Stock Fraud Suit Against Yelp Gets Bad Review From Ninth Circuit

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By Phyllis Diamond

Online advertiser Yelp Inc. Nov. 21 beat back would-be class securities fraud claims it made false statements about the authenticity of customer reviews of local businesses.

The fact Yelp’s stock price dropped after disclosure of customer complaints it suppressed bad reviews of companies that advertised on its website isn’t enough to establish “loss causation,” the U.S. Court of Appeals for the Ninth Circuit affirmed ( Curry v. Yelp Inc. , 9th Cir., 16-15104, 11/21/17 ).

It also affirmed that allegations top Yelp executives must have known about the company’s fraudulent business practices don’t give rise to a “strong inference of scienter"—culpable intent.

Based on the investors’ failure to allege scienter or loss causation, Judge Ronald Gould didn’t address their claims the defendants’ statements were materially false. He also said the district court didn’t abuse its discretion in refusing to let the investors amend their complaint.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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