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July 26, 2012 / Narine Khngikyan

Class Action Lawsuit against Groupon Alleging Securities Fraud

Groupon, the daily-deal website, has been sued by an investor in a class action lawsuit alleging securities fraud and misleading investors.   According to the lawsuit papers, Groupon failed to disclose negative trends in [its] business and made false statements as to Groupon’s financial results.” The lawsuit alleges that Groupon knew of its financial situation yet continued to conceal the facts to the investing public.  The lead plaintiff, Fan Zhang,  also alleges that the company did not meet the GAAP Guidelines (Generally Accepted Accounting Principles) and that the company’s  “financial results were materially false and misleading” and “revenues were overstated in violation of GAAP.” The lawsuit seeks damages, interest, lawyer fees and other relief to Groupon’s investors.

Since late 2008, Groupon has turned the awkward and unpleasant use of coupons into a modern-day phenomenon that offers people everywhere the chance to get a great deal . Many businesses all throughout the US, Europe, Asia, South American have turned to daily-deal websites like Groupon.com to draw customers into their shops to stay afloat in a down economy. Serving as the middle-man between customers and local businesses, Groupon promotes a city’s local restaurants and stores to customers and those interested in trying something different. Since the inception of Groupon in late 2008, the company has been growing at a rapid pace. Ranked as the #1 daily deal site in 2011, Groupon has a growing list of 115 million users.

Even apart from the securities-fraud class action, recently though, things have been looking a little rocky for Groupon. On Monday, the company suffered a 17% drop in stock price. The drop in price was due to the company having to revise their operating income and loss figures for the 4th quarter, since the company did not set aside sufficient funds to cover returns from customers who were dissatisfied with their Groupon purchase.  The misrepresentation of accounting figures raised red flags for Zhang,   who is alleging that Groupon’s dodgy accounting practices tricked investors into buying stocks.

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