Source: http://chapmanspira.com/_discuss/00000038.html
Timestamp: 2019-04-22 20:33:29
Document Index: 706239750

Matched Legal Cases: ['§25400', '§17200', '§10', '§25400', '§17200', '§20', '§474', '§25400', '§25400', '§25500', '§17200', '§17500', '§17200', '§1572', '§395', '§17200', '§17200', '§17200', '§17500', '§17500', '§17200', '§17200', '§17500', '§17203', '§17535', '§382', '§25400', '§17200']

Time: 9:44:55 AM
The Securities act was recently revised and the test to bring a "class action" lawsuit against company management and brokers involved in the securities in question is now literally impossible with the fraud having taking place.
When the federal laws were enacted it appeared that these types of cases would vanish from the landscape but this has not been the case. Not only are they still around in force, but the State of California is involved in making it even easier to file these types of cases.
If you feel that this sort of thing has occurred in a company in which you own stock, there are hundreds of law firms practicing this type of law and they can easily be found by perusing the web.
Furthermore, we can help evaluate your claim and potentially help you find the right firm to handle it if indeed it conforms with current regulation. Understand we are not lawyers and are only offering to this as a public service. We have no arrangements with any law firms for any kind of compensation. We can treat your inquiry in a confidential manner or discuss here should you desire.
In the meantime, we have included a case that got a lot of interest a while back. The Company was called shopping.com and the as sometimes happens with Internet oriented securities, the stock shot up to unbelievable heights, the short perceiving an easy meal started selling it and they got caught.
When the smoke cleared the stock had been suspended for a time, the brokerage firm pushing the stock was literally forced out of business and many people lost a lot of money. The prologue of the story though is that apparently, the company had good technology and was acquired by a computer manufacturer at a substantial price. A bizarre ends for a very weird story.
MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) DARREN J. ROBBINS (168593) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058
SPECTOR & ROSEMAN, P.C. ROBERT M. ROSEMAN 2000 Market Street 12th Floor Philadelphia, PA 19103 Telephone: 215/864-2400 - and - ELLEN GUSIKOFF STEWART (144892) DIANE P. DOHERTY (175350) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/338-4514
REINHARDT & ANDERSON RANDALL H. STEINMEYER E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 Telephone: 612/227-9990
MICHAEL A. MARTUCCI, On Behalf of ) Case No. [793137] Himself and All Others Similarly ) [filed Apr. 16, 1998] Situated, ) CLASS ACTION ) Plaintiff, ) ) COMPLAINT FOR VIOLATION OF vs. ) CAL. CORP. CODE §§25400 AND ) 25500; AND BUS. & PROF. SHOPPING.COM, INC., ROBERT J. ) CODE §§17200, ET SEQ. McNULTY, DOUGLAS HAY, WALDRON & ) CO., CERY PERLE, WEDBUSH MORGAN ) SECURITIES INC., WENDY REY and DOES ) 1-25, inclusive, ) ) Defendants. ) Plaintiff Demands A ___________________________________ ) Trial By Jury
1. This is a securities class action on behalf of all
persons who purchased the common stock of Shopping.com, Inc.
("Shopping" or the "Company") between November 25, 1997 and March
26, 1998, inclusive (the "Class Period"), alleging violations of
the California securities laws against Shopping, two of its senior
executives and two investment banking firms which assisted
Shopping's senior executives in manipulating the price of
Shopping's shares.
2. Shopping holds itself out as an innovative Internet-based
electronic retailer that markets an immense selection of brand name
consumer and commercial products at low prices via its website
using state-of-the-art proprietary technology. During the Class
Period, the defendants, including Shopping, its senior-most
officers and directors and its underwriter Waldron & Co.
("Waldron"), participated in a scheme and wrongful course of
business to manipulate the price of Shopping stock, which scheme
included: (i) defendant Waldron's refusal to execute sell orders;
(ii) the use of illegal stock parking; (iii) the use of illegal
above-market buy-ins to intimidate and dissuade potential short
sellers from selling Shopping stock short; (iv) the sale of
Shopping shares to discretionary accounts without regard to
suitability; and (v) the dissemination of materially false and
misleading statements about Shopping's operating performance and
its future prospects. The defendants' misconduct in connection
with and subsequent to the Company's November 1997 initial public
offering ("IPO"), enabled the defendants to raise $11.7 million by
selling 1.3 million Shopping shares to public at $9 per share and
thereafter drive the price of Shopping's stock to an all time high
of over $32 per share in March 1998. The defendants engaged in
this illegal scheme and caused materially false and misleading
statements to be issued in order to bring the Company public and
thereafter avoid a total collapse in the price of Shopping stock as
the truth about the Company's prior misconduct came to light so
that Shopping insiders and Waldron and its favored clients could
later sell their Shopping holdings when the "lock-up" period
expired on November 25, 1998.
3. As part of defendants' scheme to avert a collapse in
Shopping's stock price, Waldron and Wedbush Morgan Securities, Inc.
("Wedbush") employed various illegal tactics, including fraudulent
sales, refusals to execute customers' sales orders, stock parking,
and forced buy-ins at prices more than 50% above Shopping's trading
price in order to stimulate artificial activity in the stock price
and manipulate its price. As a result of this coordinated
manipulation by the defendants, the market capitalization for
Shopping, a company with minimal sales and a history of losses,
came to exceed $200 million.
4. In order to successfully complete Shopping's IPO, the
defendants needed to prime the market about Shopping's success
prior to and in connection with the issuance of the prospectus for
Shopping's IPO. To this end, Shopping secretly arranged to sell
$250,000 of product to Waldron as part of defendants' effort to
have Shopping post revenue growth prior to Shopping's planned IPO.
