Online travel company Expedia.com (Nasdaq: EXPE) was slapped Thursday with another in what has become a series of class action lawsuits against the company alleging violations of federal securities laws.
The latest complaint contends that Expedia, its president and chief executive officer Richard N. Barton, chief financial officer Gregory S. Stanger, and chairman Gregory B. Maffei issued and sold the company’s common stock during its initial public offering (IPO)without disclosing that at least four of the underwriters had “solicited andreceived excessive and undisclosed commissions from certain investors.”
In exchange for the commissions, the suit alleges, lead underwriters Goldman Sachs and Morgan Stanley, as well as underwriters Robertson Stephensand Merrill Lynch, allocated Expedia shares to its customers at the IPO price of US$14 per share.
In order to purchase the IPO shares through the brokerage houses, however, these investors had to agree to buy additional shares at a later date at substantially higher prices, the complaint alleges.
“The requirement that customers make additional purchases at progressivelyhigher prices as the price of Expedia stock rocketed upward was intended to(and did) drive Expedia’s share price up to artificial levels,” the suit charges.
The practice is known on Wall Street as “laddering.”
As a result, the complaint maintains, both the underwriters and theircustomers were able to “reap enormous profits” by buying Expedia’s stock at the original IPO price and then subsequently selling it at “inflated” prices.
On its first day of trading, the company’s shares hit as high as $65.88. Expedia shares currently hover in the $44 range, after hitting a 52-week low of $7.75 on October 13th.
Flood of Suits
The latest suit, which was filed in the U.S. District Court for theSouthern District of New York, is being waged by the Philadelphia,Pennsylvania-based law offices of Marc S. Henzel. The complaint seeks to recover damages on behalf of investors who acquiredExpedia common stock between November 9, 1999 and October 12, 2000. The company’s IPO took place on November 9, 1999.
That litigation joins at least four other related cases pending against Expedia in the federal court in Manhattan. The law firms of Cauley Geller Bowman & Coates, Schiffrin & Barroway, Milberg Weiss Bershad Hynes & Lerach, and Wechsler Harwood Halebian & Feffer, each separately filed shareholder class action suits against Expedia in late June. Those lawsuits also allege that the company violated the Securities and Exchange Act in connection with the IPO.
Investors who want to act as lead plaintiffs in the cases, which will likely be consolidated, have to come forward by August 6, 2001.
According to the Securities Class Action Clearinghouse at StanfordUniversity Law School, the number of class action suits involving securitiesfraud filed this year is on track to break a seven-year-old record.
In recent months, Expedia has seen its fortunes rise in concert with thestrong performance of the online travel sector as a whole.
In May, the Bellevue, Washington-based company posted its first-ever profitable quarter, more than a year ahead of schedule, and projected that income for the nextfiscal year would beat estimates.