Amazon.com sued by shareholders

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Amazon.com may have become a victim of its own hype.

Two shareholder lawsuits - one filed this week and the other earlier this month - charge the Seattle-based online retailer with disclosing false or misleading information that artificially inflated its stock price.

The company's shares, which have lost 86 percent of their value since peaking at $75.25 last March, closed yesterday at $10.

The lawsuits, filed in U.S. District Court in Seattle, center on the Amazon Commerce Network (ACN) program, which gave Internet companies, such as drugstore.com and Living.com, space on the Amazon Web site in return for cash and stock.

One of the lawsuits, filed by shareholder Adele Brody, 54, of New York, contends that Amazon failed to disclose in a timely manner that the ACN investments were losing millions of dollars, and that much of the revenue the company reported was "highly speculative equity investments."

The lawsuits - one filed jointly by New York-based Weiss & Yourman and Seattle-based Keller Rohrback and another by Wechsler Harwood Halebian & Feffer of New York - seek class-action status on behalf of shareholders that purchased the company's stock between Feb. 2, 2000, and March 9, 2001.

In a statement, the company said the lawsuits are without merit.

"We have always worked hard to be extremely open, careful and accurate in our public disclosures," the statement said. "We are confident that our financial and accounting disclosures, including those related to the Amazon Commerce Network, have been correct and appropriate."

Amazon reported last August in a Securities and Exchange filing that just $4.2 million of the $24.3 million ACN partners paid the company was cash.

As ACN partners began to reel financially, the company's equity stake plummeted. Amazon reported a $266.9 million loss from investments in ACN partners for the nine months ended Sept. 30.

Shiva Rajgopal, a University of Washington accounting professor, said "fraud on the market" suits are fairly common for high-profile companies such as Amazon that lose a lot of value in a short time.

"The saving grace here (for Amazon) is the entire market collapsed," he said. "Arguably, most of Amazon's statements were predicated on the continuing boom in the market for Internet stocks."

In a recent interview Bezos said one of the company's missteps included investments it made in smaller e-commerce companies.

"We made these investments at very low valuations," he said. "Everybody thought, 'Boy, what smart company to have made these investments.' That lasted about three months."