Groupon’s internal controls were so poor and inadequate that Groupon’s
reported results were not reliable.
As a result of defendants’ false and/or misleading statements, Groupon’s stock
traded at inflated levels during the Class Period. However, after the above revelations were
revealed to the market, the Company’s shares were hammered by massive sales, sending them
down 41% from their Class Period high.
11.
Defendants’ wrongful conduct caused significant losses and damages for
investors who have suffered as a direct consequence of the federal securities law violations
described herein.
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12.
JURISDICTION AND VENUE
The claims asserted herein arise under and pursuant to §§11 and 15 of the 1933
Act, 15 U.S.C. §§77k and 77o, and §§10(b) and 20(a) of the 1934 Act 15 U.S.C. §§78j(b) and
78t(a) and SEC Rule 10b-5, 17 C.F.R. §240.10b-5. This Court has jurisdiction over the subject
matter of this action pursuant to 28 U.S.C. §1331, §27 of the 1934 Act and §22 of the 1933 Act.
13.
Venue is proper in this District pursuant to 28 U.S.C. §1391(b), because
defendants maintain an office in this District and conduct business within this district. Many of
the acts and practices complained of herein occurred in substantial part in this District. In
addition, Groupon maintains its headquarters in this District at 600 W. Chicago Avenue, Suite
620, Chicago, Illinois 60654.
14.
In connection with the acts and conduct alleged in this complaint, defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce, including,
but not limited to, the mails and interstate wire and telephone communications and the facilities
of the national securities markets.
PARTIES
A. Plaintiff
15.
Plaintiff, John Pedrow, purchased the common stock of Groupon during the
Class Period and has been damaged thereby. Plaintiff’s Groupon transactions are set forth in
the accompanying certification and are incorporated by reference herein. Plaintiff’s purchases
of Groupon common stock are pursuant to or traceable to the Company’s materially false and
misleading Registration Statement and Prospectus issued by Defendants in connection with the
November 4, 2011 IPO.
B. Corporate Defendant
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16.
Defendant Groupon operates an e-commerce marketplace that connects
merchants to consumers by offering goods and services at a discount in North America and
internationally. Groupon is headquartered in Chicago, Illinois. Its stock trades in an efficient
market on the NASDAQ.
C. Individual Defendants
17.
Defendant Andrew D. Mason (“Mason”) co-founded the Company and serves as
Chief Executive Officer (“CEO”) and a director of Groupon. Defendant Mason signed or
authorized the signing of the false and misleading Registration Statement.
18.
Defendant Jason E. Child (“Child”) serves as Chief Financial Officer (“CFO”)
of Groupon. Defendant Child signed or authorized the signing of the false and misleading
Registration Statement.
19.
Defendant Joseph M. Del Preto (“Del Preto”) serves as Chief Accounting
Officer of Groupon. Defendant Del Preto signed or authorized the signing of the false and
misleading Registration Statement.
20.
Defendant Eric P. Lefkofsky (“Lefkofsky”) co-founded the Company and serves
as Executive Chairman of the Board. Defendant Lefkofsky signed or authorized the signing of
the false and misleading Registration Statement.
21.
Defendant Theodore J. Leonsis (“Leonsis”) serves as a director of Groupon.
Defendant Leonsis signed or authorized the signing of the false and misleading Registration
Statement.
22.
Defendant Peter J. Barris (“Barris”) serves as a director of Groupon. Defendant
Barris signed or authorized the signing of the false and misleading Registration Statement.
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23.
Defendant Kevin J. Efrusy (“Efrusy”) serves as a director of Groupon.
Defendant Efrusy signed or authorized the signing of the false and misleading Registration
Statement.
24.
Defendant Mellody Hobson (“Hobson”) serves as a director of Groupon.
Defendant Hobson signed or authorized the signing of the false and misleading Registration
Statement.
25.
Defendant Bradley A. Keywell (“Keywell”) co-founded the Company and
serves as a director of Groupon. Defendant Keywell signed or authorized the signing of the
false and misleading Registration Statement.
26.
Defendant Howard Schultz (“Schultz”) serves as a director of Groupon.
Defendant Schultz signed or authorized the signing of the false and misleading Registration
Statement.
27.
The defendants referenced above in ¶¶17-27 are referred to herein as the
“Individual Defendants.”
28.
The Individual Defendants referenced above in ¶¶20 - 27 are named as
defendants solely for violations of the 1933 Act.
D. Underwriter Defendants
29.
Defendant Morgan Stanley & Co. LLC (“Morgan Stanley”) is an investment
banking firm that offers financial advisory and security brokerage services. The firm was
formerly known as Morgan Stanley & Co. Incorporated and changed its name to Morgan
Stanley & Co. LLC in June 2011. Morgan Stanley acted as lead book-running manager and
underwriter for Groupon’s IPO, helping to draft and disseminate the offering documents.
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30.
Defendant Goldman, Sachs & Co. (“Goldman”) provides investment banking,
securities and investment management services to a substantial and diversified client base that
includes corporations, financial institutions, governments and high-net-worth individuals.
Goldman acted as lead book-running manager and underwriter for Groupon’s IPO, helping to
draft and disseminate the offering documents.
31.
Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) operates as an
investment bank in the United States. Its businesses include securities underwriting, sales and
trading, investment banking, private equity, alternative assets, financial advisory services,
investment research, and asset management. Credit Suisse acted as lead book-running manager
and underwriter for Groupon’s IPO, helping to draft and disseminate the offering documents.
32.
Defendant Allen & Company LLC (“Allen & Company”) is a boutique
investment banking firm that offers financial advisory services. Allen & Company acted as
book-running manager and underwriter for Groupon’s IPO, helping to draft and disseminate the
offering documents.
33.
Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch”) is the marketing name for the global banking and global markets businesses of Bank of
America Corporation. Merrill Lynch offers trading and brokerage services; debt and securities
underwriting; debt and equity research; and advice on public offerings, leveraged buyouts, and
mergers and acquisitions. Merrill Lynch acted as book-running manager and underwriter for
Groupon’s IPO, helping to draft and disseminate the offering documents.
