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Coupons.com Investors Say IPO Was a Rush Job

SAN FRANCISCO (CN) - Worried about its technology's security vulnerabilities, Coupons.com rushed an initial public offering last year, a class of investors claim.

Though the 14-page complaint lead plaintiff Andrew Nguyen filed Wednesday in superior court does not provide any examples of security breaches at Coupons.com, it says that the company was eager to go public because big-data breaches at Adobe Systems and Target spooked the company about its future.

Coupons.com makes money when consumers print or activate coupons, even if they never use the coupons to make purchases, Nguyen says.

The company also makes money if the consumer redeems the coupon during a purchase.

One important revenue stream for Coupons.com is directed advertising, Nguyen says, noting that this platform takes advantage of the grocery lists consumers create and save on the Coupons.com mobile application platform, Grocery iQ.

"Through these apps, Coupons.com claims to obtain valuable insight into users' preferences that can be sold to [packaged-goods companies] and retailers to make their digital advertising more relevant and thus more likely to result in a sale," the complaint states.

Nguyen says Coupons.com was "building upon the Grocery iQ concept" in recent years when it began designing a new platform that would enable a retailer's point-of-sale, or POS, system to interface with Coupons.com's platform.

Before Coupons.com's IPO in March 2014, the website was preliminarily rolling out a Retailer iQ platform that "included digital coupons and e-receipts via SMS and email, personalized recommendations and offers, integrated shipping lists" and other analytics, the complaint states.

Coupons.com emphasized in its Oct. 25, 2013, registration statement with the Securities and Exchange Commission that early adopters of Retailer iQ included "four leading retailers operating over 20,000 store locations in North America," according to the complaint.

Nguyen says, however, that "a growing onslaught of retail data breaches since 2007 threatened that roll-out, as it made selling Retailer iQ difficult because retailers had to integrate Retailer iQ's platform into their POS systems."

"Security defects in retailer's POS systems and the electronic payment systems they interface with are typically faulted" when a customer's personal information is stolen in a data breach.

Against the backdrop of massive breaches to the records of Adobe and Target in late 2013, Coupons.com went forward with its IPO, "seeking to take the company public before a large-scale roll-out of Retailer iQ was doomed to fail, or expensive data security workarounds had to be made," according to the complaint.

Nguyen also alleges that Coupons.com goosed its revenue numbers leading up to the IPO by misrepresenting the impact of digital print coupon campaigns with a few large packaged-goods companies during the 2013 holiday season.

"The 2013 Holiday Campaigns were outside of the annual budgeting process and, therefore, subject to the heightened risk that they would not be repeated," the complaint states.

Nguyen says "the Registration Statement should have disclosed the disproportionate impact that the 2013 Holiday Campaigns had on Coupon.com's financial results and the likely impact should the [packaged-goods companies] not repeat the campaigns."

Coupons.com sold more than 12 million shares at $16 on March 6, 2014, tipping the company's scales at more than $179 million.

Though the company's stock continued running up the next day, closing at $30 per share, Nguyen notes that shares were "trading below $10 per share, a 38% decline from the IPO price" at the time of the action's filing.

The stock closed on the day the lawsuit was filed at $10.

Nguyen names Goldman Sachs and other IPO underwriters as defendants to the action.

Together with Allen & Co., Merrill Lynch and RBC Capital Markets, these underwriters collected $13.5 million in connection to the false and misleading statements that the SEC registration statement contained, according to the complaint.

Alleging violations of the federal Securities Act, the class seeks compensatory and rescission damages. It is represented by Shawn Williams of Robbins Geller Rudman & Dowd.

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