Shopping also made a series of announcements of hires and the
execution of agreements with several companies to help promote the
Company. Each of the very positive statements which accompanied
these announcements weredesigned to foment interest in the Company
and its planned IPO. Additionally, the defendants hoped that this
would result in future investors valuing Shopping as a "growth
stock," allowing it to trade at huge multiples of revenues.
However, the defendants also realized that they had to take
Shopping public quickly as its existing business was weak and that
Shopping was not and could not internally generate the rate of
growth needed to drive the Company's stock price once it became
5. On November 25, 1997, Shopping completed its IPO, selling
1.3 million shares at $9 per share, for proceeds of $11.7 million.
Following the IPO, the defendants continued to hype the Company and
its prospects, issuing false and misleading information about: (i)
Shopping's newly implemented marketing campaign, which purportedly
was attracting substantial additional traffic to the Company's
website; (ii) Shopping's implementation of a new business model
which would allow Shopping to "grow rapidly while maintaining no
physical inventories resulting in lower costs than traditional
retailers"; (iii) Shopping's execution of a marketing agreement
which would enable the Company to tap into the $120 billion a year
automotive after market; and (iv) the launch of Shopping's national
radio campaign. In conjunction with the issuance of the false and
misleading information by defendants, defendants Waldron and
Wedbush employed a sophisticated market manipulation scheme
1 To assist in preparing the Registration Statement, Shopping also hired counsel who held tens of thousands of Shopping shares in order to avoid having a thorough due-diligence investigation of Shopping and its operations completed in connection with the Company's IPO.
designed to control transactions in Shopping stock in order to
manipulate the market price of Shopping so that it would continue
to trade at artificially inflated levels. As a result thereof, the
defendants were able to manipulate the price of Shopping as it rose
from its IPO price of $9 per share to over $32 per share in a
little over three months.2
6. However, contrary to defendants' positive statements
concerning Shopping's operations, customer base and prospects (and
despite the defendants' manipulation of Shopping's stock price),
the true facts began to emerge as the Securities and Exchange
Commission ("SEC") announced on March 25, 1998 the suspension of
trading of the Company's stock on suspicions of stock manipulation.
In a press release it was reported that:
On March 24, the Commission temporally suspended, pursuant to Section 12(k) of the Securities Exchange Act of 1934, over-the-counter trading of the securities of Shopping.com, Inc. (Shopping.com), of Corona Del Mar, California. The suspension is effective from 9:30 a.m. (E.S.T.) On March 24, 1998 to 11:59 p.m. (EDT) on April 6, 1998.
The Commission suspended trading, temporarily, because of concerns that there was a lack of current and accurate information regarding the securities of Shopping.com due to recent market activity in the stock that may have been the result of manipulative conduct. (Rel.34-39786)
7. On March 26, 1998, another bombshell was dropped on
Shopping's shareholders when Kristine Webster, the Company's Chief
2 The actual price of Shopping stock is subject to debate, as Waldron, in conjunction with Wedbush, has charged prices 50% higher than the trading price of Shopping shares in the open market to short sellers seeking to deliver borrowed shares. This tactic has been used to "punish" short sellers and intimidate potential short sellers from even attempting to sell Shopping stock short. As of April 13, 1998, quoted trading prices for Shopping shares are illusory as no broker/dealer is willing and able to make a market in Shopping stock.
Financial Officer, stunned investors, disclosing that 23% of the
Company's revenues since the inception of its business had not been
obtained from the sale of product to third party customers, but
rather via Waldron's purchases of computer equipment and other
office equipment, valued at more than $250,000! This was never
disclosed to the investing public in Shopping's Prospectus or any
other Shopping public filing. The reaction to these shocking
revelations was swift and severe. Despite defendants' continued
efforts to continue to manipulate Shopping stock by refusing to
sell shares for customers who had ordered the sale of such shares,
Shopping lost 30% of its value, falling from $30 to $21.
8. Each of the positive statements about Shopping's business
made during the Class Period was materially false and misleading
when issued, and failed to disclose, inter alia, the following
adverse information which was then known only to defendants due to
their access to internal Shopping data:
(a) Shopping was, in fact, having difficulty attracting
customers and providing a high enough level of safety for them to
(b) Shopping was not generating sufficient revenue to
support the 1998 revenue numbers claimed by defendant Waldron in
connection with Shopping's IPO;
(c) Shopping's revenues were not meeting the Company's
business plan and, as a result, the Company was not achieving the
earnings which were projected in Shopping's planning reports;
(d) The Company's revenues are actually "pass-through"
in nature and post-costs of goods sold income more accurately
represents the Company's revenues. Therefore, net sales for the
nine months ended October 31, 1997 were $18,841 as opposed to the
$376,822 reported;
(e) Since the inception of its business, 23% of the
Company's revenues had come via sales of computers and other office
equipment to Waldron, the primary underwriter of Shopping's IPO;
(f) Shopping began the IPO process with Waldron before
it had ever closed a sale and as part of the arrangement between
defendant Shopping, its CEO and COO and Waldron for Waldron to
underwrite Shopping's IPO, Waldron secretly arranged to purchase
$250,000 in product from Shopping, thereby enabling Shopping to
post substantial pre-IPO revenue growth;
(g) The price of the Company's stock following the IPO
was being manipulated by defendants as a result of defendant
Waldron's utilization of fraudulent sales practices including
fraudulant sales, refusals to execute customer's sales orders,
stock parking and other manipulative practices;
(h) As a result of the foregoing, there was no
reasonable basis in fact for the assurance that Shopping would
continue to sustain sequential earnings growth. As a result of the
foregoing, defendants' publicly made forecasts that Shopping would
achieve sequential earnings per share increases in the fourth
quarter of 1997 and beyond, were false and had no reasonable basis
in fact, as such earnings per share were impossible to achieve in
light of these undisclosed problems; and
(i) The publicly made forecasts of Shopping's sequential
earnings growth were false and were not genuinely believed by the
defendants, as they were aware of the adverse information set forth
above which contradicted these forecasts.
