UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

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In re GROUPON, INC. SECURITIES LITIGATION

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This Document Relates To

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Master File No. 12 C 02450

CLASS ACTION

Hon. Charles R. Norgle

REPLY MEMORANDUM IN FURTHER SUPPORT OF 

THE UNDERWRITER DEFENDANTS’ MOTION TO DISMISS

Dated: April 22, 2013 RACHLIS DUFF ADLER & PEEL, LLC

542 South Dearborn Street, Suite 900

Chicago, IL 60605

(312) 733-3950

O’MELVENY & MYERS LLP

7 Times Square

New York, NY 10036

(212) 326-2000

Attorneys for the Underwriter Defendants

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The Underwriter Defendants1(i) join in Groupon’s Reply Brief and (ii) submit this reply 

setting forth additional reasons why the Complaint should be dismissed as to them.

PRELIMINARY STATEMENT

Plaintiff’s Opposition fails to contest—and therefore concedes—the following critical 

facts:

 Groupon never restated the financial results disclosed in the Offering Documents 

that are the crux of the Complaint’s Securities Act claims;

 the Complaint does not otherwise allege that Groupon misstated the revenues in 

those financial results by failing to collect and retain those reported revenues; 

 the Offering Documents warned investors that the refund estimates on which 

those revenues were based involved “judgments” that could turn out to be wrong; 

and

 the Offering Documents did not represent that Groupon’s internal controls were 

adequate and, to the contrary, warned investors that those controls could be 

inadequate. 

The Opposition’s challenge, as a result, was to explain how the Complaint nonetheless pleads a 

material misstatement in the Offering Documents based on supposed accounting flaws, even 

though the revenue-recognition accounting standards at issue inherently depend on 

management’s subjective judgment. The Opposition fails to do so.

First, Plaintiff argues that he does not need to allege an accounting restatement to plead a 

material misstatement. But the Complaint’s core problem is its failure to allege any earningsrelated misstatement—i.e., that Groupon did not collect and retain the revenues it reported in the 

 

1 This Memorandum refers to: (1) the Memorandum of Law in Support of the Underwriter Defendants’ 

Motion to Dismiss and Joinder in the Groupon Defendants’ Motion to Dismiss as the “UW Opening 

Brief” or “UW Mem.”; (2) the Lead Plaintiff’s Memorandum in Opposition to Defendants’ Motion to 

Dismiss as the “Opposition” or “Opp.”; and (3) the Reply in Support of the Groupon Defendants’ Motion 

to Dismiss Consolidated Amended Class Action Complaint as “Groupon’s Reply Brief.” Unless 

otherwise indicated, all other defined terms have the meanings ascribed to them in the UW Opening Brief, 

all emphasis is added, and all citations and quotations are omitted.

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Offering Documents (for the first, second, and third quarters of 2011), or other facts showing that 

those revenues were misstated. Without a plausible basis for such an allegation, the Complaint 

fails to provide a factual predicate for its allegation that Groupon materially misstated its 

revenues in the Offering Documents.

Second, in light of the complete absence of an earnings misstatement, Plaintiff cannot 

distort GAAP to fabricate one. Plaintiff argues that the GAAP standards for recognizing revenue 

on sales of services subject to a return right—set forth in SAB Topic 13(A)(4)(a)—are somehow 

“objective,” but GAAP by its terms (and as a matter of common sense) required Groupon to 

make judgments about its refund estimates. These include inherently subjective judgments about 

matters such as the homogeneity of data pools, and whether a company “believes” its historical 

data is predictive of future events. Indeed, case law describes what Plaintiff admits is an 

analogous GAAP provision as involving significant judgment. Accordingly, under Fait v. 

