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Ramon Gomez, Et Al. V. Bidz.Com, Incorporated, Et Al. 09-CV-03216

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Ramon Gomez, Et Al. V. Bidz.Com, Incorporated, Et Al. 09-CV-03216 2:09-cv-03216-CBM-E Document 34 Filed 10/13/2009 Page 1 of 87 1 Jeff S. Westerman (SBN 94559) jwestermanmilberg.com 2 Andrew J. Sokolowski (SBN 226685) asoko1owski(Imi1berg.com 3 MILBERG LIP 300 South Grand Avenue, Suite 3900 4 Los Angeles, California 90071 Telephone: (213) 617-1200 5 Facsimile: (213) 617-1975 6 BROWERPIVEN, A Professional Corporation David A.P. Brower 7 browerbrowerpiven.com OCT 3 2009 Jessica Sleater 8 sleaterbrowerpiven.com 488 Madison Avenue, 8th Floor ENTRALLi2- D TRICT OF CAL 9 New York, New York 10022 Y Telephone: (212) 501-9000 10 Facsimile: (212) 501-0300 11 Counsel for Lead Plaintiff and Liaison Counsel for the Class 12 [Additional Counsel Appear on Signature Page] 13 UNITED STATES DISTRICT COURT 14 CENTRAL DISTRICT OF CALIFORNIA - WESTERN DIVISION 15 RAMON GOMEZ, On Behalf of Lead Case No. CV09-03216 CBM- Himself and All Others Similarly Ex 16 Situated, (Consolidated with Nos. CV09- 17 Plaintiff, 03671 CBM; CV09-03967 CBM) VS. 18 CONSOLIDATED CLASS BIDZ.COM, INC.,, and DAVID ACTION COMPLAINT FOR 19 ZINBERG, VIOLATIONS OF THE FEDERAL SECURITIES LAWS 20 Defendants. JURY TRIAL DEMANDED 21 ROLAND POMFRET, On Behalf of Himself and All Others Similarly 22 Situated, 23 Lead Plaintiff, 24 VS. BIDZ.COM, INC., DAVID ZINBERG, 25 and LAWRENCE Y. KONG, 26 Defendants. 27 28 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DO4CS\4901 15v! 2:09-cv-0321 6-CBM-E Document 34 Filed 10/13/2009 Page 2 of 87 2 TABLE OF CONTENTS 3 Page 4 JURISDICTION AND VENUE ................................................................................ 1 5 PARTIES...................................................................................................................2 6 CLASS ACTION ALLEGATIONS..........................................................................6 7 SUBSTANTIVE ALLEGATIONS.........................................................................10 Materially False and Misleading Statements Issued During the Class 8 Period.................................................................................................. 10 9 OTHER FALSE AND MISLEADING STATEMENTS, SCHEMES, AND 10 ARTIFICES TO DEFRAUD DURING THE CLASS PERIOD..................47 BIDZ Uses "Shill Bidders" to Artificially Inflate the Sell Price for Its 11 OnlineAuctions ..................................................................................47 12 Bidz Used Bogus Appraisals to Artificially Inflate the Selling Prices 13 ofAuction Items .................................................................................. 51 The Truth Regarding Some of the Company's Fraudulent Schemes 14 Emerges............................................................................................... 51 15 LOSSCAUSATION ............................................................................................... 59 16 ADDITIONAL SCIENTER ALLEGATIONS .......................................................62 17 DEFENDANTS' ASSOCIATIONS AND PROPENSITY TO ENGAGE IN UNLAWFUL CONDUCT CONSISTENT WITH SCIENTER 18 ALLEGATIONS...........................................................................................68 19 Bidz Sold Unlicensed Securities Before it Attempted an IPO......................69 20 Bidz Is the Target of Numerous Lawsuits Relating to Its Business 21 Practices.............................................................................................. 69 Bidz Has Been Connected to Numerous People With Questionable 22 Backgrounds........................................................................................ 69 23 NO SAFE HARBOR...............................................................................................70 24 COUNT I Violation of Section 10(b) of the Exchange Act and Rule 1 Ob-5 25 Promulgated Thereunder (Against Defendants)...........................................71 COUNT II Violation of Section 20(a) of the Exchange Act (Against the 26 IndividualDefendants) .................................................................................. 74 27 28 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DOCS\4901 15v1 2:09-cv-03216-CBM-E Document 34 Filed 10/13/2009 Page 3 of 87 PRAYER FOR RELIEF .......................................................................................... 75 1 JURY TRIAL DEMANDED ................................................................................... 