On April 4, 2018, investors sued IZEA, Inc. (“IZEA” or the “Company”) in United States District Court, Central District of California. The federal securities class action alleges that plaintiffs acquired IZEA stock at artificially inflated prices between May 15, 2015 and April 3, 2018 (the “Class Period”). They are now seeking compensation for financial losses incurred upon public revelation of the Company’s alleged misconduct during that time. Here’s everything you need to know about the IZEA class action lawsuit:

Summary of the Allegations

Company Background

According to its website, the Company (NASDAQ; IZEA) is an Orlando, Florida-based marketing technology company. As such, it “develops software that connects influential creators with leading brands who compensate them to produce and distribute content.”

Edward Murphy founded the Company, which also has offices in Los Angeles, in 2006.

Since its inception, IZEA claims, it has completed more than 3 million individual transactions for customers “ranging from small local businesses to Fortune 50 organizations.”

Summary of Facts

IZEA and two of its senior officers and/or directors now stand accused of deceiving investors by lying about or withholding critical information about the Company’s business practices and prospects during the Class Period.

Specifically, they are accused of omitting truthful information about reporting of revenue and profits, and the efficacy of its internal controls, from SEC filings and related material. By knowingly or recklessly doing so, they allegedly caused the Company’s stock to trade at artificially inflated prices during the time in question.

The truth came out on April 2, 2018, when the Company issued a press release in which it revealed that it would delay the announcement of its fourth quarter and full year earnings for 2017. In the same release, IZEA admitted that, “the amount the Company previously reported as gross profit from Content Workflow should be the amount reported as revenue.”

The next day, the Company filed a form with the SEC in which it stated that its “financial statements from 2015 onward should no longer be relied upon and that the amount the Company previously reported as gross profit on Content Workflow should be reported as revenue.”

A closer look…

As alleged in the April 4 complaint, IZEA repeatedly made misleading public statements throughout the Class Period.

For example, on a form filed with the SEC at the beginning of the Class Period, the Company discussed its revenue, cost of sales and gross profit margin. In this context, it said in pertinent part: “Gross profit for the three months ended March 31, 2015 increased by $386,496 or 29.6 percent compared to the same period in 2014.”

On another form filed with the SEC on March 30, 2016, the Company noted that its self-service workflow Content Revenue stream was having significant effects on its gross profits.

It said in relevant part: “Prior to being acquired by IZEA, Ebyline generated Content Revenue primarily from newspaper and traditional publishers through their workflow platform on a self-service basis at a 7 % to 9% profit. After the acquisition, these customers still produce a significant amount of revenue, but we are increasing the sales of Content to customers on a managed basis and expect to see continued improvement in the Content margins. The mix of sales between our higher margin Sponsored Revenue and our lower margin Content Revenue (particularly the self-service portion of this revenue) has a significant affect on our overall gross profit percentage.”

What the Company left unsaid, however, was that it was “misreporting revenue from the Company’s Content Workflow services as gross amounts billed to marketers instead of on a net transaction basis,” and that the amount it previously reported as gross profit on Content Workflow should be the amount reported as revenue. It also failed to disclose that it lacked adequate internal controls.

Impact of the Alleged Fraud on GM’s Stock Price and Market Capitalization

The following chart illustrates the stock price during the class period:

Actions You May Take

If you have purchased shares during the Class Period, you may join the class action as a lead plaintiff, remain a passive class member, or opt out of this litigation and pursue individual claims that may not be available to the class as a whole.

NOTE: The deadline to file for lead plaintiff in this class action is June 4, 2018. You must file an application to be appointed lead plaintiff prior to this deadline in order to be considered by the Court. Typically, the plaintiff or plaintiffs with the largest losses are appointed lead plaintiff.

In order to identify your potential exposure to the alleged fraud during the time in question, you may wish to perform an analysis of your transactions in GM common stock using court approved loss calculation methods.

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Listed below are recently filed securities class action cases being monitored by us, along with the class period and the deadline to file a motion to be appointed as the Lead Plaintiff in the action.  Please contact us if you would like an LK report for any of these cases:

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About Us

Levi & Korsinsky is a leading securities litigation firm with a hard-earned reputation for protecting investors’ rights and recovering losses arising from fraud, mismanagement and corporate abuse.  With thirty attorneys and offices in New York, Connecticut, California and Washington D.C., the firm is able to litigate cases in various jurisdictions in the U.S., England, and in other international jurisdictions.

Levi & Korsinsky provides portfolio monitoring services for high-net worth investors and institutional clients.  Our firm also assists investors in evaluating whether to opt-out of large securities class actions to pursue individual claims.

For additional information about this case or our institutional services, please contact us.