Regions Financial Corp., Plaintiff can state a securities claim only by alleging that those refund 

estimates (and the revenues derived from them) were objectively and subjectively false. As 

shown in the UW Opening Brief, Plaintiff cannot do so because he has disclaimed pleading 

scienter, and courts have held that such a disclaimer negates subjective falsity where, as here, the 

challenged statement’s originator is also a defendant. And in any event, Plaintiff nowhere 

squares his “subjective falsity” argument with Groupon’s candid disclosures in the Offering 

Documents regarding the basis for its revenue-recognition judgment—along with warnings that 

reported revenue could end up differing if the company’s judgments regarding estimated 

customer refunds turned out to be inaccurate—which allowed investors to decide for themselves 

whether that judgment was reasonable.

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Third, faced with Defendants’ showing that they had no duty to discuss Groupon’s 

internal controls in the Offering Documents, Plaintiff tries to fashion a duty by arguing that 

Groupon implicitly touted its internal controls simply by booking revenues. But that argument 

conveniently ignores the Offering Documents’ express warning that Groupon’s internal controls 

could be inadequate. That explicit warning trumps Plaintiff’s concocted implicit endorsement.

Finally, beyond these fundamental problems with his misstatement theory, Plaintiff 

concedes that he did not purchase directly in the IPO and thus lacks standing to assert a Section 

12(a)(2) claim. Plaintiff seeks only to stall the issue in his Opposition, asking the Court to defer 

any standing decision until class certification. But Plaintiff cannot deny that no qualified 

plaintiff came forward during the lengthy Congressionally-mandated lead-plaintiff process. The

Court should therefore in all events follow the long line of cases that have dismissed Section 

12(a)(2) claims at the pleading stage for lack of standing.

ARGUMENT

Plaintiff tries to overcome the Complaint’s critical factual deficiencies by 

mischaracterizing Rule 8’s pleading requirements in his Opposition. Contrary to Plaintiff’s 

argument (see Opp. at 15), merely alleging what “could” have happened is not enough. Rather, 

the Seventh Circuit has emphasized the substantial “factual heft required to survive a motion to 

dismiss after Twombly and Iqbal.” McCauley v. City of Chicago, 671 F.3d 611, 617 (7th Cir. 

2011). And as Plaintiff’s own authority holds, that pleading burden increases for complex claims

like securities class actions. See Swanson v. Citibank, N.A., 614 F.3d 400, 405 (7th Cir. 2010) 

(“A more complex case . . . will require more detail, both to give the opposing party notice of 

what the case is all about and to show how, in the plaintiff’s mind at least, the dots should be 

connected.”) (cited in Opp. at 15). The complex securities claim Plaintiff has asserted here does

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not “allege enough factual matter as a basis for [its] claim[] to nudge the[] claim across the line 

from conceivable to plausible.” City of New Orleans Emps. Ret. Sys. v. PrivateBancorp, Inc., 

No. 10-C-6826, 2011 U.S. Dist. LEXIS 128352, at *32 (N.D. Ill. Nov. 3, 2011) (quoting Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

I. THE COMPLAINT FAILS TO PLEAD A MATERIAL MISSTATEMENT OR 

OMISSION IN THE OFFERING DOCUMENTS.

A. The Complaint Fails to Allege that the Offering Documents’ Revenue 

Numbers Were Misstated.

Plaintiff has failed to show that the Complaint adequately alleges that the Offering 

Documents misstated Groupon’s revenues. This is plain from Plaintiff’s failure to contest that:

 the Offering Documents contain revenue numbers for only the first three quarters

of 2011;

 the Complaint nowhere alleges that Groupon did not collect and retain all those 

reported revenues; and

 Groupon has not restated its revenues for the first three quarters of 2011.

As the Underwriter Defendants demonstrated (UW Mem. at 10–11), absent allegations that the 

revenues reported in the Offering Documents were not actually collected and retained, the 

Complaint fails to plead a misrepresentation in the Offering Documents.

