Amazon settles securities lawsuit for $27. 5 million

Online retailer Amazon.com agreed to pay $27.5 million to settle a securities lawsuit that claimed it misled investors during the Internet boom.

The lawsuit, consolidated from separate shareholder lawsuits and filed Aug. 1, 2003, in U.S. District Court in Seattle, charged Amazon with violating federal securities law by making false and misleading statements that served to inflate its stock.

The company disclosed the settlement yesterday in its annual report, filed with the U.S. Securities and Exchange Commission. The settlement must be approved by the court.

Amazon spokeswoman Patty Smith said the company settled the lawsuit "solely to avoid the expense and burden of protracted litigation." Most, if not all, of the settlement will be covered by insurers, she said.

The investors' attorney did not return a call.

The lawsuit, which centers on comments made by the company between Oct. 29, 1998, and Oct. 23, 2001, is among a series of class-action lawsuits filed by investors against Internet companies after the dot-com crash.

One of the lawsuits consolidated under the case focused on the company's now-defunct Amazon Commerce Network, through which it offered other online retailers exposure on its site in exchange for payment and — in some cases — a minority stake in their company.

That lawsuit charged that Amazon continued to tout the network even as it was losing millions of dollars. It also failed to disclose that a large portion of the revenue recognized under the agreements came in the form of stock, not cash.

In August 2000, Amazon began clarifying which revenue it received in cash or stock from the partnerships and the losses related to them. Most of the companies Amazon invested in during the Internet boom have folded.

Columbia University law professor John Coffee said that since Enron, he's seen a tremendous reduction in the number of securities cases that are dismissed. Even so, he said, the $27.5 million settlement represents "the very bottom end of class-action settlements."

"When you see a class action (lawsuit) settle that cheaply, you either had to say the plaintiff realized they did not have a good chance of succeeding at trial or getting a trial," Coffee said.

Amazon still faces a securities lawsuit related to a convertible debt offering. The company raised more than $1 billion in early 1999 by selling convertible notes, which can be traded for stock in 2009.

In yesterday's filing, the company said Cendant Publishing voluntarily withdrew a patent-infringement lawsuit last month. Amazon said it expects Cendant to refile the claims if they are not settled.

Amazon's shares closed yesterday at $34.75, down 16 cents.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com