Recent announcements from Groupon management have reportedly put the online giant under close scrutiny from the SEC. The controversy has also led investors and market analysts to question the stability and the internal practices of the online coupon dealer. Last week, Gibbs Law Group filed a Groupon lawsuit on behalf of investors who purchased Groupon stock from the time of its IPO on November 4, 2011 through March 30, 2012, when Groupon announced it would revise its first set of financial results as a public company.
Groupon losses were initially reported at $37 million for the fourth quarter of 2011; however, company officials recently revised their financial statements, saying that actual revenues were $14.3 million less than previously stated. Those revisions also resulted in a reduction of net income by $22.6 million. Groupon also disclosed that its auditors found a material weakness in its internal controls, and that it could not assure the accuracy of its financial statements. These discrepancies have reportedly spurred an investigation by the SEC into the finances and accounting practices of the company.
It seems as though new information about the company are being revealed every day. Indeed, this $22.6 million reporting hiccup wasn’t the first time Groupon had experienced accounting troubles. The company, which only went public in November of last year, had stumbled twice before and had been warned by the SEC.
Groupon Losses Damage Company’s Image
So how did this fiscal mess happen?
In late February Jason Child, the company’s chief finance officer (headhunted away from Amazon.com in January), was informed that the fund set-aside to satisfy customer refunds didn’t have enough money in it. In fact, Groupon officials had drastically underestimated the number and size of the refunds customers would ask for. This miscalculation led to some frantic financial scrambling and shifting of funds internally.
The main factor behind this underestimation appears to be what auditors are calling “material weaknesses” in Groupon’s internal controls.
This disorganized approach to the company’s finances has led some analysts, including Scott Devit of Morgan Stanley, to take a much more cautious approach to the company. In fact, Devit said that his company would be “remain on the sidelines given the competitive market of daily deals.”
What kind of effect is all this news having on Groupon stock?
The answer: a pretty significant one. On the first day of trading after Groupon’s revised losses were announced, the company’s shares (listed GRPN on the NASDAQ) dropped by 17% to $15.27. That’s well below the company’s IPO of $20 per share. And the market continues to react, with the share price dropping lower and lower every day since Groupon’s announcement on March 30, 2012.
While the SEC has refused to comment on whether or not they will launch a full-blown investigation into the financial accounts of the online giant, investors aren’t standing idly by. Gibbs Law Group has filed a Groupon securities lawsuit on behalf of the company’s shareholders.
If you invested in Groupon common stock and would like to learn more about the Groupon lawsuit, or have questions about your legal rights as a shareholder, contact one of our securities fraud lawyers for a free and confidential consultation by calling toll-free 866-981-4800 or filling out the form to your right.