SEC Probes Groupon
The Securities and Exchange Commission is examining Groupon Inc.'s revision of its first set of financial results as a public company, according to a person familiar with the situation. — The regulator's probe into the popular online-coupon company is at a preliminary stage …
Context & Ripple Effects
Groupon's accounting has been under a cloud since before it went public: in July 2011, its bookkeeping choices were already prolonging the SEC's review of the offering that Goldman Sachs and Morgan Stanley were lined up to lead. On March 30, 2012, the company disclosed a 'material weakness' in internal controls alongside lower quarterly revenue, and just days later it revised its first set of results as a public company.
The Wall Street Journal reports the SEC is examining that revision at a preliminary stage — an examination described by a person familiar with the situation rather than confirmed on the record. The story traveled widely the same day, with outlets from CNET to Business Insider picking it up, while the Journal separately reported that Groupon's aggressive posture toward the press continues even as the company publicly stands behind its finance chief.
First-order effects
- The SEC's preliminary probe puts Groupon's restated first public-company quarter under regulatory review, with the company defending its CFO while the disclosure of a material weakness remains on the record.
- Shareholder lawyers are already moving: VentureBeat reported the same day that Groupon's tumbling stock has made it a juicy target for securities litigation.
Second-order effects
- Goldman Sachs and Morgan Stanley, which led the IPO after the accounting questions surfaced during the SEC's 2011 review, face renewed exposure on their diligence of a client whose numbers have now been walked back twice.
- Rival daily-deal and consumer-internet issuers coming to market will face harder questions from underwriters and auditors about revenue-recognition and refund accounting, raising their cost of going public.
Third-order effects
- If the probe hardens into enforcement, expect regulators to treat aggressive pre-IPO metric definitions and fast post-IPO revisions as a distinct risk category — tightening disclosure standards for the wave of consumer-web companies that went public on unconventional accounting presentations.
The trend: The post-IPO reckoning for consumer-internet companies is shifting from investor skepticism to formal regulatory and litigation accountability, with Groupon the test case.