Plaintiff’s sole response—that the absence of a restatement does not defeat the Securities 

Act claims (Opp. at 38–40)—fends off a straw man. The Underwriter Defendants have never

argued that a restatement is a prerequisite to a Securities Act claim. Rather, the absence of any

basis to allege that Groupon’s collected revenues were not actually retained—including a 

restatement—leaves Plaintiff without a plausible factual basis to allege a misstatement. Courts 

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routinely hold that the lack of a restatement defeats a securities claim where there are no other 

allegations showing that the financial statements are inaccurate. (See UW Mem. at 10–11.)

2

Plaintiff’s half-hearted effort to distinguish In re Franklin Bank Corp. Securities

Litigation, 782 F. Supp. 2d 364, 407 (S.D. Tex. 2011) (Opp. at 39 n.19), makes precisely the 

Underwriter Defendants’ point—the court there found that plaintiffs had failed to allege a 

misrepresentation because the registration statement “was not impacted by” the restatement of 

later periods. (Id.) That is exactly what happened with Groupon, which restated its Q4 2011 

revenues (which were not in the Offering Documents), but never restated the Q1–Q3 2011

revenues in the Offering Documents that Plaintiff now attacks. And the cases on which Plaintiff 

relies are inapposite because each involved an independent basis for a misrepresentation in the 

unrestated period:

 In Aldridge, the defendants admitted they used improper accounting practices 

during the period in which there was no restatement. Aldridge v. A.T. Cross 

Corp., 284 F.3d 72, 81–82 (1st Cir. 2002).

 In Oxford, the state insurance regulator fined the defendant $3 million and took 

other enforcement action because the defendant’s claims reserves were 

understated by about $100 million. In re Oxford Health Plans, Inc. Sec. Litig.,

187 F.R.D. 133, 137–39 (S.D.N.Y. 1999).

 In LDK Solar, the defendant’s controller resigned during the unrestated period

(Q3–Q4 2007), explaining in a contemporaneous e-mail that he wanted “to keep 

away from any potential securities fraud, as well as many other non-compliances 

or violations,” and Barron’s reported, citing company sources, that the defendant 

 

2

See also In re Huntington Bancshares Sec. Litig., 674 F. Supp. 2d 951, 973 (S.D. Ohio 2009) 

(dismissing claim concerning third-quarter 2007 financials because lack of restatement “lends credence” 

that third-quarter numbers “were properly recorded based on the then-available information”); Malin v. 

XL Capital Ltd., 499 F. Supp. 2d 117, 148 (D. Conn. 2007) (dismissing claim that loss reserves were 

inadequate because “there is no allegation here [that] there has been any restatement . . . or that any 

auditor or actuary has qualified or withdrawn its opinion”); In re BISYS Sec. Litig., 397 F. Supp. 2d 430, 

438 (S.D.N.Y. 2005) (“Accordingly, to the extent that plaintiffs cite statements by defendants that do not 

report, relate to, or discuss aspects of the financials that subsequently were restated, they have not alleged 

falsity . . . .”).

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had overstated revenue in Q3–Q4 2007 by $92 million. In re LDK Solar Sec. 

Litig., 584 F. Supp. 2d 1230, 1239 (N.D. Cal. 2008).3

Here, in contrast, the Complaint makes no allegation that Groupon did not ultimately collect and 

retain the revenue it reported in the Offering Documents.

B. The Complaint Fails to Allege a Misrepresentation Under Fait v. Regions.

1. SAB Topic 13(A)(4)(a)’s Criteria Are Subjective.

Plaintiff next attempts to backdoor a revenue-recognition misrepresentation claim by 

resorting to GAAP. But he can do so only by miscasting the applicable accounting standards as 

concrete and objective. That approach is eviscerated by Plaintiff’s concession that SAB Topic 

13(A)(4)(a), the accounting standards for recognizing revenue on services subject to a refund 

right, is analogous to FAS 48, the criteria for sales of goods subject to a refund right. (Opp. at 9 

n.5; Compl. ¶ 77.) As the Underwriter Defendants have shown, applying the concededly 

analogous FAS 48 standard “entails a degree of unavoidable guesswork.” In re Segue Software, 

Inc. Sec. Litig., 106 F. Supp. 2d 161, 169 (D. Mass. 2000). The Complaint must therefore plead 

that the revenue numbers in the Offering Documents were “both objectively false and 

disbelieved by the defendant at the time [they were] expressed.” Fait v. Regions Fin. Corp., 655 

F.3d 105, 110 (2d Cir. 2011). None of Plaintiff’s four arguments is to the contrary.

