Appellate Court Revives Shareholder Lawsuit Against Miva

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A federal appellate court has revived a lawsuit against Miva by investors who say they were misled by the company's statements regarding click fraud.

The case dates to 2005, when investors filed suit, alleging that sponsored links provider Miva relied on distribution partners who allegedly used a variety of questionable click-fraud techniques, including "spyware, browser hijacking software, and other non-human traffic," according to court documents.

Those techniques allegedly spurred short-term gains, but hurt Miva in the long run. (The company has since restructured, selling off its media business to Adknowledge and rebranding its remaining business as Vertro.)

On May 5, 2005, Miva's CEO and COO acknowledged in a conference call with analysts that click fraud had been responsible for some of the company's recent growth. That same day, the stock price dropped from $6.16 a share to $4.83. By May 9, it had fallen to $4.46.

Investors then filed suit, arguing that the company previously issued misleading statements that caused the stock price to be inflated before early May. Among others, Miva officials said in a February 2005 conference call that the company had removed questionable distribution partners who accounted for $70,000 revenue per day. And in March 2005, Miva filed a financial statement repeating that it stop using certain distribution partners responsible for $70,000 a day in revenue.

The investors alleged that those statements were false and that the distribution partners at issue had not been removed from the network.

But U.S. District Court Judge John Steele in the Middle District of Florida granted Miva summary judgment on claims relating to those statements. Steele ruled that the investors hadn't proven that their losses stemmed from the alleged misrepresentations because the stock price was inflated before 2005.

The 11th Circuit reversed that ruling late last week and sent the matter back for additional proceedings in the trial court. "The Defendants may be held liable for knowingly making materially false statements that continued to prop up the already inflated price of MIVA's stock and thereby caused losses to investors, regardless of whether MIVA's stock price was already inflated before the actionable statements were made," the appellate court ruled.

The court also upheld a portion of the ruling that dismissed several counts against Miva. A company lawyer said: "We are pleased the court affirmed the dismissal of the bulk of the allegations and we think there are remaining legal grounds to dispose of the rest."

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