SAN FRANCISCO (CN) - The three top executives of Yelp sold more than $20 million of their own shares at prices inflated by false and misleading statements, and the stock price cratered by one-third when the truth came out, shareholders claim in a federal class action.
Lead plaintiff Joseph Curry sued Yelp, its CEO Jeremy Stoppelman, CFO Robert J. Krolik, and COO Geoffrey Donaker, on Wednesday in Federal Court. Yelp is an online business review site that makes money from advertising on its website and mobile app.
Curry claims the defendants made false and misleading statements about the company's finances, pushing it to "artificially inflated prices of over $98 per share on March 4, 2014," only to see it fall to $65.76 at the end of the class period, which is March 13 this year.
Curry claims the defendants represented Yelp's financial outlook as rosy, without "a reasonable basis," and that "between November 11, 2013 and March 10, 2014, company insiders, including the individual defendants, sold 1,160,910 shares of Yelp stock at prices as high as $98.99 per share for insider trading proceeds of more than $81.5 million."
The "materially false and misleading statements concerning the company's true business and financial condition, include(ed) but [were] not limited to the true nature of the so-called 'firsthand' experiences and reviews appearing on the Company's website, the robustness of its processes and algorithms purportedly designed to screen unreliable reviews, and the company's forecasted financial growth prospects and the extent to which they were reliant upon undisclosed business practices, including but not limited to requiring business customers to pay to suppress negative reviews," according to the lawsuit.
Curry adds: "Reviews, including anonymous reviews, appearing on the company's website were not all authentic 'firsthand' reviews, but instead included fraudulent reviews by reviewers who did not have first-hand experience with the business being reviewed;
"Algorithms purportedly designed to screen unreliable reviews did not comprehensively do so, and instead, the company allowed such unreliable reviews to remain prominent while the company tried to sell services designed to suppress negative reviews or make them go away; and
"In light of the above facts, the representations concerning the company's current and future financial condition and prospects, and the extent to which they were reliant upon undisclosed business practices, did not have a reasonable basis."
When the company's business practices were "revealed to the market," the share price sank from more than $98 to $65.76, the complaint states.
Curry claims that during the class period - Oct. 29, 2013 to April 13, 2104 - CEO Stoppelman sold 132,350 shares of Yelp for $8,493,479; CFO Krolik sold 35,000 shares for $2,556,917; and COO Donaker sold 117,640 shares for $9,877,471.
(Total sales of the three execs in that time, then averaged $73.43 a share.)
Curry seeks class certification and damages for securities violations.
He is represented by Shawn Williams, with Robbins Geller Rudman & Dowd.