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Groupon fails to end lawsuit alleging fraud linked to IPO

The Groupon smartphone app is displayed on a Motorola Droid Bionic cell phone in Denver November 4, 2011. REUTERS/Rick Wilking
The Groupon smartphone app is displayed on a Motorola Droid Bionic cell phone in Denver November 4, 2011. REUTERS/Rick Wilking

(Reuters) - Groupon Inc failed to persuade a federal judge to dismiss a lawsuit accusing the daily discount deals provider of misleading investors about its financial prospects and internal controls before it went public in November 2011.

U.S. District Judge Charles Norgle in Chicago said the lead plaintiff plausibly alleged that Groupon used improper "refund accounting" to boost revenue and reduce operating losses in initial public offering materials and subsequent regulatory filings, and knew or should have realized its statements were false.

In his order dated September 18, Norgle also rejected requests by Credit Suisse, Goldman Sachs and Morgan Stanley, which arranged the IPO, to dismiss claims against them.

Groupon spokesman Nicholas Halliwell said the Chicago-based company does not discuss pending litigation.

The lawsuit seeks class-action status and is led by Michael Carter Cohn, an individual investor.

Norgle said he will decide later whether Cohn has standing to pursue one claim on behalf of a class given that he did not buy his shares directly from the IPO.

Groupon went public at $20 per share on November 4, 2011, valuing the company at the time at well over $10 billion.

But five months later, Groupon unexpectedly revised its fourth-quarter 2011 results by reporting a larger net loss and "material weakness" in its internal controls, saying it failed to set aside enough money for customer refunds.

The stock price bottomed at $2.60 last November 12, but has since recouped more than half of its post-IPO decline.

Groupon in February replaced co-founder Andrew Mason as chief executive, and installed co-founder Eric Lefkofsky as his successor.

It has also been reinventing itself as a more traditional e-commerce business that sells longer-term deals, especially through a smartphone app.

Groupon shares closed Friday up 6 cents at $12.64 on the Nasdaq.

The case is In re: Groupon Inc Securities Litigation, U.S. District Court, Northern District of Illinois, No. 12-02450.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)

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