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Groupon Worries Keeps Grouping: SEC Launches Probe, Shareholder Files Class Action
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While on April 2, the news of the Securities and Exchange Commission probing into Groupon Inc’s revision of financial results hit the headlines, on April 3, a shareholder filed a lawsuit seeking class action status in the company’s hometown, Chicago.

The company, which admitted last week to material weaknesses in its internal controls and failure to anticipate excessive refund claims, revised its published accounts for the fourth quarter, and came up with a net profit at least 25% lower than previously published. The move saw Groupon stocks plummet more than 16% leaving many investors unhappy.

Groupon is currently not compliant with Sarbanes-Oxley and has hired accounting firm KPMG to ensure compliance by year end with federal regulations. Ernst & Young is the independent auditor of Groupon.

  
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While the SEC probe into Groupon is at an initial stage and yet to be finalized, shareholders are not so patient.

The new lawsuit against Groupon is Zhang v. Groupon Inc, U.S. District Court, Northern District of Illinois, No. 12-02450. The plaintiff Fan Zhang alleges that he bought 3000 Groupon shares at nearly $61,800 in February, and had to sell them in March suffering a loss of $9000.

Zhang’s suit follows on the heels of a recent settlement by Groupon on March 29 where it settled nationwide litigation alleging illegality of its coupon expiry dates for a $8.5 million settlement.

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Zhang seeks class-action status on behalf of all shareholders who purchased Groupon shares between November 4, 2011 and March 30, 2012. The complaint alleges that Groupon failed to disclose its “poor and inadequate” internal controls and concealed the fact, that it did not comply with the laws of various countries, from its IPO prospectus in November, 2011.

Zhang also alleged that the company overstated its revenue, issued materially false and misleading financial results, and hid the facts that its business growth was much slower than publicized.



When the media tried to contact Groupon, Julie Mossler, a Groupon spokeswoman declined to make any comment, pointing out that the company does not discuss pending litigation.

Industry sources have reported that several other law firms are mulling the possibility of bringing similar lawsuits against Groupon.

Currently Groupon shares are close to one-fourth below IPO price.



 

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