34.
Defendant Barclays Capital Inc. (“Barclays”) provides securities brokerage and
financial advisory services. Barclays acted as book-running manager and underwriter for
Groupon’s IPO, helping to draft and disseminate the offering documents.
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35.
Defendant Citigroup Global Markets, Inc. (“Citigroup”) is a large integrated
financial services institution that through subsidiaries and divisions provides commercial and
investment banking services, commercial loans to corporate entities, and acts as underwriter in
the sale of corporate securities. Citigroup acted as book-running manager and underwriter for
Groupon’s IPO, helping to draft and disseminate the offering documents.
36.
Defendant Deutsche Bank Securities Inc. (“Deutsche”) is the U.S. investment
banking and securities arm of Deutsche Bank AG. Deutsche provides investment banking
products and services. Deutsche acted as book-running manager and underwriter for Groupon’s
IPO, helping to draft and disseminate the offering documents.
37.
Defendant J.P. Morgan Securities LLC (“JP Morgan”) is the U.S. investment
banking arm of financial services giant JPMorgan Chase & Co. JP Morgan provides debt and
equity underwriting, M&A and corporate restructuring advisory, securities dealing and
brokerage, and trade execution services for large-market companies and institutional investors.
JP Morgan acted as bookrunning manager and underwriter for Groupon’s IPO, helping to draft
and disseminate the offering documents.
38.
Defendant Wells Fargo Securities, LLC (“Wells Fargo”) is the full service
investment banking arm of Wells Fargo & Co. Wells Fargo provides investment banking
services in the United States and offers capital markets access through public offerings, private
placements, and debt offerings, which include new issue underwriting of high yield bonds and
144A private placements, as well as market making, research, and equity trading. It also
provides advisory services for mergers and acquisitions. Wells Fargo acted as book-running
manager and underwriter for Groupon’s IPO, helping to draft and disseminate the offering
documents.
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39.
Defendant William Blair & Company L.L.C. (“William Blair”) is an employee
owned financial services firm that offers investment banking, equity research, institutional and
private brokerage, and asset management to individual, institutional, and issuing clients. The
firm’s services include portfolio management, sales and trading, investment banking services,
mutual funds, and venture capital financing. William Blair acted as book-running manager and
underwriter for Groupon’s IPO, helping to draft and disseminate the offering documents
40.
Defendant Loop Capital Markets, Inc. (“Loop Capital”) is a boutique investment
banking and brokerage firm. The firm offers corporate and public finance, financial advisory,
municipal finance, equity research, and securities sales and trading services. Loop Capital acted
as co-manager and underwriter for Groupon’s IPO, helping to draft and disseminate the
offering documents.
41.
Defendant RBC Capital Markets LLC (“RBC”) offers corporate and investment
banking services to corporations, governments, and institutions. The firm’s services include
public and private placement of debt and equity securities, strategic alliances, mergers and
acquisitions advice, corporate finance, equity and debt underwriting, and structured and project
finance. RBC acted as co-manager and underwriter for Groupon’s IPO, helping to draft and
disseminate the offering documents.
42.
Defendant The Williams Capital Group, L.P. (“Williams”) is an investment bank
which provides equities, fixed income, corporate finance, investment management, and private
equity products and services for corporate, governmental, municipal, individual, and
institutional investors. Williams acted as co-manager and underwriter for Groupon’s IPO,
helping to draft and disseminate the offering documents.
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43.
The defendants named in ¶¶29-42 are referred to herein as the “Underwriter
Defendants.”
44.
Defendant Groupon and the Individual Defendants who signed the Registration
Statement are strictly liable for the false and misleading statements incorporated into the
Registration Statement. The Underwriter Defendants drafted and disseminated the offering
documents and were paid more than $42 million in connection therewith. The Underwriter
Defendants’ failure to conduct an adequate due diligence investigation was a substantial factor
leading to the harm complained of herein.
FRAUDULENT SCHEME AND COURSE OF BUSINESS
45.
Defendants are liable for: (i) making false statements; and/or (ii) failing to
disclose adverse facts known to them about Groupon. Defendants’ fraudulent scheme and
course of business that operated as a fraud or deceit on purchasers of Groupon common stock
was a success, as it: (i) deceived the investing public regarding Groupon’s prospects and
business; (ii) artificially inflated the price of Groupon common stock; and (iii) caused plaintiff
and other members of the Class to purchase Groupon common stock at inflated prices.
BACKGROUND
46.
Groupon self describes as a company that operates an e-commerce marketplace
that connects merchants to consumers by offering goods and services at a discount in North
America and internationally. It offers deals in 140 various types of businesses, including health
and beauty, food and drink, activities, events, services, and retail. The Company sends daily
emails to its subscribers regarding discounted offers for goods and services that are targeted by
location and personal preferences. Consumers can also access its deals directly through the
Company’s website and mobile application.
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47.
The Company was incorporated in 2008 and today has more than 10,000
employees. It operates in the United States, Europe, Latin America, Asia, and around the
world. In December 2010, Mason described Groupon as the fastest growing company in
human history.
48.
Prior to the IPO, Groupon emphasized its similarities to Amazon.com. During an
IPO roadshow, one Groupon executive, Jeff Holden, stated that the “parallels between Amazon
and Groupon are amazing,” referring to his prior experience working for Amazon.
DEFENDANTS’ FALSE AND MISLEADING STATEMENTS MADE IN
CONNECTION WITH THE IPO
49.
Beginning in June 2011, the Company filed a Form S-1 Registration Statement
and Amendments thereto (collectively the “Registration Statement”) in connection with its IPO,
which Registration Statement was declared effective by the SEC on November 3, 2011.
50.
The Registration Statement set forth the Company’s accounting policy for
recognition of refunds on 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 recoded 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.
51.
Groupon 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.
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52.
