PetMed Express officials are denying the allegations of wrongdoing being levied against the company and several of its officers and directors in a series of class action lawsuits. The company, calling the legal actions "frivolous," reports it intends to vigorously defend itself.
Among the list of charges, the lawsuits, which at press time had been filed by nearly a dozen law firms on the behalf of PetMed investors, allege the company violated the Securities Exchange Act by failing to disclose that the company’s business model relies on the cooperation of veterinarians, PetMed’s competitors, to fill prescriptions.
Lawsuits also allege that the company "could not guarantee the quality, safety or efficacy of PetMed drugs because, as an unauthorized reseller of many products, the company had to obtain such products through unauthorized channels, prompting veterinarians to refuse refilling prescriptions through PetMed."
The lawsuits claim the result of this was that PetMed’s financial results were not sustainable, which caused the company’s stock to trade at artificially high prices. The suits allege that during this period of stock inflation, insiders and defendants sold almost $65 million in privately held PetMed stock.
PetMed, responding to allegations, states, "PetMed Express has experienced substantial growth in both sales and profits during the period of time referenced in the complaint, and the complainant’s own allegations concede this fact."
Despite a net income increase of 27 percent reported in PetMed’s first quarter, lawsuits point to this earnings release as one of the points of contention.
A release from law firm Schiffrin & Barroway, LLP, which has also filed suit, states "On July 26, 2004, defendants shocked the market when they belatedly disclosed that the company was operating well below defendants’ previous guidance and that PetMed revenues and earnings were well below plan. News of this shocked the market. Shares of PetMed fell $2.07 per share or 29.7 percent, on July 26, 2004, to close at $4.90 per share."
The lawsuits are being filed on behalf people purchasing the stock between June 18, 2003, and July 26, 2004, and these individuals have until Oct. 18 to sign on to the suits, which seek an unspecified amount in damages.