A class-action shareholder suit alleging violations of the Securities and Exchange Act has been filed against service provider L90 by the law firm of Scott & Scott LLC.
The complaint alleges that New York-based L90 and some of its officers misrepresented the firm’s prospects in an effort to inflate its stock price.
In addition, the suit charges that L90 violated SEC rules by engaging in improper “roundtrip” transactions with HomeStore.com and its customers, resulting in the overstating of revenue and assets for the second and third quarters of 2001.
Last week, L90 announced that it would reduce its revenue by $8.3 million when it restates its operating results after a probe of its financial records by the Securities and Exchange Commission.
The firm said that an internal audit showed that cash transactions appeared to represent barter arrangements involving multiple vendors and service providers in 2000 and 2001. Other revenue transactions were written off as bad debts or generated concerns about the services provided, the company said.
“The results will be restated because these transactions do not appear to meet the criteria for revenue recognition under generally accepted accounting principles,” the company said in a statement.
The accounting periods affected include the quarter ended Sept. 30, 2000, the year ended Dec. 31, 2000 and the quarters ended March 31, June 30 and Sept. 30, 2001.
L90 said it hired forensic accountants to conduct the internal review after learning of the SEC investigation. In addition to the specific revenue period under scrutiny, the inquiries also involved two transactions between L90 and Homestore.com Inc.
Scott & Scott noted that L90’s stock price plummeted by more than 50% following release of the news about the SEC investigation.
L90 owns list company Novus Marketing Services Inc.
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