The Company acknowledged the importance of properly assessing refunds when
it highlighted an increasing rate of refunds resulting from offerings of 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 the gross 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 the deal mix within the quarter.
53.
These statements mislead investors to believe that Groupon had sufficient
internal controls for assessing likely rates for refunds. The failure to reveal weaknesses in the
internal controls over its financial statements made the Registration Statement false and
misleading.
54.
On November 3, 2011, the Company filed a Form S-1/A Registration Statement
with the SEC to facilitate the offering of 35 million shares of Groupon common stock to the
public.
55.
The Prospectus for the IPO, which was part of the Registration Statement, made
the following statements about Groupon’s competitive advantages:
Our Advantage
Customer experience and relevance of deals. We are committed to providing a
great customer experience and maintaining the trust of our customers. We use our
technology and scale to target relevant deals based on individual subscriber preferences.
As we increase the volume of transactions through our marketplace, we increase the
amount of data that we have about deal performance and customer interests. This data
allows us to continue to improve our ability to help merchants design the most effective
deals and deliver deals to customers that better match their interests.
Merchant scale and quality. In the nine months ended September 30, 2011, we
featured deals from over 190,000 merchants worldwide across over 190 categories of
goods and services. Our salesforce of over 4,800 sales representatives enables us to
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work with local merchants in 175 North American markets and 45 countries. We draw
on the experience we have gained in working with merchants to evaluate prospective
merchants based on quality, location and relevance to our subscribers. We maintain a
large base of prospective merchants interested in our marketplace, which enables us to
be more selective and offer our subscribers higher quality deals. Increasing our
merchant base also increases the number and variety of deals that we offer to
consumers, which we believe drives higher subscriber and user traffic, and in turn
promotes greater merchant interest in our marketplace.
Brand. We believe we have built a trusted and recognizable brand by delivering
a compelling value proposition to consumers and merchants. A benefit of our well
recognized brand is that a substantial portion of our subscribers in our established
markets is acquired through word-of-mouth. We believe our brand is trusted due to our
dedication to our customers and our significant investment in customer satisfaction.
56.
The Prospectus for the IPO made the following representations concerning
Groupon’s financial results:
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
We present below our summary consolidated financial and other data for the
periods indicated. Financial information for periods prior to 2008 has not been provided
because we began operations in 2008. The summary consolidated statements of
operations data for the years ended December 31, 2008, 2009 and 2010 and the balance
sheet data as of December 31, 2009 and 2010 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus. . . . The
summary consolidated statements of operations data for the periods ended September
30, 2010 and 2011 and the balance sheet data as of September 30, 2011 have been
derived from our unaudited consolidated financials statements included elsewhere in
this prospectus. The unaudited information was prepared on a basis consistent with
that used to prepare our audited financial statements and includes all adjustments,
consisting of normal and recurring items, that we consider necessary for a fair
presentation of the unaudited period.
***
Revenue Recognition
The Company recognizes revenue from Groupons when the following criteria
are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling
price is fixed or determinable; and collectability is reasonably assured. These criteria are
met when the number of customers who purchase the daily deal exceeds the
predetermined threshold, the Groupon has been electronically delivered to the purchaser
and a listing of Groupons sold has been made available to the merchant. At that time,
the Company’s obligations to the merchant, for which it is serving as an agent, are
substantially complete. The Company’s remaining obligations, which are limited to
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remitting payment to the merchant and continuing to make available on the Company’s
website the listing of Groupons previously provided to the merchant, are
inconsequential or perfunctory. The Company records the net amount it retains from the
sale of Groupons after paying an agreed upon percentage of the purchase price to the
featured merchant excluding any applicable taxes. Revenue is recorded on a net basis
because the Company is acting as an agent of the merchant in the transaction.
57.
The Prospectus for the IPO also included a letter by Groupon’s CEO, which,
despite a provision that it should not be relied upon, represented the following:
Dear Groupon,
This weekend, I did a Google News search on our company—my first in awhile. The
first story that popped up was called The Fall of Groupon: Is the DailyDeals Site
Running Out of Cash? I laughed when I read the headline (in the car by myself,
weirdly). First – with this article, the degree to which we’re getting the s*** kicked out
of us in the press had finally crossed the threshold from “annoying” to “hilarious.”
Second, I was struck by the irony—I had just finished a board meeting last Wednesday
saying this to myself: I’ve never been more confident and excited about the future of our
business.
***
I’m going to spend the rest of this email explaining why I’m so excited. You
need some ammo to argue back against your blog-reading “friends” (silently argue in
your mind, that is—you can’t actually say any of this yet), and I’ve been told that the
“what have you ever done with your life that’s so great?” rebuttal isn’t working as well
for you guys as it has for me. While we’ve bitten our tongues and allowed insane
accusations (like in the article above) to go unchallenged publicly, it’s important to me
that you have the context necessary to brush this stuff off. I’ll summarize my excitement
with four points: 1) Growth in our core business is strong 2) Our investments in the
future – businesses like Getaways & NOW—look great, 3) We are pulling away from
competition, and 4) We’ve built a great team that I would pit against anyone. In other
words, all the stuff that one would want to look good? It looks good. Many of the longterm unknowns of our business are becoming known, and we like the answers. I will
now elaborate in a level of financial detail that will give Jason Child a stomach ulcer.
1. GROWTH IN THE CORE BUSINESS
***
1.
We are currently spending more than just about any company ever on
marketing – in Q2, we spent nearly 20% of our net revenue on marketing, while a
typical company spends less than 5%. Why do we spend so much? The simple answer is
“because it works.” But that’s only part of what makes our situation special.
2.
Our marketing – at least the customer acquisition marketing that we
remove from ACSOI – is designed to add people to our own long-term marketing
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channel – daily email list. Once we have a customer’s email, we can continually market
to them at no additional cost. Compare this to Johnson and Johnson, McDonald’s, or
most other companies. If I’m a Johnson, and I’m trying to sell you a box of Band Aids, I
have to keep spending money on commercials and magazine ads and stuff to remind
you about how sweet Band Aids are, even after you’ve bought your first box. With
Groupon, we just spend money one time to get you on our email list, and then every day
we email you a reminder of the sweetness of our metaphorical Band Aid. There is no
cost of reacquisition – it’s unusual (and we created ACSOI to point that out). If Johnson
wanted to follow the Groupon strategy, he would have to start a free daily newspaper
about bandages and then run Band Aid ads in it every day.