First, Plaintiff cannot magically transform SAB Topic 13(A)(4)(a)’s judgment-based

factors into objective, bright-line criteria. (Opp. at 27–29.) Plaintiff concedes that one factor is 

subjective (Opp. at 27) because it turns on whether “the company believes that [its] historical 

experience is predictive of future events.” Because a company must satisfy this factor to book 

 

3

Plaintiff’s two remaining cases are distinguishable because they deal not with financial restatements or

the Securities Act, but with the scienter pleading standard for Exchange Act claims. See Makor Issues & 

Rights, Ltd. v. Tellabs Inc., 513 F.3d 702 (7th Cir. 2008); Roth v. AON Corp., No. 04-C-6835, 2008 WL 

656069 (N.D. Ill. Mar. 7, 2008).

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revenues under SAB Topic 13(A)(4)(a), the test indisputably involves judgment and opinion. 

(Id.) And the two relevant remaining factors also involve management’s judgment and opinion. 

While Plaintiff contends that determining whether a data pool is “homogeneous” is objective 

because the SEC has defined it to mean “the same characteristics such as terms, periods, class of 

customers, nature of service, etc.” (Opp. at 28), this inquiry entails judgment in choosing the 

relevant “characteristics” and assessing what makes them the same or different. Similarly, 

Plaintiff gropes for bright-line objectivity in the factor requiring “reliable estimates” by citing the

SEC’s definition of “reliable” as “representationally faithful, verifiable, and neutral.” But that

definition is just another way of examining what the concededly subjective factor demands—

whether management believes the historical data is sufficiently reliable to be “predictive of 

future events.”

The subjective nature of the SAB Topic 13(A)(4)(a) factors is also plain from Groupon’s 

letter to the SEC, publicly disclosed to investors before the IPO. Groupon articulated the basis 

for its belief that its historical experience was predictive of future events (the concededly 

subjective factor)—“the sheer volume of transactions (approximately 60 million Groupons sold) 

as well as the lack of any material change in the refund percentage over time.” (Compl. ¶ 79 

(quoting Groupon Comment Letter Response at 35).) Groupon also explained that it believed its

60-million-Groupon data pool was sufficiently “large” and explained why it believed that the 

pool was sufficiently “homogeneous”: “[Groupon] does not believe the characteristics of its 

merchants within a geographical region differ from one another . . . . [B]ased on the Company’s 

historical experiences to date, it has not noted significantly different trends from one geography 

to another.” (Id.) These same reasons support a conclusion that the estimates were “reliable”

because the Company believed its historical experience was “representationally faithful, 

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verifiable and neutral.” (Id.) Thus, the accounting decisions at issue were rife with judgments 

based on management’s experience, thereby triggering the Fait standard.

Second, Plaintiff argues that courts consider revenue recognition to be an objective 

question. (Opp. at 29–30.) But Plaintiff provides no precedent for this argument. The decisions 

Plaintiff cites either found the securities claim lacking or are inapposite. See Greebel v. FTP 

Software, Inc., 194 F.3d 185, 204 (1st Cir. 1999) (affirming dismissal of claim based on FAS 48 

violations); In re Milestone Scientific Sec. Litig., 103 F. Supp. 2d 425, 474 (D.N.J. 2000) 

(dismissing claim for FAS 48 violations); Schlagal v. Learning Tree Int’l, No. CV 98-6384 

ABC, 1998 WL 1144581, at *2 (C.D. Cal. Dec. 23, 1998) (allowing claim to proceed where 

complaint alleged that the company failed to collect booked revenue); Schultz v. Applica, Inc., 

488 F. Supp. 2d 1219, 1225 (S.D. Fla. 2007) (no contention that FAS 48 or SAB Topic 

13(A)(4)(a) applied).