75 2 3 4 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ii 28 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS II DOCS\490115v1 2:09-cv-0321 6-CBM-E Document 34 Filed 10/13/2009 Page 4 of 87 1 1. Lead Plaintiff, Roland Pomfret, brings this Consolidated Class Action 2 Complaint for Violations of the Federal Securities Laws (the "Complaint") 3 individually and on behalf of all other purchasers of the securities of Bidz.com , 4 Inc. ("Bidz" or "Company") between July 31, 2007 and November 10, 2008, 5 inclusive (the "Class Period"). Such purchasers, along with Plaintiff, are 6 collectively referred to herein as the "Class." This Complaint is brought against 7 Bidz, the Company's President, Chief Executive Officer, and Chairman of the 8 Board of Directors, David Zinberg, and the Chief Financial Officer and director 9 Lawrence Y. Kong (collectively, with the Company, "Defendants"). 10 2. This Complaint is alleged upon personal knowledge as to Plaintiff's 11 own acts, and upon information and belief as to all other matters, based upon 12 Plaintiff's counsel's investigation, including review of Bidz's public filings with 13 the United States Securities and Exchange Commission ("SEC"); conference calls; 14 wire and press releases published by and regarding Bidz; securities analysts' 15 reports and advisories; information available in the media and on the Internet; and 16 interviews with at least fifteen knowledgeable persons ("CW(s)"), including 17 former Bidz employees, who held positions that provided them with personal 18 access to the information which they reported. Additional facts supporting the 19 allegations contained herein are known only to the Defendants or are exclusively 20 within their control. Plaintiff believes that substantial additional evidentiary 21 support exists for the allegations set forth in this Complaint that will be revealed 22 after a reasonable opportunity for discovery. 23 JURISDICTION AND VENUE 24 3. The claims asserted herein arise under and pursuant to Sections 10(b) 25 and 20(a) of the Exchange Act, (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule lOb-S 26 promulgated thereunder (17 C.F.R. § 240.1Ob-5). 27 1 28 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS I DOCS\490115v1 2:09-cv-0321 6-CBM-E Document 34 Filed 10/13/2009 Page 5 of 87 1 4. This Court has jurisdiction over the subject matter of this action 2 pursuant to Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. 3 § 1331. 4 5. Venue is proper in this District pursuant to Section 27 of the 5 Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and 6 transactions alleged herein, including the preparation and dissemination of 7 materially false and misleading information, occurred in substantial part in this 8 District. Additionally, Bidz's principal executive offices are located within this 9 District. 10 6. In connection with the acts, conduct and other wrongs alleged in this 11 Complaint, Defendants, directly or indirectly, used the means and instrumentalities 12 of interstate commerce, including but not limited to, the United States mails, 13 interstate telephone communications and the facilities of the national securities 14 exchange. 15 PARTIES 16 7. Plaintiff Roland Pomfret ("Plaintiff') purchased Bidz securities, in 17 reliance on Defendants' false and misleading statements and omissions of material 18 facts and/or the integrity of the market for Bidz securities, at artificially inflated 19 prices during the Class Period and suffered economic loss and damages when the 20 truth about Bidz that was misrepresented and omitted during the Class Period was 21 revealed. The Plaintiff's Certification of Roland Pomfret containing a detailed list 22 of his transactions in Bidz securities during the Class Period is attached hereto as 23 Exhibit A. 24 8. Defendant Bidz is a Delaware corporation with its principal executive 25 offices located at 3562 Eastham Drive, Culver City, California 90232. Bidz 26 characterizes itself as a "leading online retailer of jewelry, featuring a live auction 27 format." Bidz offers its products through a continuous live format, featuring a $1 2 28 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS I DOCS\490115v1 2:09-cv-0321 6-CBM-E Document 34 Filed 10/13/2009 Page 6 of 87 1 minimum opening bid, and a unique 15-second auction extension period that 2 allows the auctions to continue until all bids are received. The majority of the 3 auctions are short-term, often lasting less than one hour. Their product inventory 4 includes gold, platinum, and silver jewelry set with diamonds, rubies, emeralds, 5 sapphires, and other precious and semi-precious stones, watches, and accessories. 6 According to Bidz, it is the "second largest online retailer of jewelry." Bidz's 7 stock is quoted on the NASDAQ Stock Market LLC under the symbol "BIDZ." 8 NASDAQ is a well-developed, efficient market for securities. 9 9. Defendant David Zinberg ("Zinberg") was, at all relevant times, the 10 Company's President, Chief Executive
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