3.
Eventually, we’ll ramp down marketing just as fast as we ramped it up,
reducing the customer acquisition part of our marketing expenses (the piece that we
remove in ACSOI) to nominal levels. We are spending a ton now because we’re
acquiring as many subscribers as we can as quickly as we can. We aren’t paying
attention to marketing budget (just marketing ROI) in the way a normal company
would, because we know that even if we wanted to continue to spend at these levels, we
would eventually run out of new subscribers to acquire. So our customer acquisition
spend drops severely to reflect the fact that eventually we’ll run out of people we can
add to our email list. We view this internally as a very large one-time expense and then
our job forever after will be to continually convert these subscribers into customers and
to make sure our customers keep buying from us. Ongoing, the normal marketing
dollars we spend are not something we would remove from our internal calculation of
ACSOI.
***
Anyway, there’s a reason that I just went on about ACSOI. One of the questions
that skeptics ask is, “when you ramp down marketing, won’t revenues stop growing as
well? Aren’t you just buying growth?” Over the past several months we’ve been
consistently reducing our marketing spend and yet revenues are still increasing at a
significant pace. In Q1 of this year, marketing represented 32.3% of our net revenues.
By the end of Q2 it had fallen to 19.4%. And it has continued to fall over the past
several months all because we’ve been investing in our own longterm marketing
channel – our email list.
Internationally we see the same trends – marketing is down, but revenues are up
– every country is either losing less or making more. Even in young markets like Korea,
where we’re still making massive investments, we’re seeing unprecedented growth. We
started building our Korean team this January, despite the presence of two competitors
that were larger than any we’d previously battled from behind. Thanks to the brilliant
execution of the Korean team, we are set to be the market leader within months. We’ve
never had a country grow as fast as Korea!
***
2. NEW BUSINESS LINES ARE BOOMING
Travel and Product are enormous opportunities. After only a few months, they’re
already making up 20% of revenue in some countries. We sold $2M worth of mattresses
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in the UK – in one day! Groupon Getaways will do $10M in its first calendar month –
which you might think is awesome, but we’re actually disappointed with those results
because we know how much better we’ll be doing soon.
While there’s still a ton of work to do, Groupon Now! continues to see weekly
double digit growth. The model works and I believe it will play a major part in the
future of our global business as more merchants and customers join the marketplace.
3. WE ARE PULLING AWAY FROM COMPETITION
If there’s a question I’ve received from Groupon skeptics more than any other,
it’s, “how will you fend off the competition – especially massive companies like Google
and Facebook?” I could give a dozen reasons to bet on Groupon, but it’s impossible to
predict the future or the actions of others. Well, now the sleeping giants have woken up
– and the numbers are showing that what was proven true with literally thousands of
other competitors is just as true with the incumbents of the Internet: it’s kind of hard to
build a Groupon. And since anyone with an Internet connection can track the
performance of our competitors, I can be more specific:
• Google Offers is small and not growing. In the three markets where we
compete, we are 450% of their size.
• Yelp is small and not growing. In the 15 markets where we compete, our daily
deals are 500% of their size.
• Living Social’s U.S. local business is about 1/3rd our size in revenue (and
smaller in GP) and has shrunk relative to us in the last several months. This, in
part, appears to be driving them toward short-sighted tactics to buy revenue, like
buying gift certificates from national retailers at full price and then paying out of
their own pocket to give the appearance of a 50% off deal. Our marketing team
has tested this tactic enough to know that it’s generally a bad idea, and not a
profitable form of customer acquisition.
• Facebook sales are harder to track, but are even less significant at present.
My point is not that our competitors will fail – some may actually develop
sustainable businesses, or even grow – after all, local commerce is an enormous market.
The real point is that our business is a lot harder to build than people realize and our
scale creates competitive advantages that even the largest technology companies are
having trouble penetrating. And with the launch of NOW, I suspect our competition will
have an even harder time in light of the natural barriers to entry that are needed to
build a real-time local deals marketplace.
***
FINAL THOUGHTS
18
I wrote this email because when I read some of the press this weekend, I realized
a rational person could read this stuff and wrongly conclude that we’re in trouble. The
irony is hopefully clear: We’ve never been stronger.
And while we’ve refrained from defending ourselves publicly, you’ve continued
to create our best defense, with every department innovating new practices that are
taking our business to the next level. Thanks for staying tough, determined, and agile
throughout this process. For now we must patiently and silently endure a bit more public
criticism as we prepare to birth this IPO baby – a breed for which there are no epidurals.
If there’s a silver lining, it’s that we’re almost on the other side, and the negativity
leaves us well-positioned to exceed expectations with an IPO baby that, having seen the
ultrasound, I can promise you is not one of those uglies.
I’ve been as candid as possible – hope this sheds some light on things. Reply
with your questions if anything remains unclear. Amidst all this, I hope you remember
what we’re doing here – we are making history together. I guess you don’t get to build
something that reshapes the local commerce ecosytem without getting a few bruises.
I’m so proud of the work we’re doing, and I feel extraordinarily lucky to work on what I
think is the best thing that’s happened to small businesses since the telephone We’ve
invented something that is catalyzing millions of dollars of local commerce every single
day in 45 countries and fills the lives of millions of customers with unforgettable
experience – it’s pretty remarkable.
Looking forward to getting this behind us!
Andrew
P.S.: I almost forgot to address the nonsense about us running out of money in
the article above. If you apply the same logic used in the article, you’d have concluded
long ago that companies like Amazon and Wal-Mart were running out of cash too. Both
have often had payables far in excess of their cash. Finance geeks call this a working
capital deficit. It’s normal, manageable and a lot of folks actually believe it’s good thing
and would kill to get paid from their customers long before they have to pay their
suppliers. We are generating cash, not losing it – we generated $25M in cash last quarter
alone, adding to the $200M we had before. In other words, we’re doing the opposite of
running out of money.
