CLASS-ACTION SUIT FILED AGAINST PEAPOD

JON SPRINGER

CHICAGO -- Troubled Internet grocer Peapod misled investors and artificially inflated its share price, lawyers for its shareholders alleged in a class-action complaint filed in U.S. District Court here last week.

Three New York law firms specializing in class-action securities fraud said Peapod in November knowingly misstated its funding needs, leading to higher share prices and favorable recommendations by securities analysts. As a result, investors were blindsided by Peapod's announcement March 16 that it was running out of money and might be forced to discontinue operations.

Specifically, the complaints refer to a Nov. 8, 1999 press release in which Peapod stated it had in excess of $15 million in cash and marketable securities on hand -- enough to fund operating needs through the third quarter of this year. In its March 16 statement, which also announced the resignation of chief executive officer Bill Malloy and the unraveling of a $120 million financing deal, Peapod said it had just $3 million on hand and that its resources may not be sufficient to continue operations.

Peapod shares lost more than half their value on the news, falling from $8 to less than $4.

Some other Internet-based grocer companies also saw their stocks decline, although much less dramatically, on the day Peapod announced Malloy's resignation. For closing prices as of late last week, see Page 8.

Suits against Peapod were filed on behalf of plaintiff Lila Gold, who purchased 1,500 shares of Peapod stock at $11.56 per share on Feb. 14, according to her law firms, Abbey Gordy & Squitieri and Faruqi & Faruqi.

Peapod's Nov. 8 press release was in response to rumors alleging the company was out of cash. "This announcement was false and misleading inasmuch as PeaPod's available resources could not possibly carry it through the third quarter without an additional capital infusion," according to the Abbey Gordy complaint.

"Notwithstanding their knowledge, defendants misrepresented the facts to the public," the complaint continued. "As a result, analysts continued to support the stock and the stock price was artificially inflated."

Calls to Peapod by SN seeking comment were not returned.