9. This Court has jurisdiction over the causes of actions
asserted in this Complaint pursuant to the California Constitution,
Article VI, §10, because this case is a cause not given by statute
to other trial courts. The claims asserted herein arise under
§§25400 and 25500 of the Cal. Corp. Code and §§17200, et. seq. of
the California Business & Professions Code.
10. Shopping is a citizen of California, as it is a
California corporation with executive offices and its principal
place of business located at 2101 East Coast Highway in Corona Del
Mar, California. Defendants Waldron and Wedbush are citizens of
California as each has its principal place of operations in this
state. The individual defendants reside in and/or conduct business
in and are citizens of California. The defendants' acts giving
rise to the causes of action alleged herein occurred within and
emanated from this state, including defendants' false statements
and manipulative conduct. The defendants' sale of Shopping stock
in Shopping's IPO also took place in this County. Plaintiff's
damages do not exceed $75,000. This action may not be removed to
11. Plaintiff Michael A. Martucci purchased 250 shares of
Shopping on March 19, 1998 at $32.25 per share and was damaged
12. Defendant Shopping is incorporated in the State of
California and maintains its principal place of business in Corona
Del Mar, California. Shopping began operations in February 1996,
and commenced selling on the Internet on July 11, 1997. The
Company is an Internet-based electronic wholesaler/retailer
specializing inretail marketing of a broad range of top brand-name
consumer products and services at wholesale prices to both consumer
and trade customers. Utilizing proprietary technology, the Company
designed a fully-scalable systems architecture for the Internet
shopping marketplace. The Company's strategy is to become a
dominant low-price leader in "wholetailing" on the Internet by
utilizing the warehousing, purchasing and distribution strengths of
multiple manufacturers and distributors. As of January 9, 1998,
Shopping had approximately 4 million shares outstanding. During
the Class Period, Shopping shares were actively traded on the NASD
OTC Electronic Bulletin Board, even though it met NASDAQ OTC
13. Defendant Robert J. McNulty ("McNulty") was, at all
relevant times, the President and Chief Executive Officer of
Shopping and a member of its Board of Directors. Because of his
position with Shopping, McNulty knew the adverse, non-public
information about its business, finances, products, markets and
present and future business prospects via access to internal
corporate documents (including Shopping's operating plans, budgets
and forecasts and reports of actual operations compared thereto),
conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors'
meetings and committees thereof and via reports and other
information provided to him in connection therewith. McNulty knew
or recklessly disregarded that the statements particularized herein
were false and misleading when made and would affect trading in
Shopping securities and/or would create a false and misleading
appearance with respect to the market for Shopping securities
before the truth about its products and financial condition was
revealed to the public. Defendant McNulty is a recidivist stock
manipulator. For example, in October 1995, defendant McNulty
settled an action brought by the SEC, and consented to a judgment
providing for a civil penalty, which included disgorgement of his
illegally obtained profits from a prior fraud. Defendant McNulty
participated in the fraud complained of herein despite the
injunction which prohibits him from violating the antifraud
provisions of the federal securities laws. Defendant McNulty
prepared, reviewed and signed the false Registration Statement and
14. Defendant Douglas Hay ("Hay") was, at all relevant times,
the Chief Operating Officer of Shopping and a member of its Board
of Directors. Because of his position with Shopping, Hay knew the
adverse, non-public information about its business, finances,
products, markets and present and future business prospects via
access to internal corporate documents (including Shopping's
operating plans, budgets and forecasts and reports of actual
operations compared thereto), conversations and connections with
other corporate officers and employees, attendance at management
and Board of Directors' meetings and committees thereof and via
reports and other information provided to him in connection
therewith. Hay knew or recklessly disregarded that the statements
particularized herein were false and misleading when made and would
affect trading in Shopping securities and/or would create a false
and misleading appearance with respect to the market for Shopping
securities before the truth about its products and financial
condition was revealed to the public. Defendant Hay prepared,
reviewed and signed the false Registration Statement and
15. Defendant Waldron purportedly was founded in 1939. In
fact, Waldron was a near-bankrupt shell when acquired by defendant
Cery Perle and his cohorts in 1996. Waldron is a California
corporation, and was at all relevant times a securities
broker/dealer and purported NASD member with its principal place of
business located at 595 Market Street, San Francisco, California.
Waldron claims to be a full service banking and brokerage firm,
focusing its corporate finance efforts in Southern California's
high technology community. Waldron maintains offices within this
District. Defendant Waldron was the lead underwriter for the
Company's IPO and issued analysts' reports on Shopping during the
16. Defendant Cery Perle ("Perle"), a resident of California,
is and was at all relevant times the principal officer of defendant
Waldron. Defendant Perle controlled Waldron in fact and was a
control person of that firm pursuant to §20 of the Securities
17. Defendant Wedbush is a California corporation with its
principal place of business located at 1000 Wilshire Blvd., Los
Angeles, California. At all relevant times hereto, Wedbush was a
securities broker/dealer and NASD member. Wedbush acted as the
clearing firm for Waldron and Waldron cleared its trades through
Wedbush. Wedbush, in turn, cleared its trades through the National
Securities Clearing Corporation ("NSCC"), which is the major
clearing house in the United States for securities transactions on
the major stock exchanges as well as those effected through the
NASDAQ system. As an NASD member firm, Wedbush has agreed to and
is legally bound to abide by the NASD's rules, including its
Uniform Practice Code and Business Conduct Rules.