58.
On November 3, 2011, Groupon issued a press release announcing the pricing of
the IPO, which stated in part:
Groupon, Inc. today announced the initial public offering of 35,000,000 shares of its
Class A common stock at a price of $20 per share. In addition, Groupon has granted the
underwriters a 30-day option to purchase up to an additional 5,250,000 shares of Class A
common stock to cover over-allotments, if any. All of the shares of Class A common stock are
being offered by Groupon. The company’s shares are expected to begin trading on The
NASDAQ Global Select Market on November 4, 2011 under the ticker symbol “GRPN.”
19
The lead book-running managers of the offering are Morgan Stanley & Co. LLC,
Goldman, Sachs & Co., and Credit Suisse Securities (USA) LLC. Additional book-running
managers are Allen & Company LLC, BofA Merrill Lynch, Barclays Capital Inc., Citigroup
Global Markets, Inc., Deutsche Bank Securities, Inc., J.P. Morgan Securities LLC, Wells Fargo
Securities, LLC and William Blair & Company, LLC. Co-managers are Loop Capital Markets,
RBC Capital Markets LLC, and The Williams Capital Group, L.P.
59.
On December 2, 2011, Advertising Standards Authority Ltd. published an article
entitled “ASA refers complaints about Groupon to OFT,” which stated in part:
Following repeated breaches of the Advertising Code by MyCityDeal Ltd t/a
Groupon, the Advertising Standards Authority is now referring complaints that we
receive about Groupon’s ads to the Office of Fair Trading (OFT). We are referring
complaints that specifically concern Groupon’s:
•
Failure to conduct promotions fairly, such as not making clear significant
terms and conditions
•
Failure to provide evidence that offers are available
•
Exaggeration of savings claims.
We are taking this approach because, given Groupon’s track record, we have
serious concerns about its ability to adhere to the Advertising Code. It is in the public
interest that we refer the matter to the OFT, the OFT being better placed to address any
underlying issues concerning Groupon’s trading practices generally.
In 2011, the ASA has formally investigated and upheld complaints against
Groupon’s advertising on 11 occasions. We have also informally resolved 37 cases. We
will continue working closely with the OFT on these issues to ensure consumers are
protected.
60.
On February 8, 2012, Groupon issued a press release signed by Defendant Child
announcing its fourth quarter and full year 2011 financial results for the period ending
December 31, 2011. It also filed this same press release with the SEC. The Company reported
a net loss of ($42.7 million), or ($0.08) diluted EPS, and revenue of $506.5 million for the
fourth quarter of 2011. The Company additionally reported a net loss of ($350.8) million, or
($0.97) diluted EPS, and revenue for the 2011 full year of $1.6 billion. Further, the Company
20
provided its first quarter 2012 guidance, with income from operations expected to be between
$15 million and $35 million and revenue expected to be between $510 million and $550
million. The release stated in part:
Revenue increased 194% to $506.5 million in the fourth quarter 2011, compared
to $172.2 million in the fourth quarter 2010. The unfavorable impact from year-overyear changes in foreign exchange rates throughout the quarter was $3.5 million. Gross
billings, which reflects the gross amounts collected from customers for Groupons sold,
excluding any applicable taxes and net of estimated refunds, increased 201% to $1.25
billion in the fourth quarter 2011, compared with $415.3 million in the fourth quarter
2010.
“Groupon had a strong fourth quarter and we finished 2011 having helped
250,000 local merchants across 47 countries grow their businesses while saving
Groupon customers billions of dollars,” said Andrew Mason, CEO and Co-Founder of
Groupon. “We will continue to invest in new services and tools that help our merchant
partners be more successful and drive local commerce around the world.”
61.
While the February 8, 2012, press release was largely upbeat, the reported net
loss of $9.8 million disappointed the market. The Company attributed the loss 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%.”
62.
On this news, Groupon’s stock declined to $21.17 per share, but continued to
trade at artificially inflated levels as defendants concealed Groupon’s improper accounting and
overstated revenues.
21
63.
This press release was false and misleading in that it understated operating
expenses, reserves, and costs of revenue; overstated revenues, operating income and earnings
per share; and failed to disclose material weaknesses in Groupon’s internal controls.
64.
Then, on March 30, 2012, after the market closed, Groupon issued a press
release announcing a revision to its fourth quarter and full year 2011 results. The Company
reported a reduction in its fourth quarter 2011 revenue of $14.3 million after initially reporting
sales of 506.5 million. This resulted in an increase to Groupon’s fourth quarter 2011 operating
expenses that reduced operating income by $30 million, net income by $22.6 million, and EPS
by $0.04. Groupon attributed the revisions to a shift in the Company’s fourth quarter deal mix
and higher price point offers, which resulted in higher refund rates. The release stated in part:
Groupon, Inc. today announced a revision of its reported financial results for its fourth
quarter and year ended December 31, 2011. Groupon also affirmed its guidance for the
first quarter of 2012.
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. Financial results for prior periods, including as of and for the nine
months ended September 30, 2011, were not affected by the revisions.
There is no change to Groupon’s previously reported operating cash flow of $169.1
million for the fourth quarter 2011 and $290.5 million for the full year 2011. There is
also no change to Groupon’s previously reported free cash flow, which is a non-GAAP
financial measure that reflects cash flow from operations less purchases of property and
equipment, of $155.1 million for the fourth quarter 2011 and $246 million for the full
year 2011.
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. A more detailed explanation of the refund reserve is included in the
Critical Accounting Policies and Estimates section of Groupon’s Annual Report on
Form 10-K for the year ended December 31, 2011, filed today with the Securities and
Exchange Commission (SEC).