Third, Plaintiff argues that any dispute over GAAP’s application must be resolved at trial 

with the aid of expert testimony. (Opp. at 32.) But with one exception, all of Plaintiff’s cases 

(see Opp. at 32–34) pre-date Fait,

4

and Plaintiff’s only post-Fait case, Phillips v. ScientificAtlanta, Inc., 489 F. App’x 339 (11th Cir. 2012) is inapposite because it: (i) did not address 

Fait; (ii) did not analyze misrepresentation claims based on subjective GAAP rules; and (iii)

merely affirmed summary judgment based on expert testimony concerning a different GAAP 

rule. Id. at 343. In fact, courts in many cases—including Fait—determined at the pleading stage 

that the complaint failed to state a GAAP-violation claim.5 And in any event, the “experts” on 

 

4

Plaintiff’s reliance on Takara Trust v. Molex Inc., 429 F. Supp. 2d 960 (N.D. Ill. 2006) (cited in Opp. at 

18), is misplaced for the same reason.

5

See, e.g., City of New Orleans, 2011 U.S. Dist. LEXIS 128352, at *27–30 (dismissing Section 11 and 12 

claims that defendants’ loan loss estimations violated GAAP); see also Lighthouse Financial Group v. 

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which Plaintiff relies questioned only Groupon’s revenue-recognition practices for the revised

Q4 2011 period—not the Q1–Q3 2011 revenues reported in the Offering Documents. (Opp. at 

12; Compl. ¶¶ 13–14.)

Fourth, Plaintiff cannot survive dismissal by pointing to former Groupon CEO Andrew 

Mason’s February 28, 2013 resignation letter in which he acknowledged that he was fired in part 

for “material weakness” and “controversial metrics in our S1.” (Opp. at 22 n.10.) The Court 

should not consider that letter (which the Complaint neither cites nor incorporates) on this 

motion. See, e.g., Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984)

(“[I]t is axiomatic that the complaint may not be amended by briefs in opposition to a motion to 

dismiss.”). But Mason’s generic comments are unavailing in any event, because he only 

characterizes Groupon’s metrics as “controversial,” which further suggests that reasonable minds 

could differ in applying those metrics.

2. The Complaint Fails to Allege Subjective Falsity.

Under Fait, Groupon’s revenue judgments in the Offering Documents could be 

actionable only if they were actually false and Groupon did not actually believe them. (See UW

Mem. at 17.) Plaintiff concedes, as he must, that the Complaint disclaims Defendants’ knowing 

fraud. (Compl. ¶¶ 138, 148.) His argument that this disclaimer has no bearing on whether the 

Complaint pleads subjective falsity under Fait is wrong.

While the Second Circuit in Fait made clear that scienter and “subjective falsity” are not

“one and the same” (Opp. at 35), post-Fait cases nevertheless have concluded that disclaimers 

 

Royal Bank of Scotland Group, PLC, No. 11 Civ. 398, 2012 WL 4616958, at *11 (S.D.N.Y. Sept. 28, 

2012) (dismissing Section 11 and 12 claims that defendants’ valuation of complex securitized holdings 

violated GAAP); In re Deutsche Bank AG Sec. Litig., No. 9 Civ. 1714, 2012 U.S. Dist. LEXIS 115088, at 

*7 (S.D.N.Y. Aug. 10, 2012) (dismissing Section 11 claims that defendants’ valuation of mortgagebacked assets violated GAAP).