18. Defendant Wendy Rey ("Rey") is a resident of California
and was at all times relevant hereto in charge of equity trading at
defendant Wedbush. Defendant Rey directed defendant Wedbush's
participation in the manipulative scheme alleged herein by, among
other things, orchestrating the forced buy-ins at prices 50% higher
than Shopping's then-current trading price despite NASD opinions
and/or advice against doing so.
19. The true names and capacities of defendants sued herein
under California Code of Civil Procedure §474 as Does 1 through 25,
inclusive, are presently not known to plaintiff, who therefore sues
these defendants by such fictitious names. Plaintiff will seek to
amend this complaint and include these Doe defendants' true names
and capacities when they are ascertained. Each of the fictitiously
named defendants is responsible in some manner for the conduct
alleged herein and for the injuries suffered by the Class.
20. During the Class Period, the defendants, individually and
in concert, directly and indirectly, engaged and willfully
participated in a continuous course of conduct to misrepresent the
results of Shopping's operations, and to conceal adverse material
information regarding Shopping as specified herein in order to sell
1.3 million Shopping shares in Shopping's November 1997 IPO. The
defendants employed devices, schemes, and artifices to defraud, and
engaged in acts, practices, and a course of conduct as herein
alleged in an effort to increase and maintain an artificially high
market price for Shopping shares. This included the formulation
of, making, and/or participation in the making of untrue statements
of material facts, and the omission to state material facts
circumstances under which they were made, not misleading, which
operated as a fraud and deceit upon plaintiff and the other members
DEFENDANTS' MOTIVE TO PARTICIPATE IN THE SCHEME TO DEFRAUD
21. Each defendant had the opportunity to commit and
participate in the fraud. Defendants Hay and McNulty were the top
officers and/or directors of Shopping and they controlled its press
releases, corporate reports, SEC filings and its communications
with analysts. Thus, they controlled the public dissemination of,
and could falsify, the information about Shopping's business,
products, financial results and future prospects that reached the
public and impacted the price of its stock.
22. Each of the defendants also had the motive to commit and
participate in the fraud. Completing Shopping's IPO was extremely
important to defendants McNulty, Hay, Waldron and Perle because
prior to becoming a publicly traded company, these defendants had
received warrants and preferred stock so that they stood to obtain
huge benefits if the defendants could complete the IPO and keep the
price of Shopping stock inflated through 1998. These defendants
also participated in the scheme in order to cover up the problems
with and deterioration in Shopping's business to make it appear as
if Shopping's business was succeeding and achieving the strong
growth they had forecasted prior to the IPO, so that its stock
would trade atartificially high levels, high enough so that they
could sell their Shopping stock once the "lock-up" period expired.
These defendants also were motivated to conceal the serious
problems Shopping was having in attracting new customers in an
attempt to maintain Shopping's competitive position in its markets,
which was increasingly impaired by aggressive competitors.
Defendants Wedbush and Rey were motivated to participate in the
manipulation of Shopping in order to avoid a collapse of Waldron
and the resulting loss to Wedbush of as much as $10 million.
BACKGROUND TO CLASS PERIOD
23. On July 15, 1997, the Company announced through defendant
McNulty the hiring of Mark S. Winkler as Chief Information and
Technology Officer of the Company who would be responsible for the
management of the Company's proprietary computer systems and
ensuring that the web-based retailer "remains on the cutting edge"
24. The Company announced on July 16, 1997 that it had
retained Waldron to assist the Company with financing, strategic
acquisitions and the management of a possible IPO.
25. In August of 1997, the Company issued Series B Preferred
stock. First it sold 8,333 shares of its Series B Preferred stock
in a private placement at a price of $3 per share to Webster (CFO
and Secretary). In connection with this offering, Webster was
issued five warrants to purchase 4,166 shares of common stock with
an exercise price of $3 per share as well as registration rights
providing for one demand and unlimited piggyback registration
26. Also in August 1997, 193,167 shares of Series B Preferred
Stock were issued. In connection therewith, five-year warrants
were issued to purchase 96,583 shares (including those issued to
Webster) of common stock with an exercise price of $3 per share as
well as registration rights providing for one demand and unlimited
piggyback registration rights. The Series A and Series B Preferred
Stock issued and outstanding prior to the Company's IPO were
converted into common stock in connection with the IPO.
27. On August 26, 1997, the Company announced that it had
signed an agreement with CitySearch (which was co-founded by Bill
Gross who is Chairman of the Board of the Company), a market
innovator in providing community-based on-line information services
for the Web. The announcement stated that CitySearch would provide
"shopping cart" tools, customer credit authentication and
verification, coordination with the merchant that an order has been
placed, communication with the customer when the order will be
shipped, collection of payment from the user and disbursement of
payments to the merchant. CitySearch planned to develop, manage
and monitor the electronic commerce program, select customers for
participation in the pilot program, as well as market the program
through it's Austin CitySearch Website.