22
“We remain confident in the fundamentals of our business, as our performance
continues to highlight the value that we provide to customers and merchants,” said
Jason Child, Groupon CFO. Groupon affirmed its guidance contained in its February 8,
2012 press release regarding expectations for first quarter 2012 revenue of $510 million
to $550 million and income from operations of $15 million to $35 million. This
guidance includes approximately $35 million for stockbased compensation and
acquisition-related expense, and it assumes no material business acquisitions or
investments and no further revisions to stock-based compensation estimates.
65.
On March 30, 2012, The Financial Times published an article entitled “Groupon
restates 2011 results,” which stated in part:
Groupon has revealed an accounting restatement that had the effect of wiping
out its operating profit for the final months of last year, extending the series of financial
hiccups that have bedevilled the fast-growing online coupons company.
The news late on Friday included an admission of “material weakness” in its
internal controls and comes just six months after its initial public offering. It triggered a
7 per cent drop in its shares in after-hours trading.
Groupon blamed the restatement on its failure to account properly for its move
into new markets where there is a higher chance that consumers will demand a refund.
Customers who buy coupons that give a discount on high-value services, such as
laser eye surgery or hair removal, are more likely to ask for their money back, according
to the company, forcing it to withhold more of its money in a refund reserve. The
expansion into higher-risk categories like this only took place late last year, Groupon
said, leading to a restatement just of the final quarter’s figures.
The accounting change reduced the company’s reported operating income for the
period by $30m – more than wiping out the $15m it had previously reported for the
period. It had less impact on revenues, shaving $14.3m from the $506m that had been
reported before.
66.
Also on March 30, 2012, Seeking Alpha published an article entitled “Brace For
More Surprises: Groupon Restates Earnings, Reveals Weakness in Financial Controls,” which
stated in part:
After traders packed up for the weekend, Groupon (GRPN) issued two warnings
during the evening of March 30th.
23
First, Groupon discovered it under-estimated its refund rate for the previous
quarter. As a result, the company revised downward its revenue and earnings
numbers:
“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.”
This means GRPN actually had a greater loss for the last quarter. GRPN claims
in its 10K filing released in parallel with the restatement that it has fixed its refund
model to include a change in deal mix and higher priced offers. GRPN does not indicate
whether these shifts represent a one-time change or an on-going dynamic change.
GRPN is holding firm on its guidance for the current quarter, so the company is
implying the shift could be temporary and/or seasonal/cyclical. It is of course possible
GRPN got blindsided with a higher number of low-quality merchants. For now, I expect
overall refund rates to trend upward, and I expect analysts to ask a lot of questions about
this during the next conference call. Refund dynamics will get the spotlight as a source
of potential uncertainty in GRPN’s revenues and profits.
Second, GRPN warned that it “.identified a material weakness in [its] internal
control over financial reporting which could, if not remediated, result in material
misstatements in our financial statements.” The details are included in the company’s
10K filing. GRPN is now expanding the scope of a review of its internal controls
mandated by its IPO filing so that it can understand the source of the weakness and fix
it. The 10K makes it clear that the conclusion of this review could uncover more
financial surprises at an as yet undetermined time:
“Although we plan to complete this remediation process as quickly as possible,
we cannot at this time estimate how long it will take, and our initiatives may not
prove to be successful in remediating this material weakness. If our remedial
measures are insufficient to address the material weakness, or if additional
material weaknesses or significant deficiencies in our internal control over
financial reporting are discovered or occur in the future, our consolidated
financial statements may contain material misstatements and we could be
required to restate our financial results.”
Until this issue is resolved, the implied risk premium for GRPN grows larger.
GRPN’s stock dropped as much as 10% in after-hours trading. Curiously, GRPN’s stock
rallied into these revelations.
67.
On this news, Groupon’s stock dropped $3.11 per share to close at $15.28 per
share on April 2, 2012, a decline of 17% on exceptionally high volume of 10.09 million shares.
24
68.
The true facts, which were known by the defendants but concealed from the
investing public during the Class Period, were as follows:
(a) Groupon’s financial results were materially false and misleading in violation of
GAAP;
(b) Groupon’s revenues were overstated in violation of GAAP;
(c) Groupon’s business was not growing to the extent represented by defendants and
was not nearly as resistant to competition as suggested by defendants;
(d) The IPO Registration Statement and Prospectus concealed that Groupon was not in
compliance with the laws and regulations of some of the countries in which it operated,
including the United Kingdom; and
(e) Groupon’s internal controls were so poor and inadequate that Groupon’s reported
results were not reliable.
69.
The market for Groupon common stock was open, well-developed and efficient
at all relevant times. As a result of defendants’ materially false and misleading statements and
failures to disclose, Groupon common stock traded at artificially inflated prices during the
Class Period. Plaintiff and other members of the Class purchased or otherwise acquired
Groupon common stock relying upon the integrity of the market price of Groupon common
stock and market information relating to Groupon. Plaintiff and other class members’ have
been damaged because they purchased Groupon common stock at artificially inflated prices.
70.
At all relevant times, the material misrepresentations and omissions
particularized in this complaint directly or proximately caused, or were a substantial
contributing cause of, the damages sustained by plaintiff and other members of the Class. As
alleged in this Complaint, during the Class Period, defendants made or caused to be made a
series of materially false or misleading statements about Groupon’s business, prospects and
operations. Defendants’ material misstatements and omissions had the cause and effect of
creating an unrealistically positive assessment of Groupon and its business, prospects and
25
operations. This resulted in the Company’s common stock to be overvalued and artificially
inflated at all relevant times. Defendants’ materially false and misleading statements during the
Class Period resulted in plaintiff and other members of the Class purchasing the Company’s
common stock at artificially inflated prices, thus causing the damages to plaintiff and the Class.
71.
During the Class Period, defendants materially misled the investing public,
thereby inflating the price of Groupon’s common stock. Defendants caused Groupon’s stock to
be artificially inflated by publicly issuing false and misleading statements and omitting to
disclose material facts necessary to make defendants’ statements, as set forth herein, not false
and misleading. Said statements and omissions were materially false and misleading in that
they failed to disclose material adverse information and misrepresented the truth about the
Company, its business and operations, as alleged herein.