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like that in the Complaint foreclose a plausible “subjective falsity” allegation. See, e.g., In re GE 

Sec. Litig., 856 F. Supp. 2d 645, 657 (S.D.N.Y. 2012) (holding that a complaint that disclaimed 

“knowing misconduct” cannot allege “subjective falsity”); NECA-IBEW Pension Trust Fund v. 

Bank of Am. Corp., No. 10 Civ. 440, 2012 U.S. Dist. LEXIS 186415, at *4–5 (S.D.N.Y. Mar. 16, 

2012) (holding that when “the complaint affirmatively disclaims any assertion of fraud” it cannot 

allege the speaker “did not . . . actually hold the opinions and beliefs in question”). Plaintiff has 

cited no post-Fait case allowing a plaintiff to plead subjective falsity in the face of a scienter 

disclaimer.

There is a good reason for this. As one court explained, the distinction between Fait’s 

“subjective falsity” requirement and scienter turns entirely on whose opinion is at issue: “the 

subjective falsity that Fait requires in order to impose Securities Act liability based on a 

statement of opinion is falsity on the part of the originator of the opinion.” Fed. House Fin. 

Agency v. UBS Ams., Inc., 858 F. Supp. 2d 306, 326 (S.D.N.Y. 2012). Where, as here, the 

defendant’s opinion is at issue, there is no difference between the two. See id. at 327 (“[W]here 

the originator of the opinion is a defendant, proving the falsity of the statement ‘I believe this 

investment is sound’ is the same as proving scienter.”). Having disclaimed alleging that 

Groupon had scienter, Plaintiff cannot make the same allegation under the label of “subjective 

falsity.” See In re GE Sec. Litig., 856 F. Supp. 2d at 657.

Plaintiff’s unwillingness even to attempt to plead scienter is understandable given

Groupon’s candid pre-IPO disclosures of its SAB Topic 13(A)(4)(a) methodology underlying its 

refund estimates (“a rolling average of the historical refund percentages for all historical months 

excluding any outliers”) and its reason for believing that methodology was appropriate even 

though the company had a “relatively limited history of operations” (“the sheer volume of 

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transactions (approximately 60 million Groupons sold) as well as the lack of any material change 

in the refund percentage over time”). (Compl. ¶ 79 (quoting Groupon Comment Letter Response 

at 34–35).) And Groupon simultaneously cautioned investors that its “actual level of refund 

claims could prove to be higher” than its estimates and that if its “judgments regarding estimated 

customer refunds [were] inaccurate, reported results of operations could differ” from what was 

reported in the Offering Documents. (See UW Mem. at 7–8.) These disclosures and the 

Complaint’s scienter disclaimer render irrelevant Plaintiff’s contrived “subjective falsity”

pleading laundry list. (Opp. at 35–38.) See, e.g., Iron Workers Local No. 25 Pension Fund v. 

Oshkosh Corp., No. 08-C-797, 2010 WL 1287058, at *21 (E.D. Wis. Mar. 30, 2010) (“As such, 

because the company actually provided all the underlying data required to make the accounting 

judgment in question, it is difficult to believe that the failure to take an impairment was part of 

some scheme to deceive.”).

C. The Complaint Fails to Plead a Securities Act Claim for Omitting Alleged 

Material Internal Controls Weaknesses.

Plaintiff also argues that the Offering Documents omitted disclosures that Groupon’s 

internal controls were inadequate. Plaintiff does not deny either that: (i) “[s]ilence, absent a 

duty to disclose, is not misleading,” Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988); see 

also Congregation of the Passion, Holy Cross Province v. Kidder Peabody & Co., 800 F.2d 177, 

182 (7th Cir. 1986) (“Liability . . . for failure to disclose depends upon the existence of a duty to 

disclose.”); or (ii) Regulation S-K, which governs required disclosures in offering materials, 

imposes no duty to make disclosures about the issuer’s internal controls. See 17 CFR § 229.308, 

Instruction 1. But Plaintiff contends that a disclosure duty arose here because Groupon 

implicitly affirmed its internal controls’ effectiveness by issuing its financial statements. (Opp. 

at 18–19.) That argument is factually wrong and legally unsupported.

