If he's not going to field questions about the accounting and accountability issues at Groupon, now might be a good time for wunderkind Chief Executive Andrew Mason to write to his employees one of his spirited emails that can be leaked to the public.
You know, like the indignant memo Mason wrote to answer criticism of the company during its pre-IPO "quiet period," conveniently enabling him to get a message out to potential investors despite Securities and Exchange Commission prohibitions on doing just that.
Instead, a spokeswoman said Mason was unavailable as Chicago-based Groupon's market value plummeted 22 percent -- close to $2.7 billion -- to $14.18 a share and a cap of about $9 billion in the week after its March 30 announcement that fourth-quarter losses were greater than expected because of "material weakness in its internal controls."
"Internal controls" lend credibility to a company's financial statements, a fairly serious issue for Groupon, whose economic model of marketing goods and services to discount-hungry consumers has not convinced everyone of its viability. But those looking for some sign that there was a firm hand on the reins in light of this latest misstep were left only with an unflattering assessment from Groupon's co-founder and executive chairman too accurate to be taken as a stab at humor.
"Our main focus is trying to figure out how this model evolves and not consistently falling on our face in the public," Eric Lefkofsky told the Northbrook Chamber of Commerce shortly after the first of the investor lawsuits had been filed, according to Northbrook Patch. "It's like giving a 7-year-old a Ferrari; you're going to get a certain amount of chaos."
Assuming a 7-year-old doesn't have enough respect for a Ferrari (or any motor vehicle) to enlist adult assistance before reducing it to a high-performance battering ram, one would like to think it would require only an accident or two for the kid to grasp the value of grown-up supervision.
Mason, 31, Lefkofsky, 42, and their 3-year-old company, on the other hand, keep plowing into trouble without appearing to pull over to assess the damage, let alone repair it.
So the SEC is sniffing around again. The agency earlier shot down Groupon accounting efforts to frame its revenue picture in a favorable light in its IPO documents. And it bristled at the quiet-period affronts of Mason's employee note and Lefkofsky's boast that the company would be "wildly profitable."
On the heels of Groupon's failure to set aside adequate reserves to cover customer refunds that were increasing with the introduction of pricier deals, questions have been raised as to whether "material weakness in its internal controls" misled IPO investors while top executives got rich.
"Given the company's cavalier attitude toward financial reporting thus far, I would be tempted to say that they just think they are 'above the rules,'" Anthony H. Catanach Jr., a business professor at Villanova University and the Maguire Fellow at the American College Center for Ethics in Financial Services, said by email.
Catanach said these kind of blunders are not uncommon at young companies "whose growth outpaces internal operating systems, including those that relate to financial reporting," especially when top financial and accounting executives are just getting settled at a company.
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