72.
As a result of defendants’ false statements, Groupon’s stock traded at inflated
levels during the Class Period. However, after the above revelations seeped into the market, the
Company’s shares were hammered by massive sales, sending them down 41% from their Class
Period high.
ADDITIONAL SCIENTER ALLEGATIONS
73.
As alleged herein, Groupon and the Individual Defendants acted with scienter in
that they knew that the public documents and statements issued or disseminated in the name of
the Company were materially false and misleading. They also knew that such statements or
documents would be issued or disseminated to the investing public. Despite this knowledge,
they knowingly and substantially participated or acquiesced in the issuance or dissemination of
such statements or documents as primary violators of the federal securities laws. As set forth in
this Complaint, these defendants, by virtue of their receipt of information reflecting the true
26
facts regarding Groupon, their control over, and/or receipt and/or modification of Groupon’s
allegedly materially misleading statements and/or their associations with the Company which
made them privy to confidential proprietary information concerning Groupon, were direct and
primary participants in the fraudulent scheme alleged herein.
LOSS CAUSATION/ECONOMIC LOSS
74.
During the Class Period, as detailed herein, the defendants made false and
misleading statements and engaged in a scheme to deceive the market and a course of conduct
that artificially inflated the price of Groupon common stock and operated as a fraud or deceit on
Class Period purchasers of Groupon common stock by misrepresenting the Company’s business
and prospects. Later, when the defendants’ prior misrepresentations and fraudulent conduct
became apparent to the market, the price of Groupon common stock fell precipitously, as the
prior artificial inflation came out of the price over time. As a result of their purchases of
Groupon common stock during the Class Period, plaintiff and other members of the Class
suffered economic loss, i.e., damages, under the federal securities laws.
NO SAFE HARBOR
75.
The statutory safe harbor provided to forward-looking statements under certain
particular circumstances does not apply to any of the allegedly false or misleading statements
pleaded in this complaint. To the extent that projected revenues and earnings were included in
the Groupon’s financial reports prepared in accordance with GAAP, including those filed with
the SEC on Form 8 K, they are excluded from the protection of the statutory Safe Harbor. 15
U.S.C. §78u-5(b)(2)(A).
76.
The defendants are also liable for any false or misleading forward-looking
statements pleaded because, at the time each forward-looking statement was made, the speaker
27
knew the forward-looking statement was false or misleading and the forward-looking statement
was authorized and/or approved by an executive officer of Groupon who knew that the forwardlooking statement was false.
77.
Furthermore, none of the historic or present tense statements made by
defendants were assumptions underlying or relating to any plan, projection or statement of
future economic performance, as they were not stated to be such assumptions underlying or
relating to any projection or statement of future economic performance when made, nor were
any of the projections or forecasts made by defendants expressly related to or stated to be
dependent on those historic or present tense statements when made.
CLASS ACTION ALLEGATIONS
78.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3). The Class consists of all those who purchased or otherwise
acquired shares of Groupon common stock during the Class Period and/or pursuant or traceable
to the Company’s false and misleading Registration Statement for its IPO, and who were
damaged thereby. The Class excludes any defendants and their families, the officers and
directors of the Company, at all relevant times, 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.
79.
The members of the Class are so numerous that joinder of all members is
impracticable. Groupon stock was actively traded in an efficient market on the NASDAQ.
While the exact number of Class members is unknown to plaintiff at this time and can only be
ascertained through appropriate discovery, plaintiff believes that there are hundreds of members
in the proposed Class. Groupon has more than 642 million shares of stock outstanding.
28
80.
Plaintiff’s claims are typical of the claims of the members of the Class, as all
members of the Class are similarly affected by defendants’ wrongful conduct in violation of
federal law that is complained of herein.
81.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
82.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the 1933 Act and 1934 Act were violated by defendants’ acts as
alleged herein;
(b) whether statements made by defendants to the investing public during the
Class Period and in the Registration Statement misrepresented material facts about the
business, operations, financial performance, management and internal controls of
Groupon;
(c) whether the Individual Defendants caused Groupon to issue false and
misleading statements during Class Period;
(d) whether the price of Groupon common stock during the Class Period was
artificially inflated because of defendants wrongful conduct outlined in this Complaint;
and
(e) to what extent the members of the Class have sustained damages and the
proper measure of damages.
83.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all 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 members of the Class to individually
redress the wrongs done to them. Prosecution of individual actions would create a risk of
29
inconsistent adjudications. There will be no difficulty in the management of this action as a
class action.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON
THE MARKET DOCTRINE
84.
At all relevant times, the market for Groupon’s common stock was an efficient
market for the following reasons, among others:
(a) Groupon common stock met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b) as a regulated issuer, Groupon filed periodic public reports with the SEC and the
NASDAQ;
(c) Groupon regularly communicated with public investors via established market
communication mechanisms, including through regular disseminations of press releases
on the national circuits of major newswire services and through other wide-ranging
public disclosures, such as communications with the financial press and other similar
reporting services; and
(d) Groupon was followed by several securities analysts employed by major brokerage
firms who wrote reports which were distributed to the sales force and certain customers
of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace.
85.
As a result of the foregoing, the market for Groupon common stock promptly
digested current information regarding Groupon from all publicly available sources and
reflected such information in the prices of the stock. Under these circumstances, all purchasers
of Groupon common stock during the Class Period suffered similar injury through their
purchase of Groupon common stock at artificially inflated prices and a presumption of reliance
applies.
COUNT I
For Violation of Section 11 of the 1933 Act
Against All Defendants
86.
Plaintiff incorporates ¶¶1-44, 46-72 and 78-85 by reference.
30
87.
This Count is brought pursuant to §11 of the 1933 Act, 15 U.S.C. §77k, on
behalf of the Class, against all defendants.
88.
