Tuesday, December 24, 2013

Class Action Lawsuit Could Spell Big Trouble For Angie's List

A class action lawsuit filed in the U.S. District Court for the Southern District of Indiana charges key officers of Angie's List of defrauding investors who purchased stock in the company between between February 14, 2013 and October 23, 2013 by issuing  materially false and misleading statements regarding the strength of the company’s business model and its financial performance and future prospects and failed to disclose adverse effects on the company's prospects of becoming profitable. Named in the lawsuit are the company's CEO, William Oesterle, the company's co-founder and Chief Marketing Officer, Angie Hicks Bowman, current and past CFOs Charles Hundt and Robert Millard, and Thapur Manu, the recently-terminated Chief Information Officer.

The serious allegations contained in the lawsuit call into question the legitimacy of the subscription-based reviews of local service providers on the company's website because of its shifting business model, which increasingly relies on revenues it now derives from referral fees to those same service providers. According to the lawsuit, Angie's List this year began relying on offering free membership subscriptions in order to artificially boost the number of subscribers in order to mislead investors. This helped boost the price of the stock significantly during the period in question. Oesterle and the other officers cashed out many shares they owned during this period for a handsome profit. Ooesterle sold 486,400 shares of stock for more than $10.3 million, while the other officers collectively sold about $3 million of their personally-held shares of common stock "to the unsuspecting public at fraud-inflated prices."

At the same time, the company's assertion that "You can't pay to be on Angie's List" appears dubious based on the company's growing reliance on revenues it derives from service providers. The company has increasingly started relying on fees it collects from service providers (more than half of its revenues) in consideration for listing them more prominently on the company's website than service providers which don't pay the additional fees. In some instances, the lawsuit alleges that Angie's List "sometimes charges service providers hundreds of dollars for 'hot leads.'" Those costs are "passed along to . . . subscribers, increasing the prices consumers were paying and decreasing the benefit to them of using the website," the lawsuit alleges.

The entire legitimacy of the company's business model for service providers rated on its website is "called into question" as a result of the company "forcing service providers to pay high fees to be listed as highly rated service providers" the lawsuit contends. If service providers don't ante up and pay the high fees, they won't get customer referrals from the company's website. Even worse, the lawsuit claims that Angie's List  does not vet service providers listed and recommended on its website, "either for qualifications or for safety," which caused many subscribers to question the website's value and made them less willing to pay the subscription fees. The lawsuit claims the company's officers "lacked a reasonable basis" for positive statements they made to investors about the company's business model and its financial prospects.

Angie's List's stock price closed yesterday at $15.03 per share. The company's stock reached a high of $28.32 earlier this year before starting to slide the second half of this year. The stock has traded as low as $11.14 this year. After nearly 20 years in business, the company has yet to turn a profit during a single fiscal year.


Anonymous said...

Do they even have the money for a decent sized retainer on hand to defend this?

Anonymous said...

It's unfortunate for the plaintiffs that the lawsuit has been filed in an Indiana jurisdiction.

Anonymous said...

I wonder if Keith Krach's stock dump on the 20th had anything to do with today's news. Hmmm...

Ken said...

In addition, On the first 3 pages of contractors in the Northern Va area, I notified A' List of the illegal contractors that are amongst their paying advertisers. I have an email chain notifying me that they are in essence "not responsible for those illegal contractors" I am willing to share this information with anyone that can get the word out on the extortion.. please read on

Angies list “Pay to Play” advertising Pricing… If you don’t think Angie’s List is a “Pay to Play” Massive internet Scheme… Check out the pricing they offered my company to be in the first 30+ 1st and 2nd page rotation that her members get to see. Once in Talks about advertising with Angies List, Positive reviews that were not there prior started to appear immediately. In addition, she holds herself harmless pushing incorrectly licensed companies “Big Deals” to her members without certifying their true credentials. I have many more phone messages from her sales teams to prove these Pay to Play accusation.
From: Jenni XXXXX
Sent: 11/29/2013 5:50:19 PM
Subject: Advertising Promo-Jenni XXXXXX: URGENT:
Thank you again for your time today AND understanding of our time constraints.
As we discussed ANY & ALL agreements would need to be COMPLETED no later than 11:59PM EDT tomorrow (Saturday, November 30th).
Here is the pricing you requested (valid only thru the above time)
Web in Arlington, Fairfax and Loudoun Counties.
Call Center in Arlington, Fairfax and Loudoun Counties
1/3 page publication in both Virginia Suburbs AND Virginia Suburbs West
Web = $43,801.00
Call Center = $12,341.00
Publication = $12,281.00
Sub Total = $68,423.00
Bundle Discount = $ 6,423.00
Approved Bundle Pricing= $62,000.00
I look forward to discussing your options as well as congratulating you on coming on board tomorrow!
THANK YOU again for your time!
My cell phone number is 336-XXX-XX74
Senior Advertising Sales Consultant
Telephone/Fax: 317.8XX.XX51
1030 East Washington Street | Indianapolis, In 46202
Description: Logo

Anonymous said...

I own a company and ran a bid deal I asked the salesman to do 31 coupons, they did over 150, and they never informed me that they would take alot of this money, a customer told me when they called for a refund, angies list rep said unless I got an f review from them there would be no refund, when I called and asked them they told me it was an experiment, yet, they never informed me of that. I had 12 pages of happines, and 21 straight A's prior to dealing with this circus, I showed them v where a customer lied on a review, her email to me, did not match the review and its wording, they would not remove it. Glad to see this company fall there workers are crooks also, if they don't have a job. .. Good that's the price for screwing hard working businessmen.

Anonymous said...

I hear ya there ran into the same problem in Minnesota, this company gives service awards to companies that have been black booked by O.S.H.A. One of these companies with the of faulty equipment sent a young man falling to his death, yet Angies List gave them a super service award, I bet this mans family would differ, oh yeah and they got caught again, 2 big fines from O.S.H.A. So A.L. is lying when they say they check out companies, only check they care about is the deposits of the consumers and the companies they get money from, and then in return ruin those business men and women, they just proved to the world that they are not as reliable to the consumer, they just broke the law and ripped off the consumer, business people, and shareholders, I hope orange looks good on them.

Anonymous said...

More unfortunate for good businessmen, consumers and shareholders, as far as there workers go, apple dont fall far from the tree.

Anonymous said...

Shame on you, Angie!