28. On September 15, 1997, En Pointe Technologies, Inc. ("En
Pointe") made an investment in the Company by purchasing $600,000
worth of subordinated notes. The Company issued 399,600 warrants
to purchase the Company's common stock at $2.25 per share. As a
result of these warrants being issued with an exercise price of
less than fair market value of similar warrants, the Company
announced it would recognize additional financing costs of $299,700
over the nine-month term of this subordinated note with the
unamortized portion at the closing of the IPO being expended
29. On September 16, 1997, the Company announced through
defendant McNulty the hiring of Dr. Ogden M. Forbes as Chief
Knowledge and Research Officer of the Company, who would be
responsible for researching electronic commerce trends, tracking
the competition and providing corporate representation to both the
media and the Government.
30. On September 29, 1997, the Company announced that it had
selected En Pointe to be its exclusive supplier for computer
hardware, software and peripherals under a five-year agreement.
Under the agreement, the Company would use the computing equipment
for their internal infrastructure as well as for resale to their
Internet customers. In exchange for the five-year license, the
Company gave En Pointe 250,000 shares of the Company's common stock
valued at $3 per share, and agreed to pay an annual maintenance and
upgrade fee of $100,000.
DEFENDANTS' FRAUDULENT SCHEME
31. On or about November 25, 1997, defendants completed
Shopping's IPO, selling 1.3 million shares of Shopping common stock
at $9 per share, via a Registration Statement and Prospectus which
was prepared, reviewed and/or signed by defendants McNulty and
Hay.3 All of the shares were being offered and sold via defendant
32. Concealing that almost 25% of Shopping's total revenue
from its inception had been obtained via the "sale" of product to
Waldron and claiming that the offering price of Shopping shares
reflected "the results of operations of the Company in recent
periods" as well as "estimates of the business potential of the
Company" the Registration Statement and Prospectus stated:
The Company anticipates that sales from the Company's Web Site will constitute substantially all of the Company's sales.
33. The Prospectus also discussed the emergence of commerce
on the Internet and the potential positive impact on the Company.
It cited a report by International Data Corporation which estimates
that the number of users accessing the Web will grow from 28
million in 1996 to 175 million in 2001 and that the amount of
commerce conducted over the Web will increase from approximately
$2.6 billion in 1996 to $220 billion in 2001.
34. Shopping's Registration Statement and Prospectus were
false and misleading. The true facts were that Shopping had
obtained much of its pre-IPO revenue by arranging with Waldron, the
underwriter of Shopping's planned IPO, to buy $250,000 worth of
equipment from Shopping as part of defendants' efforts to cause
Shopping to show revenue growth.
3 Following the IPO, Shopping had 4,002,000 shares outstanding. This figure includes the conversion of Series A and B Preferred Stock into 1,286,500 shares of common stock. The 1,286,000 shares are subject to a 12-month "lock-up" period following the date of the IPO.
35. On January 12, 1998, the Company announced that it had
entered into an 18-month agreement with @Home Network, the "leader"
in high-speed Internet services via cable, which, according to the
press release, "will give [the Company] a significant presence as
a shopping supplier, offering over one million brand name products
on the @Home service." The agreement consisted of a "broadband
strategic promotion of [the Company] across @Home Guide pages, Home
page and other areas on the @Home Network." The press release
"In addition to conventional Internet access, web shoppers will soon have high-speed, direct access to Shopping.com's Superstore through @Home service," stated Douglas Hay, Chief Operating Officer at Shopping.com. "We are very excited about the @Home opportunity. During the first three days of our promotional program on @Home, we achieved more 'hits' from @Home to our site than we received from customers using the AOL browser."
36. On February 3, 1998, the Company announced financial
results for the third quarter ended October 31, 1997, reporting net
sales of $321,281 as compared to $55,541 reported for the second
quarter ended July 31, 1997; a net loss of $1.3 million or $.19 per
share compared to a net loss in the quarter ended July 31, 1996 of
$726,000 or $.21 per share. Commenting on the results defendant
McNulty stated:
"We began selling products on our Web site on July 11, 1997, these results reflect the progress achieved without significant advertising in the quest to capture additional sales in the exploding Internet marketplace. . . . Our business model allows us to grow rapidly while maintaining no physical inventories resulting in lower operating costs than traditional retailers. Since the completion of our public offering in November, we have implemented a marketing campaign to attract additional traffic to our website, established more vendor relationships, made key management additions and are making IS improvements to handle substantially higher volumes of sales orders. We believe these initiatives will move us towards our mission to become the dominant
low price leader on the Internet selling brand name products."
37. On February 9, 1998, the Company announced that it signed
an agreement with Profit Pro, Inc. for the use of that company's
cataloging software which will look up auto parts on Shopping's
website. The software will allow web shoppers to search for an
auto part and receive a part number with a price. The press
"We are pleased to be part of the $120 billion automotive after-market as the agreement with Profit Pro, Inc. gives our customers the convenience of shopping for their auto parts on-line without the hassle of calling or driving around to parts stores and enforces our goal of being a one-step online shopping center to Web consumers. We will continue to expand and strengthen our relationship with vendors like Profit Pro Inc. to offer even larger selection of merchandise," stated Bob McNulty, Chief Executive Officer at Shopping.
38. On February 10, 1998, the Company announced that it had
signed a two-year marketing and distribution agreement with En
Pointe, a provider of information technologies and services. Under
the agreement, En Pointe's direct sales force, in excess of 200,
would sell the Company's 15,000 business and office products line
to Fortune 500 companies. According to defendant McNulty, "[t]his
agreement will enable Shopping to not only tap into En Pointe's
extensive sales network, but to secure a stronger hold in the $120
billion business and office products industry."
