Although this lawsuit was filed last August, the company still has not yet disclosed it, in various press releases and 8-Ks filed with the Securities and Exchange Commission. The company will probably make the usual claim that the lawsuit is "meritless" and that they will put up a "vigorous defense," blah, blah, blah.
The lawsuit goes on to allege that:
David Zinberg, with the help of Marina Zinberg, built Bidz.com from a series of pawn shops into a major online retailer with hundreds of millions in annual revenue. The Company, however, is rife with corruption: it makes its money by misrepresenting the quality of its merchandise, and then, falsely bidding up these prices itself to trick buyers who would pay more than they would absent this fraud. These fraudulent acts are able to thrive in the corporate environment that the Zinbergs have created, one filled with related party transactions and suspicious accounting. [Emphasis added.]
Allegations of shill bidding on Bidz.com’s web site are not new. A consumer complaint website, Ripoffreport.com, and Citron Research, a Los Angeles website run by short seller Andrew Left, the LA Times, and others have detailed examples of suspected shill bidding on Bidz.com’s web site for over a year.
This blog has raised questions about Bidz.com’s compliance with GAAP in valuing inventories, the company’s history of inconsistent inventory disclosures, and more recent troubling changes in inventory disclosures. In addition, I have been critical of Bidz.com's share repurchase program and the simultaneous sales of stock by insiders, too.
Sam E. Antar (former Crazy Eddie CFO and a convicted felon)
Disclosure: Not long or short Bidz.com.