The original complaint charges IAC and certain of its officers and directors with violations of the Securities Exchange Act of 1934. IAC largely acts as intermediary between suppliers and consumers, aggregating large blocks of consumer goods and services (primarily travel-related products such as hotel rooms and airline tickets) from suppliers and selling them to consumers over the Internet. IAC's Travel segment's business model was built on the ability of the Company's majority-owned subsidiaries, Expedia, Inc. and Hotels.com, to contract with the major hotel chains for non-exclusive rights to sell hotel room bookings for the major hotel chains in exchange for a fee.
The complaint alleges that beginning in early 2003, defendants began to artificially inflate the price of the Company's common stock in order to decrease the amount of stock IAC would ultimately have to issue to acquire all of the outstanding shares of Expedia and Hotels.com that it did not already own, permitting IAC to use inflated IAC stock as acquisition currency which would not further dilute defendants' own interests in IAC. Throughout the Class Period, defendants also caused IAC to spend over $1.5 billion to repurchase over 47 million shares of its own common stock to further prop-up the Company's stock price.
The complaint alleges that defendants' statements made in connection with the announcement of the acquisitions of Expedia, Hotels.com and LearningTree.com, and with the Company's financial reports and other statements made throughout the Class Period, were materially false and misleading because they did not disclose that: (a) certain of the Company's online customers were being double-billed for hotel rooms, leading to great customer dissatisfaction; (b) certain hotel chains were contesting the Company's slow payment for hotel room sales made on its Web site and were threatening to stop doing business with the Company; (c) certain of the Company's Web site customers were being charged rates exceeding the hotel's public prices, leading to further customer dissatisfaction; (d) certain IAC hotel customers were dissatisfied with the Company's practice of displaying a message on its Web sites that all of a particular hotel's rooms were sold out when the hotel was not actually sold out; (e) the Company had previously been selling a large number of hotel rooms and airline seats through more than 24,000 affiliate Web sites, but since October 2002, many of these Web sites were either privately threatening and/or actually pursuing litigation against the Company, alleging among other things copyright infringement and predatory advertising; (f) one substantial business partner of Hotels.com, Metroguide, had commenced a lawsuit against Hotels.com alleging violations of federal copyright law and unfair business practices; (g) the Company was under-reporting its state and local sales tax expenses for some locations; and (h) certain hotels and airlines were decreasing the Company's allotment of rooms and seats because of the Company's bad business practices.
On August 4, 2004, the Company issued its Q2 2004 earnings release disclosing that its Q2 2004 net income fell 24% from the same quarter in 2003 and that it was cutting its forecast for full-year operating profits, admitting that it was being provided less airline seats and hotel rooms to sell. On this news the Company's stock plummeted on extremely high volume of almost 90 million shares. The Company's stock price dropped precipitously from its Class Period high of $42.74 per share on July 7, 2003 to close at $22.80 per share on August 4, 2004, erasing over $10 billion in market capitalization.
As summarized by the Company’s FORM 10-K For the Fiscal Year Ended December 31, 2008, beginning on September 20, 2004, twelve purported shareholder class actions were commenced in the United States District Court for the Southern District of New York against IAC and certain of its officers and directors, alleging violations of the federal securities laws. These cases arose out of the Company's August 4, 2004 announcement of its earnings for the second quarter of 2004 and generally alleged that the value of the Company's stock was artificially inflated by pre-announcement statements about its financial results and forecasts that were false and misleading due to the defendants' alleged failure to disclose various problems faced by the Company's travel businesses (which in 2005 were spun off into a separate public company, Expedia, Inc.). On December 20, 2004, the district court consolidated the twelve lawsuits, appointed co-lead plaintiffs, and designated co-lead plaintiffs' counsel. See In re IAC/InterActiveCorp Securities Litigation, No. 04-CV-7447 (S.D.N.Y.).
On October 18, 2004, a related shareholder derivative action, Stuart Garber, Derivatively on Behalf of IAC/InterActiveCorp v. Barry Diller et al., No. 04-603416, was commenced in the Supreme Court of the State of New York (New York County) against certain of IAC's officers and directors. On November 15, 2004, another related shareholder derivative action, Lisa Butler, Derivatively on Behalf of IAC/InterActiveCorp v. Barry Diller et al., No. 04-CV-9067, was filed in the United States District Court for the Southern District of New York against certain of IAC's current and former directors. On January 24, 2005, the federal district court consolidated the Butler case with the securities class action for pre-trial purposes only. On February 2, 2005, the defendants in the Garber case removed it from New York state court to the United States District Court for the Southern District of New York. On April 11, 2005, the district court issued a similar consolidation order in respect of the Garber case.
On May 20, 2005, the plaintiffs in the federal securities class action filed a consolidated amended complaint. Like its twelve predecessors, the amended complaint generally alleged that the value of the Company's stock was artificially inflated by pre-announcement statements about the Company's financial results and forecasts that were false and misleading due to the defendants' alleged failure to disclose various problems faced by the Company's then travel businesses. The plaintiffs sought to represent a class of shareholders who purchased IAC common stock between March 31, 2003 and August 3, 2004. The defendants were IAC and fourteen current or former officers or directors of the Company or its former Expedia travel business. The complaint purported to assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, as well as Sections 11 and 15 of the Securities Act of 1933, and sought damages in an unspecified amount.
On July 5, 2005, the plaintiffs in the related shareholder suits filed a consolidated shareholder derivative complaint. The defendants were IAC (as a nominal defendant) and sixteen current or former officers or directors of the Company or its former Expedia travel business. The complaint, which was based upon factual allegations similar to those in the securities class action, purported to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, violation of Section 14(a) of the Exchange Act, and contribution and indemnification. The complaint sought an order voiding the election of the Company's then current Board of Directors, as
well as damages in an unspecified amount, various forms of equitable relief, restitution, and disgorgement of remuneration received by the individual defendants from the Company.
On September 15, 2005, IAC and the other defendants filed motions to dismiss both the securities class action and the shareholder derivative suits, which motions the plaintiffs opposed. On October 12, 2006, the court heard oral argument on the motions. On March 22, 2007, the court issued an opinion and order (i) granting the defendants' motion to dismiss the complaint in the securities class action, with leave to replead, and (ii) granting the defendants' motion to dismiss the complaint in the shareholder derivative suits, with prejudice.
On April 24, 2007, the plaintiffs in the shareholder derivative suits filed a notice of appeal to the United States Court of Appeals for the Second Circuit from the district court's order of dismissal. On consent of the parties, the appeal has been withdrawn from active consideration by the court of appeals. In addition, the plaintiffs have stipulated that they will abandon their appeal if the district court dismisses with prejudice the second amended complaint in the securities class action.
On May 15, 2007, the plaintiffs in the securities class action filed a second amended complaint. The new pleading continues to allege that the defendants failed to disclose material information concerning problems at the Company's then-travel businesses and to assert the same legal claims as its predecessor. On August 15, 2007, the defendants filed a motion to dismiss the second amended complaint, which motion the plaintiffs have opposed.
According to an article dated March 19, 2010, a Manhattan federal judge dismissed a long-running class-action lawsuit accusing media mogul Barry Diller's IAC/InterActiveCorp of securities fraud for making false and misleading statements that artificially inflated the Internet conglomerate's stock price. U.S. District Judge Richard Holwell wrote the securities fraud claims were "too thin to survive dismissal" of the 5-1-2 year old lawsuit. The dismissal was with prejudice, meaning the claims cannot be brought again. Holwell dismissed an earlier complaint in the case in 2007. The lead plaintiff is the Cement Masons and Plasterers Retirement Trust, court records show.