39. On March 9, 1998, the Company announced that it had
signed a network radio advertising contract with Premiere Radio
Networks, Inc, a division of Jacor Communication, Inc. The ad
campaign was to air in the first and second quarters, and according
to the Company, would reach over 111 million people nationwide.
Defendant McNulty stated, "We have been extremely pleased with the
national exposure and customer response to our advertising campaign
DEFENDANTS' SCHEME BEGINS TO UNRAVEL
40. On March 11, 1998, an independent analyst at
broker/dealer Chatfield Dean & Co. published a research report with
a "sell" recommendation for Shopping. The report stated that
Shopping's sales were "overvalued," that Shopping's $29+ stock
price was "exuberant," and that a market value of $5 per share
would be more appropriate. On the same day, another broker/dealer
firm, Key West Securities, Inc., initiated a sell recommendation
for Shopping stock and issued a press release stating that "[t]he
Company has no sales to speak of. Waldron completely dominates and
controls almost every share and can basically place the price
anywhere he wants. This is not a fair or real market."
41. The very next day, on March 12, 1998, defendant Waldron
responded in spades to the negative analyst coverage by independent
brokerage houses which had issued "sell" recommendations, issuing
an extremely positive report on the Company as well as a "Buy"
recommendation with a 12-month stock price objective of $43 per
share. The report was prepared, reviewed and/or issued by
defendants Perle, McNulty and Hay and stated:
 Since becoming public on November 25, 1997, the company exceeds many of our preliminary expectations by positioning itself as an emerging e-tailer to both the individual consumer and commercial trade marketplace;
 The Company estimates that it is successfully on track to complete FY98 with revenues of approximately $800,000 (selling products for only seven months since July 1997) with projections to generate over $15.4 million for this current fiscal year 1999;
 Investors should also remember that IBUY is marketing its products to a more educated Internet shopping customer base
who has become more comfortable with shopping over this new electronic medium;
 Other factors which help substantiate the company's projections are the recent agreements the company has signed with En Pointe Technologies, Inc. and @Home Network which we hope will allow Shopping.com to reach a deeper customer base with less advertising than some other Internet e-tailers are spending to attract traffic to its web site;
 As total transaction revenues for retail and wholesale commerce conducted over the Internet grow from an estimated $2.6 billion in 1996 to over $220 billion by 2001, IBUY seems well poised to ride this wave of anticipated growth;
 We believe there exists a huge opportunity for the company to gain an early lead by establishing itself as a highly recognized brand name shopping site known for its low prices. Shopping.com has begun to deploy some of the $10.2 million net proceeds it raised from its IPO to establish market share through an aggressive marketing and advertising campaign aimed at keeping itself at the forefront of the everyday Internet shopper who will hopefully begin to associate IBUY with its low prices and wide selection;
 We believe the company is well positioned to launch and survive any "predatory price wars" which come into the marketplace as companies scramble for more market share. Shopping.com hopes to operate this fiscal year 1999 at a blended gross margin of 7 percent to 9 percent spread out over its entire product category width while other e-tailers are currently realizing somewhere between 15 percent to 25 percent gross margins;
 We are rating Shopping.com with a "Buy" recommendation at this time given that its valuation of roughly $104 million seems discounted to its comps if the company is successful in meeting its projections of $15.4 million for this fiscal year 1999;
 Since the company will have an estimated 5.5 million shares outstanding fully-diluted by year end, it is our hope that the company will begin to trade up near the Price/Sales multiples currently enjoyed by three other pure play competitors if the company achieves $15.4 million in sales by 1/31/99.
42. On March 17, 1998, the Company issued a release
announcing that it was continuing to develop its concept and the
the Company was moving ahead per plan. "We are pleased with our growth
and progress to date," said defendant McNulty. "During the 4th
quarter we enjoyed visits from almost 300,000 potential customers
to our website and saw our hits grow to over 11 million. Sales in
the 4th quarter exceeded $400,000 and our sales continue to
increase in the 1st quarter."
THE DEFENDANTS' MANIPULATION OF THE MARKET FOR SHOPPING SECURITIES
43. Waldron, its customers, and the accounts controlled by
Waldron beneficially own the great majority of the public float of
Shopping stock, which is approximately 1.3 million shares. As of
mid-February 1998, Waldron itself maintained an inventory of more
than 400,000 shares of Shopping in proprietary accounts. Waldron
also sold the stock to many of its customers, who continue to hold
large positions in the stock in their accounts with Waldron.
44. Commencing at the time of the IPO, Waldron, at the
direction of defendant Perle, began to manipulate the price of
Shopping stock via artificial market activity including parking
arrangements, guarantees against losses, and fraudulent purchasing.
Waldron and Perle also worked closely with defendant McNulty on a
weekly basis whereby defendant McNulty would pass the supposedly
confidential information of those who had "hit" or contacted
Shopping's website to defendants Perle and Waldron. Defendants
Waldron and Perle used this information to solicit persons who had
visited Shopping's website regarding the purchase of Shopping
shares. None of those arrangements were disclosed to plaintiff or
45. As a result of the manipulative devices employed by
defendants, the price of Shopping stock rose far beyond any
rational value. Notwithstanding the historical losses of the
Company, the stock sold at $9 per share in the IPO. Moreover, as
a result of defendants' manipulative conduct and their issuance of
the false and misleading statements, the price of Shopping rose to
over $30 per share in mid-March 1998 for a total market
capitalization of approximately $200 million.
