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Barry Diller, Expedia Sued; Class-Action Alleges Stock-Price Manipulation

Barry Diller, Expedia Sued; Class-Action Alleges Stock-Price Manipulation

The travel site and its chairman are accused of withholding key information about the company's outlook

Expedia and its chairman Barry Diller are the target of a class-action lawsuit accusing the travel site and its chairman of misrepresenting the company's outlook to inflate its stock price. 

Also read: Barry Diller Sells Shares in TripAdvisor for $300M

The trouble began when Expedia, Inc. spun off its TripAdvisor site in 2011. TripAdvisor, which is like a Yelp for vacations, directed a significant amount of traffic to Expedia through its pop-up ads. Starting on July 27, 2012, the suit says, Expedia made positive statements about its future outlook and its relationship with the now-separate TripAdvisor company, specifically:

We will continue to work with TripAdvisor pursuant to various commercial agreements between subsidiaries of Expedia, on the one hand, and subsidiaries of TripAdvisor, on the other hand. The various commercial agreements, including click-based advertising agreements, content sharing agreements and display-based and other advertising agreements, have terms of up to one year.

That statement was repeated several times throughout the year. What wasn't disclosed, the suit says, was that TripAdvisor was planning to redesign its site to reduce the number of pop-ads featured on it. Those ads were a significant source of Expedia's traffic. When those ads stopped, Expedia's traffic suffered and its stock price tanked.

"These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of Expedia and its business, prospects and operations, thus causing the Company's common stock to be overvalued and artificially inflated at all relevant times," the suit alleges.

Also read: Barry Diller Strikes Back at FTC, Says He Only Paid Fine to Avoid Legal Hassle

Though the class action suit covers the period between July 27, 2012 and July 25, 2013, the plaintiff, Vianey Manriquez, didn't purchase his shares in Expedia until July 25, 2013 — the same day the misrepresentations came to light in a Wall Street Journal article about the Expedia stock's 24 percent decline and TripAdvisor's role in it.

Expedia, Inc., which owns the Expedia travel booking site as well as several similar sites, was spun off from Diller's IAC in 2005; Diller retained a leadership position and was its controlling shareholder. He, Expedia's CEO and its CFO are named as individual defendants.

Diller sold his shares in TripAdvisor for $300 million and stepped down as its chairman in December 2012, as part of the new company's spin-off. Diller's IAC sold its flagging Newsweek title to IBT Media in early August.
 
Expedia declined to comment. Requests for comment from Barry Diller were not returned.
 
Pamela Chelin contributed to this report.