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Plaintiff cannot deny that far from touting Groupon’s internal controls, the Offering 

Documents warned investors that “[i]n the event of further growth of our operations or in the 

number of our third-party relationships . . . our internal controls and procedures may not be 

adequate to support our operations.” (See Groupon Defs. Mem. Ex. A at 18.) This explicit 

warning overrides any “implicit” endorsement Plaintiff contends Groupon made. See, e.g., Klein 

v. General Nutrition Cos., 186 F.3d 338, 344 (3d Cir. 1999) (holding that “meaningful 

cautionary language renders an alleged omission immaterial as a matter of law”); In re Xcel 

Energy, Inc. Sec., Derivative & “ERISA” Litig., 286 F. Supp. 2d 1047, 1061 (D. Minn. 2003) 

(“Cautionary language, if sufficient, renders the alleged omissions or misrepresentations 

immaterial as a matter of law when it relates directly to the issue about which plaintiffs allege 

they were misled.”); In re Alliance N. Am. Gov’t Income Tr., Inc. Sec. Litig., No. 95 Civ. 330, 

1996 WL 551732, at *9 (S.D.N.Y. Sept. 27, 1996) (“In light of these disclosures . . . due to the 

explicit warnings . . . any misstatements or omissions were immaterial as a matter of law.”). And 

Plaintiff cites no authority for his novel argument that a company implicitly vouches for its 

internal controls merely by issuing financial statements.

In any event, even if Groupon had not warned investors of the internal controls’ potential 

inadequacy, the Complaint’s internal-controls claim would still fail. This is because, as 

Defendants showed in their opening briefs, the Complaint fails to allege plausibly that Groupon’s 

internal controls were ineffective when it issued the Offering Documents, as opposed to some 

later time. (See Groupon Defs. Mem. at 19–20; UW Mem. at 9–10.) Other than a completely 

circular argument that Groupon’s internal controls were inadequate because Groupon could not 

estimate refunds, the Complaint’s sole support comes from confidential witnesses. (Opp. at 26; 

Compl. ¶¶ 99–101.) But Plaintiff has not responded to the Underwriters Defendants’ showing 

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that these confidential witnesses do not support an allegation of inadequate internal controls 

when the Offering Documents were issued. (See UW Mem. at 9–10.) Plaintiff has therefore

conceded the point. See, e.g., Rosen v. Mystery Method, Inc., No. 07-C-5727, 2008 WL 723331, 

at *6 (N.D. Ill. Mar. 14, 2008) (“A litigant’s failure to respond to arguments the opposing party 

raises in a motion to dismiss operates as a waiver or forfeiture.”).

II. PLAINTIFF LACKS STANDING TO ASSERT A SECTION 12(a)(2) CLAIM.

Plaintiff concedes that he lacks standing to pursue Section 12(a)(2) claims. (See Opp. at 

41 (“Underwriter Defendants are correct factually as to Plaintiff’s purchases.”).) Plaintiff’s only 

response is to ask the Court to defer determining his standing until class certification. (Id. at 42.) 

But courts routinely dismiss Section 12(a)(2) claims at the pleading stage for lack of standing. 

See Ong v. Sears, Roebuck & Co., 388 F. Supp. 2d 871, 892 (N.D. Ill. 2004) (Pallmeyer, J.) 

(granting motion to dismiss Section 12(a)(2) claims where named plaintiff lacked standing).

6

 

The one case on which Plaintiff relies, Friedman v. Rayovac Corp., 295 F. Supp. 2d 957, 976–77 

(W.D. Wis. 2003), is inapposite because it involved multiple named plaintiffs with uncertain

standing. Ong, 388 F. Supp. 2d at 891. Here, the lone Plaintiff admits he lacks standing.

