Yelp faces shareholder lawsuit over fraudulent reviews
Posted on August 7, 2014 | By seattlepi.com staff
Yelp insiders and executives sold off more than $81 million in artificially inflated stock while deceiving shareholders about the company’s business practices and financial outlook, shareholders are alleging in a federal class action lawsuit filed Wednesday in U.S. District Court in San Francisco.
The suit, led by plaintiff Joseph Curry, alleges that the review website deceived shareholders about the quality of the reviews on its website and business practices including “requiring business customers to pay to suppress negative reviews.” When information about the tactics became public, shares plummeted — but, the suit alleges, not before top executives could unload shares at a major profit. Yelp CEO Jeremy Stoppelman, it alleges, sold over 132,000 shares for proceeds of over $2.5 million.
This week Yelp celebrated its 10th anniversary. Last week, it reported its first quarterly profits, with shares at $67.78.
Shares peaked in March at over $98, but began to sink after claims about extortion practices at the company resurfaced in March. They continued to fall after the Federal Trade Commission released a letter in April detailing the 2,046 complaints it had received about the company since 2008.
The suit alleges that suspect business practices include the display of reviews that “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” and “algorithms purportedly designed to screen unreliable reviews [that] did not comprehensively do so.”
The suit’s allegations of Yelp’s suspect business practices are based in previous media reports on the tactics. The company issued a statement to Reuters that said the allegations “are without merit” and that it “will vigorously contest them.”
Curry is seeking class certification and damages for securities violations. Shares of Yelp were up by about 1 percent at close of market Thursday.
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