Defunct online grocer Webvan (Nasdaq: WBVN) was slapped with its second class action lawsuit in as many weeks Monday, over allegations that its initial public offering (IPO) violated federal securities laws.
The latest complaint was filed against former Webvan chairman and chief executive officer George T. Shaheen, former chairman Louis H. Borders and former chief financial officer Kevin R. Czinger, as well as Webvan IPO underwriters Goldman Sachs, Merrill Lynch, Robertson Stephens, Bear Stearns, and Smith Barney.
Specifically, the suit charges that a portion of the e-tailer’s IPO registration statement filed with the U.S. Securities and Exchange Commission (SEC) was “materially false and misleading,” because it did not disclose that the five investment firms had “solicited and received excessive and undisclosed” commissions from certain investors.
In exchange for the commissions, the action said, the underwriters allocated to their customers “material portions” of the restricted number of Webvan IPO shares, which were offered at a price of $15 per share.
Because the commission structure was not reported in the Webvan prospectus given to potential investors, some investors may have bought the stock under false pretenses, the complaint alleges.
The lawsuit also maintains that Goldman Sachs, Merrill Lynch, Robertson Stephens, Bear Stearns, and Smith Barney had entered into agreements with investors to buy additional Webvan shares for pre-determined prices at a later date, in exchange for their IPO purchase.
The practice, known on Wall Street as laddering, helped to artificially raise the price of the company’s shares, the suit charges. Webvan’s IPO of 25 million shares was held on November 4, 1999.
During much of 2001, Webvan’s stock faced delisting by the Nasdaq. The stock dropped below the $1 level for good in November 2000.
Laddering has been alleged in cases pending against several e-tailers over their IPOs, including Buy.com (Nasdaq: BUYX), Drugstore.com (Nasdaq: DSCM), Expedia.com (Nasdaq: EXPE) and Priceline.com (Nasdaq: PCLN). The lawsuit also notes that the SEC is investigating underwriting practices in connection with several other IPOs.
The latest Webvan suit, which was filed in U.S. District Court for the Southern District of New York, is being waged by the Bala Cynwyd, Pennsylvania-based law firm Schiffrin & Barroway. The complaint seeks to recover damages on behalf of investors who acquired Webvan common stock between November 4, 1999 and December 6, 2000.
The filing follows a separate shareholder suit filed last week over similar allegations against Webvan, several of its officers, directors, and IPO underwriting firms.
Webvan and three of its affiliates — Webvan Operations, Webvan Bay Area and HomeGrocer.com — formally filed for Chapter 11 bankruptcy protection on July 13th, four days after the Foster City, California-based company shuttered its operations and laid off its workforce of 2,000.
Webvan’s bankruptcy filing reportedly listed assets with a book value of $1.2 billion and debts of $106 million. However, goodwill and other intangibles make up $734 million of the assets.