This Count does not sound in fraud. All of the preceding allegations of fraud or
fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiff does not
allege that the Individual Defendants or the Underwriter Defendants had scienter or fraudulent
intent, which are not elements of a §11 claim.
89.
The Registration Statement for the IPO was inaccurate and misleading,
contained untrue statements of material facts, omitted to state other facts necessary in order to
make the statements made not misleading, and omitted to state material facts required to be
stated therein.
90.
Groupon is the registrant for the IPO. The defendants named herein were
responsible for the contents and dissemination of the Registration Statement.
91.
As issuer of the shares, Groupon is strictly liable to plaintiff and the Class for
any misstatements and omissions.
92.
None of the defendants named herein made a reasonable investigation or
possessed reasonable grounds for the belief that the statements contained in the Registration
Statement were true and without omissions of any material facts and were not misleading.
93.
By reason of the conduct herein alleged, each defendant violated, and/or
controlled a person who violated, §11 of the 1933 Act.
94.
Plaintiff acquired Groupon shares pursuant and/or traceable to the Registration
Statement for the IPO.
95.
Plaintiff and the Class have sustained damages. The value of Groupon common
stock has declined substantially subsequent to and due to defendants’ violation.
31
96.
At the time of their purchases of Groupon shares, plaintiff and other members of
the Class were without knowledge of the facts concerning the wrongful conduct alleged herein
and could not have reasonably discovered those facts prior to March 30, 2012. Less than one
year has elapsed from the time that plaintiff discovered or reasonably could have discovered the
facts upon which this complaint is based to the time that plaintiff filed this complaint. Less than
three years have elapsed between the time that the securities upon which this Count is brought
were offered to the public and the time plaintiff filed this complaint.
COUNT II
For Violation of Section 15 of the 1933 Act
Against Groupon and the Individual Defendants
97.
Plaintiff repeats and realleges ¶¶1-44, 46-72 and 78-96, by reference.
98.
This Count is brought pursuant to §15 of the 1933 Act against Groupon and the
Individual Defendants.
99.
The Individual Defendants each were control persons of Groupon by virtue of
their positions as directors and/or senior officers of Groupon. The Individual Defendants each
had a series of direct and/or indirect business and/or personal relationships with other directors
and/or officers and/or major shareholders of Groupon. Groupon controlled the Individual
Defendants and all of Groupon’s employees.
100.
Defendants each were culpable participants in the violations of §11 of the 1933
Act alleged in the Count above, based on their having signed or authorized the signing of the
Registration Statement and having otherwise participated in the process which allowed the IPO
to be successfully completed.
COUNT III
For Violation of §10(b) of the 1934 Act and Rule 10b-5
Against Groupon, Mason, Child and Del Preto
32
101.
Plaintiff incorporates ¶¶1-100 by reference.
102.
During the Class Period, Defendants Groupon, Mason, Child and Del Preto
disseminated or approved the false statements specified above, which they knew or deliberately
disregarded were misleading in that they contained misrepresentations and failed to disclose
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
103.
Groupon, Mason, Child and Del Preto violated §10(b) of the 1934 Act and Rule
10b-5 in that they:
(a) employed devices, schemes and artifices to defraud;
(b) made untrue statements of material facts or 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; or
(c) engaged in acts, practices and a course of business that operated as a fraud or deceit
upon plaintiff and others similarly situated in connection with their purchases of Groupon
common stock during the Class Period.
104.
Plaintiff and the Class have suffered damages in that, in reliance on the integrity
of the market, they paid artificially inflated prices for Groupon common stock. Plaintiff and the
Class would not have purchased Groupon common stock at the prices they paid, or at all, if they
had been aware that the market price had been artificially and falsely inflated by Groupon’s,
Mason’s, Child’s and Del Preto’s misleading statements.
COUNT IV
For Violation of §20(a) of the 1934 Act
Against Groupon, Mason, Child and Del Preto
33
105.
Plaintiff incorporates ¶¶1-104 by reference.
106.
Groupon, Mason, Child and Del Preto acted as controlling persons of Groupon
within the meaning of §20(a) of the 1934 Act. By reason of their positions with the Company,
and their ownership of Groupon stock, Mason, Child and Del Preto had the power and authority
to cause Groupon to engage in the wrongful conduct complained of herein. Groupon controlled
Mason, Child and Del Preto and all of its employees. By reason of such conduct, these
defendants are liable pursuant to §20(a) of the 1934 Act.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for relief and judgment, as follows:
A.
Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;
B.
Awarding plaintiff and the members of the Class compensatory damages and
interest against all defendants, jointly and severally, for all damages sustained as a result of
defendants’ wrongdoing, in an amount to be proven at trial;
C.
Awarding plaintiff and other Class members prejudgment and post-judgment
interest, as well as their reasonable costs, including attorneys’ fees, expert fees and other costs;
D.
Awarding rescission or a rescissory measure of damages; and
E.
Awarding such equitable/injunctive or other relief as the Court may deem just
and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands trial
by jury on all claims asserted herein.
34
Dated: April 16, 2012.
Respectfully submitted,
By: /s/ Daniel J. Kurowski
Elizabeth A. Fegan
Daniel J. Kurowski
HAGENS BERMAN SOBOL SHAPIRO LLP
1144 W. Lake Street, Suite 400
Oak Park, IL 60301
Telephone: (708) 628-4949
Facsimile: (708) 628-4950
beth@hbsslaw.com
dank@hbsslaw.com
Steve W. Berman
HAGENS BERMAN SOBOL SHAPIRO LLP
1918 Eighth Avenue, Suite 3300
Seattle, WA 98101
Telephone: (206) 623-7292
Facsimile: (206) 623-0594
steve@hbsslaw.com
Reed R. Kathrein
Peter E. Borkon
HAGENS BERMAN SOBOL SHAPIRO LLP
715 Hearst Ave., Suite 202
Berkeley, CA 94710
Telephone (510) 725-3000
Facsimile (510) 725-3001
reed@hbsslaw.com
peterb@hbsslaw.com
Attorneys for Plaintiff
35
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