Class Action Lawsuit Accuses Angie’s List of Insider Trading

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Lead plaintiffs Eva and Harold Baron have filed a class action lawsuit against Angie’s List, alleging that company executives inflated it share price by making false and misleading statements about growth and revenue and eventually selling their own stocks for more than $13 million.

Defendants in the class action lawsuit include Angie’s List CEO William S. Oesterle, Chief Marketing Officer Angela R. Hicks Bowman, Controller and Interim CFO Charles Hundt, CFO Robert R. Millard and Chief Technology Officer Thapar Manu.

The antitrust lawsuit accuses the defendants of cashing in on July 18, 2013 when the company’s stock was trading at its peak at $28 per share. The lawsuit revealed that “certain of the individual defendants cashed in, with defendant Oesterle selling 486,400 shares of Angie’s List stock for more than $10.38 million, defendant Hicks Bowman selling 21,000 shares for $487,500, defendant Hundt selling 40,000 shares for $880,850, and defendant Manu selling 67,370 shares for more than $1.34 million.”

According to the Angie’s List class action lawsuit, the projected growth and revenue were false and misleading. The lawsuit recounts positive statements made by Oesterle and other key executives during earnings calls and presentations to analysts and shareholders.

“Based on the positive mantra” of executives, the suit alleges, Angie’s stock price hit a high of $28 last July. At the same time, executives were selling shares, “with the price of the company’s stock artificially inflated based on their misstatements,” the Angie’s List class action lawsuit contends.

The lawsuit, however, states that the company failed to disclose important facts about the company, including:

“(a) that Angie’s List was increasingly relying on providing free memberships in order to artificially boost its subscriber figures;

“(b) that contrary to Angie’s List’s repeated class period statements that the online reviews providing the membership fees side of its business were unbiased because Angie’s List did not permit service providers to buy ratings on its website (‘You can’t pay to be on Angie’s List’), the company was consistently deriving more than half of its revenues from the service provider side of its business – where it relied heavily on collecting fees for listing paid service providers more prominently;

“(c) that because Angie’s List charged services providers hundreds of dollars for ‘hot leads,’ service providers were faced with the Hobson’s choice of charging above-market prices for basic, run-of-the-mill services that could be procured by consumers for cheaper prices in order to absorb the extraordinarily high referral fees Angie’s List was charging-or simply abandoning Angie’s List;

“(d) that the legitimacy of the service provider side of Angie’s List’s business model was dubious, as service providers were forced to pay Angie’s List thousands of dollars a year in order to be listed as highly rated service providers, and if they did not, they would not get customer referrals from Angie’s List;

“(e) that Angie’s List did not vet the service providers listed and recommended on its website, either for qualifications or for safety, leading many consumers to question the value of its recommendations, causing them to be unwilling to pay outsized membership fees.”

After trading closed on Oct. 23, 2013, Angie’s List issued a press release announcing its third quarter 2013 financial results and fourth quarter 2013 guidance.

The press release stated that Angie’s List reported a loss of $13.5 million, or $.23 a share, on revenue of only $65.5 million, compared to a loss of $18.5 million, or $.32 a share, on $42 million in sales in the third quarter of 2012. As reported by the Associated Press that day, based on Defendants’ bullish Class Period statements, analysts had been led to expect Angie’s List to post a loss of only $.20 a share on $66.1 million in revenues. Angie’s List also disclosed that its marketing expenses rose by $2.1 million from the third quarter of 2012, increasing to $28.2 million. For its fourth quarter 2013, the Company estimated reporting revenues of $68 million to $69 million, while analysts had been led to expect sales of $70.4 million based on Defendants’ bullish Class Period statements.

According to the class action lawsuit, the news led the company’s stock price to drop and close at 14.64 on October 24, 2013.

The antitrust lawsuit also cited a report by the popular blog SeekingAlpha.com where it stated that “analysts that had been serving as cheerleaders to support the stock price – rather than providing critical analysis – had conflicts of interest in that they had served as underwriters in the company’s IPO and follow-on offerings and were unlikely to be critical as they sought additional investment banking work from Angie’s List in the future.”

The Barons are seeking for class certification and damages for securities violations.

This federal securities class action lawsuit is Eva and Harold Baron vs. Angie’s List Inc., William S. Oesterle, Angela R. Hicks Bowman, Charles Hundt, Robert R. Millard and Thapar Manu, United States District Court of Southern District of Indiana, Indianapolis Division.