POMPANO BEACH, FLA.-Three class action securities lawsuits filed against PetMed Express and its top executives allege company officials deceived investors by failing to disclose longtime veterinarian dissension, which purportedly impacted the company's performance.
POMPANO BEACH, FLA.—Three class action securities lawsuits filed against PetMed Express and its top executives allege company officials deceived investors by failing to disclose longtime veterinarian dissension, which purportedly impacted the company's performance.
PetMed Express officials deny all allegations of wrongdoing. According to the lawsuits, investors were unaware that PetMed Express' business depends on prescription authorizations by veterinarians, who are the online pet pharmacy's biggest competitors. The lawsuits, virtually identical apart from plaintiffs' names and signed by firms such as Milberg Weiss Bershad & Schulman LLP, claim the "war" between PetMed Express and the veterinary profession was not promulgated to investors.
The lawsuits, filed on behalf of shareholders, charge the company, Chief Executive Officer Menderes Akdag, founder and President Marc Puleo and Chief Financial Officer Bruce S. Rosenbloom with anti-fraud violations contained in the Securities Exchange Act of 1934.
The act bars manipulative practices in the issuance of securities, requires registration of stock exchanges, brokers, dealers and listed securities as well as disclosure of financial information and insider trading.
Two lawsuits call on all purchasers of PetMed Express common stock between June 18, 2004 and July 26, 2004 to sign on to the claim, filed in U.S. District Court for the Southern District of Florida West Palm Beach Division. The deadline is Oct. 18. The third class-action suit represents purchasers of the company's stock between June 16 and July 26.
"While defendants were boasting of 'sustained profitability,' the truth was that defendants were aware or recklessly disregarded that it was becoming more and more difficult to get veterinarians to fill prescriptions for PetMed and that the company had turned to intimidation tactics and threats of litigation by that time to get veterinarians to fill prescriptions for PetMed customers," the lawsuits states.
Repeated phone calls by
to PetMed Express executives were not returned. Instead, company attorney Alison Berges forwarded a public statement released Aug. 23. It reads as follows:
"PetMed Express Inc. denies the allegations of wrongdoing in the complaint filed by law firm Milberg Weiss. PetMed Express has experienced substantial growth in both sales and profits during the period of time referenced in the complaint, and the complaint's own allegations concede this fact. PetMed Express will not be bullied by this frivolous suit and will defend itself vigorously."
The statement did not reference additional lawsuits filed against the company at presstime.
As of Oct. 15, PetMed Express stock was down 2.4 percent, trading at $5.21 a share, depressed from a 52-week high of $13.88. Shares tumbled after PetMed Express reported new customers declined 18 percent in the first quarter compared to the same period last year. That's a change from company reports citing sales jumped 70 percent to $95 million this fiscal year ending March 31, which earned PetMed Express a recent first-place rating by
magazine as the best growth company in the small cap class. At the time, executives predicted revenues would reach $135 million in 2004, SEC filings show.
The lawsuits also allege PetMed Express hired a public relations outfit to act as an investment firm, publicly rating the company as a "strong buy" in business circles in exchange for free or low-priced stock.
While PetMed Express stock was "artificially inflated," executives were liquidating assets, the SEC filings say. In what the lawsuits describe as "highly unusual and suspicious stock trades," Puleo sold $8 million of his privately held stock in June, representing 60 percent of his holdings, court documents add. Securities and Exchange Commission (SEC) filings on insider actions confirm the sale, but report the total closer to $9 million.
In addition, SEC reports Rosenbloom, Akdag and an investor listed as Susan Puleo and South Pac Trust also sold stock in June. All together, 1.5 million shares were sold to bring in more than $14 million, SEC filings show.
On July 26, PetMed Express officials announced revenues and earnings were below expectations, predicting revenues for fiscal year 2005 at $35.3 million. Almost immediately the stock price fell more than $2 per share, the lawsuits states.
Attorneys listed in the lawsuits did not return phone calls to
In addition to Milberg Weiss, court documents reveal Michael A. Swick PLLC; The Brualdi Law Firm; Schiffrin & Barroway LLP; Wechsler Harwood LLP; and Charles J. Piven P.A. also have signed on to sue PetMed Express.
The lawsuits seek unspecified monetary damages and demand jury trials. At presstime, hearing dates had not been set.