In House - The FindLaw Corporate Counsel Blog

Yelp Leadership Misled Investors, Lawsuit Claims

A group of Yelp investors are suing the review site for misleading them about the company's financials.

According to a proposed class action, shareholders say Yelp withheld negative financial information in the last quarter of 2016. They say it came to light when the company released its next earnings report.

Adding insult to their injury, the plaintiffs say, the company's chief executive officer sold off $25 million in stock during that time when it was artificially inflated. Talk about a bad Yelp review!

Lower Retention Rates

The lawsuit tees off on CEO Jeremy Stoppelman for taking advantage of the false financials. He allegedly sold 20 percent of his personal holdings during a two-month period.

"Such dramatic selling was inconsistent with Stoppleman's prior trading practices," it says.

Although the complaint misspells the CEO's name, it carefully lays out the alleged deception. It claims Yelp told investors that "no reason existed to be concerned about Yelp's retention rates," but the company later admitted that it was "experiencing lower retention rates."

In a press release, the plaintiffs say their stocks fell from $34.70 to as low as $26.93 because of the belated disclosure. Their lawyers have filed in California's northern federal court on behalf of anyone who purchased the stock between February 10, 2017 and May 9, 2017.

Poor Financial Results

Glancy Prongay & Murray allege Stoppelman traded on inside information about Yelp's poor financial results. If so, then the class action is just the beginning of his legal problems because the Securities and Exchange Commission may want to take a look at it.

It may pose problems for the company's general counsel as well. Corporate counsel has a duty to ensure officers comply with such laws, and sometimes bear liability for rule-breakers.

Attorneys at Yahoo, Uber, and Equifax have either taken the fall or faced inquiries into their roles as their chief executives and companies have faltered in recent years.

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