The Court should not indulge Plaintiff’s request to search for another investor with 

standing. The six-month PSLRA-mandated lead-plaintiff process over which the Court presided

involved (i) the public filing of five initial complaints and actions in early April, 2012; (ii) 

twenty-seven law firms issuing the PSLRA-mandated press release to ensure that all potentially 

interested investors knew of the action and had an opportunity to make a lead-plaintiff 

 

6

See also In re Mun. Mortg. & Equity, LLC, No. 8 MDL 1961, 2012 U.S. Dist. LEXIS 88339, at *108–16 

(D. Md. June 26, 2012); In re Century Aluminum Co. Sec. Litig., 749 F. Supp. 2d 964, 977 (N.D. Cal. 

2010); Pub. Emps. Ret. Sys. of Miss. v. Merrill Lynch & Co., 714 F. Supp. 2d 475, 484 (S.D.N.Y. 2010); 

In re Wells Fargo Mortgage-Backed Certificates Litig., 712 F. Supp. 2d 958, 966 (N.D. Cal. 2010).

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application; and (iii) motions and responses by five movants seeking appointment as lead 

plaintiff. The very reason that Congress mandated this process was to ensure that securities 

claims were well-publicized and that qualified and representative plaintiffs with the largest 

interest would come forward on a timely basis to control this action’s prosecution. See Joint 

Explanatory Statement of the Committee of Conference, Conference Report on Securities 

Litigation Reform, H.R. Rep. No. 104-369, at 32 (1995) (PSLRA plaintiff notice “provisions are 

intended to encourage the most capable representatives of the plaintiff class to participate in class 

action litigation”); see also Marsden v. Select Medical Corp., No. Civ. A. 04-4020, 2005 WL 

113128, at *3 (E.D. Pa. Jan. 18, 2005) (“[T]he fundamental purpose of the notice requirement 

. . . is to provide class members with sufficient information about the suit and the requirements 

for lead plaintiff appointment so that they can make an informed judgment about whether they 

wish to seek lead plaintiff status.”). No plaintiff with Section 12(a)(2) standing surfaced during 

that exhaustive process. There is no reason in law or equity to commission a new search for a

qualified investor who can somehow now be convinced to serve as lead plaintiff on the 

Securities Act claim.

CONCLUSION

Plaintiff has failed to contest the Underwriter Defendants’ key arguments:

 The Complaint fails to allege that Groupon restated or did not collect and retain 

the revenues Plaintiff maintains were erroneously booked. Nothing in Plaintiff’s 

complex accounting arguments can remedy this glaring pleading deficiency. This 

is especially so in light of the difficult business judgments—which Groupon fully 

disclosed—that those accounting rules entail.

 The Offering Documents’ explicit warning that Groupon’s internal controls could 

prove inadequate defeats any claim that the Offering Documents implicitly 

represented that those controls were sufficient.

 Plaintiff lacks standing to bring a Section 12(a)(2) claim.

Case: 1:12-cv-02450 Document #: 140 Filed: 04/22/13 Page 15 of 16 PageID #:2388
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The Court should therefore dismiss the Complaint with prejudice as to the Underwriter 

Defendants.

Dated: April 22, 2013 Respectfully submitted,

 /s/ Kevin B. Duff

Jonathan Rosenberg Kevin B. Duff

William J. Sushon Michael Rachlis

Allen Burton RACHLIS DUFF ADLER & PEEL, LLC

Edward Moss 542 South Dearborn Street, Suite 900

O’MELVENY & MYERS LLP Chicago, IL 60605

7 Times Square (312) 733-3950

New York, NY 10036

(212) 326-2000 Attorneys for the Underwriter Defendants

Case: 1:12-cv-02450 Document #: 140 Filed: 04/22/13 Page 16 of 16 PageID #:2389