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Judge Boots Yelp Shareholders’ Class Action

SAN FRANCISCO (CN) - A federal judge Tuesday dismissed with prejudice a class action claiming Yelp misled shareholders about the authenticity of its reviews and revenue potential.

Lead plaintiff Joseph Curry sued the online business review company, its CEO Jerry Stoppelman and two other top executives in August 2014, alleging securities fraud.

U.S. District Judge Jon Tigar dismissed the original complaint in April, finding the shareholder plaintiffs failed to "satisfy the requirements for a securities fraud claim."

Shareholders amended the lawsuit in May, to include complaints the Federal Trade Commission disclosed in April 2014, claiming Yelp offered to manipulate reviews for paying customers.

The plaintiffs claimed Yelp's denial of the manipulation was material because the allegations threatened its "entire business model" of providing authentic reviews to users.

The amended complaint also cited a study showing that the FTC's disclosure of 2,046 complaints on April 2, 2014, caused Yelp's stock price to drop.

During a Nov. 11 hearing on a motion to dismiss the amended complaint, Yelp attorney Gilbert Serota said the new complaint merely repackaged the same information that the court had rejected.

Tigar largely agreed with that on Tuesday. He found the new complaint identified only 11 of more than 2,000 complaints claiming Yelp representatives offered to manipulate reviews in exchange for a fee.

"Because a small number of customer complaints does not sufficiently establish the veracity of the allegations contained therein, the Court holds that Plaintiffs have failed to plead falsity with particularity," Tigar wrote.

He also found the plaintiffs failed to show that Yelp intentionally misled shareholders because the company disclosed in a registration statement on Oct. 29, 2013 that "the media has previously reported allegations that we manipulate our reviews, rankings and rating in favor of our advertisers and against non-advertisers. These allegations, though untrue, could adversely affect our reputation and brand."

Tigar found the plaintiffs' study failed to show conclusively that Yelp's drop in stock price resulted directly from the FTC complaint disclosures.

Yelp said that its share price already had fallen by 6 percent when The Wall Street Journal published an article about the disclosure of FTC complaints.

Tigar found it was unclear whether the market reacted to the sheer number of complaints or the content of the complaints. He added that the plaintiffs failed to state when the complaints were actually disclosed by the FTC.

"Without more information, plaintiffs' contention that the market reacted to the statements at issue here is not a fact," Tigar said.

He also found the plaintiffs failed to substantiate claims that Yelp's CEO and other executives knew the company's stock price was inflated and used their insider knowledge to profit from selling shares.

"As the Court stated in the April 2015 Order, it is not 'self-evident that Yelp's chief executives necessarily knew of the veracity of complaints made by individual local business owners who contacted Yelp and offered evidence that reviews of their business were not credible or were being manipulated by Yelp employees because they had declined to advertise,'" Tigar wrote in his 28-page ruling.

Because the shareholders failed to correct deficiencies identified in their original complaint, Tigar dismissed the amended complaint with prejudice.

"The Court concludes that further leave to amend would be futile and therefore dismisses plaintiffs' [first amended complaint] without leave to amend," Tigar wrote.

Yelp attorney Gilbert Serota with Arnold and Porter and plaintiffs' attorney Shawn Williams with Robbins Geller Rudman & Dowd, both of San Francisco, did not immediately respond to emails seeking comment Tuesday evening.

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