46. In or about January 1998, despite the defendants' best
efforts, the supply of Shopping stock exceeded the demand, putting
downward pressure on its price. In order to prop up its stock
price, the defendants began to issue false information in
conjunction with Waldron. In addition, in order to relieve some of
the selling pressure, Waldron's trading room, at the direction of
defendant Perle, adopted a policy of refusing to accept sell orders
from customers. Waldron also pressured its registered
representatives to sell Shopping stock to their customers without
regard to its suitability, which resulted in sales of the stock to
many unsuitable customers.
47. Due to the size of Waldron's positions, it was apparent
to each of the defendants that if Shopping's price was allowed to
fall to true value, Waldron would sustain a huge loss and be forced
out of business. Defendants Perle, Hay and McNulty would also
suffer serious losses (along with other Shopping insiders who
received stock prior to the IPO) from such a price collapse.
Additionally, as Waldron's clearing firm, Wedbush would be liable
for Waldron's losses and market obligations. Wedbush stood to lose
as much as $10 million, a loss that would drive it out of business.
Accordingly, Wedbush, via defendant Rey, joined Waldron in its
efforts to continue the manipulation of the market for Shopping.
Wedbush continued to clear trades in Shopping while knowing of
Waldron's unlawful activities, and defendant Rey actively
participated in the scheme by executing forced buy-ins of uncovered
short positions at prices far in excess of the trading price,
despite having been advised against this illegal practice by the
48. On March 25, 1998, Shopping was forced to disclose that
trading in Shopping shares was suspended for 10 days by the SEC
because of suspicions of manipulative conduct. In addition, it was
reported that defendant Waldron is facing charges that it rigged
the market to pump up the stock of the Company. In response to the
suspension of trading, and denying any wrongdoing by the Company,
defendant McNulty stated the following:
"What is going on with Wall Street isn't happening on Main Street which is where our company does its business. Our company continues to execute its plan and despite the controversy, we continue to service our customers, and develop relationships with suppliers and vendors to build our franchise in the explosive electronic retail marketplace."
"Shopping.com remains focused on its mission statement to be the dominant low price leader on the Internet selling brand-name consumer products everyday. The Company has continued to position itself as a worldwide retailer as evidenced by the opening of our European offices to secure products and distribution for that marketplace."
49. Another bomb shell was dropped when on March 26, 1998,
Kristine Webster, the Company's Chief Financial Officer, disclosed
that 23% of the Company's revenues since the inception of its
business have come via the purchases of computers and other office
equipment valued at more than $250,000 by defendant Waldron. This
was never disclosed to the investing public in any filing including
the prospectus for the IPO. Thus, at the time of the offering,
Waldron, the principal underwriter, was itself the principal source
of Shopping's revenues! Clearly, these transactions were
consummated for the purpose of generating revenue growth as Waldron
prepared to take the Company public.
Violation Of §§25400/25500 Of The California Corporations Code
50. Plaintiff incorporates 1-49.
51. Acting individually and pursuant to a common conspiracy
or aiding and abetting each other, defendants concealed and/or
misrepresented material adverse information and/or willfully
participated in the concealment and misrepresentation of such
information regarding Shopping in order offer to sell and/or sell
Shopping securities in the IPO at inflated prices. Defendants'
wrongdoing included willful participation in the manipulation of
the trading activity in Shopping shares and the making of untrue
statements of material facts and the omission to state material
facts necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading, and
engaging in acts, practices and a wrongful course of conduct in
order to induce the purchase of shopping stock by plaintiff and the
members of the Class. Each act and/or false statement alleged
herein was made for the purpose of selling and/or offering to sell
securities and was prepared in and/or disseminated from the
California offices of Waldron, Wedbush and/or Shopping.
52. Plaintiff and the members of the Class have suffered
substantial damages because they paid artificially inflated prices
for Shopping stock. Moreover, members of the Class who still hold
Shopping shares are locked into a stock in which no broker/dealer
makes a market. Plaintiff and the members of the Class would not
have purchased Shopping stock at the prices they paid, or at all,
if they had been aware that the market price had been artificially
and falsely inflated by defendants' misleading statements and
concealments. At the time of the purchases by plaintiff and the
members of the Class of Shopping stock, the fair market value of
said stock was substantially less than the prices paid by them.
53. By reason of the foregoing, defendants violated §25400 of
the Cal. Corp. Code, thereby entitling plaintiff and the members of
the Class to recover damages pursuant to §25500.
Unlawful, Unfair Or Fraudulent Business Practices In Violation Of California Business & Professions Code §§17200, et seq.; False Or Misleading Advertising In Violation Of California Business & Professions Code §§17500, et seq.
54. Plaintiff incorporates 1-49.
55. California Business & Professions Code §17200 prohibits
acts of unfair competition, which include "any unlawful, unfair or
fraudulent business act or practice."
56. Defendants' stock manipulation, misrepresentations and
nondisclosures of material facts during the Class Period are
prohibited by California Civil Code §§1572, 1709 and 1710, and
California Penal Code §395 as well as principles of common law.
