Groupon has taken some heat in the media of late.Critics have dismissed it as a “Ponzi scheme,” blasted its ridiculous “earnings before marketing expenses,” fretted about its big new competition, and worried that it is running low on cash.
Thanks to SEC “quiet period” rules restricting company communications in the months leading up to an IPO, however, Groupon has been unable to defend itself.
So far, in observance of these rules, Groupon has mostly not defended itself (except for one outburst a couple of months ago, which was packaged as sarcasm).
But now Groupon apparently just couldn’t take it anymore. So it is trying a clever new way to get around those SEC rules and issue a very detailed public statement rebutting some of what its critics have said about it.
It will be interesting to see if the SEC notices. (We imagine it will.)
Before we go any further, we should be clear that we think the SEC’s rule banning public communications in the months leading up to an IPO is ludicrous. We think companies should be free to say whatever they want, at all times (short of outright fraud). We find the “quiet period” rule especially outrageous when critics are blasting a company, as they are in Groupon’s case. Just because a company is going public it should have to sit back and let people haul off on it?
We understand that the SEC thinks its job is to “protect investors” and, therefore, that it needs a rule muzzling companies or those companies might express enthusiasm that would trick poor innocent investors into buying their stocks. But enough is enough. Any investor who voluntarily chooses to buy the stock of an IPO should take full responsibility for that decision. If the investor is dumb enough to buy the stock because he or she only saw a company ad and couldn’t be bothered to read the actual IPO prospectus, then that “investor” deserves what he or she gets.
(And using the term “investor” in this context is an insult to real investors. Except in cases of outright fraud, someone who buys a stock without doing serious homework is just a reckless gambler who doesn’t deserve government protection.)
But back to Groupon…
The clever method Groupon appears to be using to try to get around the SEC’s quiet period rule is writing a detailed public communication in the form of a CEO “letter to employees” that Groupon has then distributed publicly with the help of a trusted media outlet.
To be sure, this communication is also a letter to employees. It was sent to Groupon’s employees, after all, and written in a language the employees will understand.
But it was obviously also written for a lot of folks outside the company.
So it’s no surprise that the email quickly appeared, in full, in an article by legendary technology reporter Kara Swisher at All Things D.
Now, we suppose it’s possible that this email was actually “leaked” to Kara by a disgruntled, traitorous Groupon employee. But we’d bet real money that it wasn’t.
Our bet is that this email was written with the express knowledge and intent that it would be distributed to the public via a helpful media outlet. We bet Groupon’s CEO, Andrew Mason*, discussed this strategy with the company’s communications experts and attorneys prior to writing and sending the email. And we bet the email was then delivered directly to Kara Swisher—either by Andrew himself or someone else on Groupon’s board or advisory team (perhaps an attorney, so “attorney client privilege” can be invoked in case the SEC does come sniffing around.)
Why do we think this?
Well, first, because in reading the email it seems obvious. It just reads that way.
Second, because Groupon has already demonstrated that it is chafing at the bit to defend itself against its critics—and understandably so. So we imagine the company has been brainstorming ways to do this that it could credibly argue do not violate quiet period rules.
Third, because we know Kara Swisher’s writing and reporting well (because it’s excellent!) and this article is not written the way we think it would have been written if Kara had gotten the email from a traitorous Groupon mole. Kara’s quite chatty, and she loves to gleefully describe how the moment a CEO sent an email saying that no one at the company was ever to send anything to the press, several of her sources immediately sent it to her. In this case, however, there’s no mention of any sourcing. The email is just presented in full with a bit of careful pre-amble saying that Andrew Mason sent it to employees.
So, in any event, it will be interesting to see what happens here.
Groupon has now successfully issued an extremely detailed public statement addressing its critics’ concerns about its accounting, it being a “Ponzi scheme,” its competition, and it running low on money. The statement is posted in full at All Things D, and you can read it there.
(We agree with some things in Groupon’s statement, and we disagree with others. But that’s another topic, and we’ll come back to it.)
The reason this will be interesting is that, if the SEC does nothing, it will be tacitly blessing this tactic as a way of allowing companies to communicate with the public during the quiet period: Just say whatever you want in a letter to employees and then find a media outlet to print it for you. (And, by the way, we don’t mean to imply that the media outlet has done anything remotely questionable: The email is certainly interesting and newsworthy, and we would gladly have served as Groupon’s chosen media outlet in this case. In fact, we hereby volunteer to serve as Groupon’s trusted media outlet next time!)
If Groupon has been careful in its communications internally and with Kara—using attorneys and so forth—the SEC won’t be able to prove that Groupon deliberately “placed” this letter with All Things D. So Groupon may well “get away with it” even if the SEC does investigate.
But if the SEC doesn’t make a stink about this, it will allow a very public precedent to be set on how companies can easily get their messages out during the quiet period.
Again, we think the whole concept of the “quiet period” is ludicrous, and we wish the SEC would just eliminate the rule and let companies speak their minds.
But we imagine folks at the SEC may not see it that way.
(And, by the way, Groupon is running low on cash…)
*UPDATE 2: Kara Swisher says there was no “deal” between her and Groupon to publish the email– that she just suddenly got a lot of copies of the email in her inbox, some anonymously. That makes sense–and is actually smarter from Groupon’s perspective than reaching an explicit deal. So I apologise to Kara for speculating that Groupon had reached out to her to see if she might be interested in publishing the email. But I still expect Groupon sent Kara the email because they wanted it published and figured she would publish it. (I certainly would have!)
* Now, it’s also possible that the plan to distribute Andrew’s email was not, in fact, Andrew’s, but one of Andrew’s board members or investors, who have also been hammered in the press. And it’s possible that the deal was brokered without Andrew’s knowledge (perhaps the board member or investor just suggested to Andrew that one way to handle the horrible press was to have Andrew write a detailed memo to employees). This would protect Andrew if the SEC came calling, and protecting Andrew is a good idea. Of course, if this is what happened, and I were Andrew, I would lambaste or fire whoever hatched this plan, as it could well get the company and Andrew in hot water.