Accordingly, defendants have violated Business & Professions Code
§17200's proscription against engaging in an unlawful business act
57. Defendants' scheme to manipulate the price of Shopping
stock as well as misrepresent and/or conceal material facts and by
participating in illegal insider trading during the Class Period
also constitute an unfair business act or practice within the
meaning of Business & Professions Code §17200. Defendants'
misrepresentations were unfair business practices as defendants
were aware (or should have been aware) at all relevant times, that
the Company's operations, performance and expected earnings per
share were not as represented. No justification existed for
defendants' misrepresentations and failures to disclose material
58. Defendants' scheme to manipulate Shopping stock as well
as their misrepresentations and nondisclosures of material facts
during the Class Period also constitute a fraudulent business act
or practice within the meaning of Business & Professions Code
§17200. Defendants' conduct had a tendency to deceive the
investing public because defendants:
(a) Misrepresented the quality of the solicited
(b) Misrepresented the true value of Shopping shares;
(c) Failed to disclose material facts necessary to make
the statements made not misleading.
59. Defendants' use of various forms of marketing to falsely
advertise, call attention to, or give publicity to the sale of
shares of Shopping common stock by, inter alia, making untrue
and/or deceptive representations as to the nature and quality of
the investment and about Shopping's business and business
prospects, constitutes false or misleading advertising within the
meaning of Business & Professions Code §§17500, et seq., because
defendants either knew or reasonably should have known that such
advertising was untrue and/or misleading. Necessarily, defendants'
violation of §§17500, et seq., also constitutes a violation of
Business & Professions Code §§17200, et seq.
60. Accordingly, because defendants have committed unlawful,
unfair and/or fraudulent business acts or practices in violation of
Business & Professions Code §§17200, t seq., and engaged in false
and misleading advertising in violation of Business & Professions
Code §§17500, et seq., plaintiff, the members of the class and the
general public are entitled to relief under §17203 and §17535 which
may include (1) orders or judgments enjoining defendants from
engaging in further unlawful, unfair or fraudulent acts or
practices, or (2) orders of disgorgement or restitution to prevent
defendants from retaining any money or property -- including
profits from illegal trading obtained by means of their
unlawful, unfair or fraudulent acts 'or practices. Plaintiff
additionally requests that such money or property be impounded by
this Court, or that an asset freeze or constructive trust be
imposed upon such revenues and profits, to avoid dissipation and/or
fraudulent transfers or concealment of such monies by defendants.
Plaintiff, the members of the Class and the general public may be
irreparably harmed and/or denied an effective and complete remedy
if such an order is not granted.
61. Plaintiff brings this action as a class action pursuant
to California Code of Civil Procedure §382 on behalf of all persons
who purchased or otherwise acquired Shopping stock (the "Class")
between November 25, 1997 and March 26, 1998, inclusive. Excluded
from the Class are each of the defendants, members of their
families and any entity in which a defendant has an interest.
62. The Class is composed of numerous residents of
California, as well as persons dispersed throughout the United
States, the joinder of whom in one action is impracticable. The
disposition of their claims in a class action will provide
substantial benefits to the parties and the Court. During the
Class Period, Shopping had more than 4 million shares of stock
outstanding, owned by hundreds of shareholders.
63. There is a well-defined community of interest in the
questions of law and fact involved in this case. The questions of
law and fact common to the members of the Class, which predominate
over questions which may affect individual Class members, include
(a) Whether defendants participated in a scheme to
manipulate Shoppingfs stock price;
(b) Whether defendants misrepresented material facts;
(c) Whether defendants' statements omitted material
facts necessary to make the statements made, in light of the
circumstances under which they were made, not misleading;
(d) Whether defendants knew or should have known that
their statements were false and misleading;
(e) Whether defendants violated Cal. Corp. Code §§25400
and 25500;
(f) Whether defendants violated Cal. Bus. & Prof. Code
§§17200, et seq.;
(g) Whether the price of Shopping stock was artificially
inflated during the Class Period; and
(h) The extent of damage sustained by Class members and
the appropriate measure of damages.
64. Plaintiff's claims are typical of those of the Class
because plaintiff and the Class sustained damages from defendants'
65. Plaintiff will adequately protect the interests of the
Class. He has retained counsel who are experienced in class action
securities litigation. Plaintiff has no interests which conflict
with those of the Class.
66. A class action is superior to other available methods for
67. The prosecution of separate actions by individual Class
members would create a risk of inconsistent and varying
68. Plaintiff has alleged the foregoing based upon the
investigation of his counsel, which included a review of Shopping's
SEC filings, securities analysts' reports and advisories about the
Company, press releases issued by the Company, and media reports
about the Company and believes that substantial additional
evidentiary support will exist for the allegations set forth herein
after a reasonable opportunity for discovery.
WHEREFORE, plaintiff, on behalf of himself and the other
members of the Class, demands judgment against the defendants as
1. Declaring this action to be a proper class action on
behalf of the Class defined herein;
2. Awarding plaintiff and the members of the Class
3. Awarding plaintiff and the members of the Class pre-
judgment and post-judgment interest, as well as reasonable
attorneys' fees, expert witness fees, and other costs;
4. Awarding extraordinary, equitable, and/or injunctive
relief as permitted by law and/or equity; and
5. Awarding such other relief as this Court may deem just
DATED: April 15, 1998 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH DARREN J. ROBBINS
/s/ ______________________________ WILLIAM S. LERACH
600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058
SPECTOR & ROSEMAN, P.C. ROBERT M. ROSEMAN 2000 Market Street 12th Floor Philadelphia, PA 19103 Telephone: 215/864-2400
SPECTOR & ROSEMAN, P.C. ELLEN GUSIKOFF STEWART DIANE P. DOHERTY 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/338-4514
COMPLNTS\SHOPPING.CP2
Securities Class Action Clearinghouse U.S.D.C. N.D. Cal. Robert Crown Law Library Stanford University School of Law
inquiries@securities.stanford.edu
Source: Scanned paper copy of court-stamped document.