Facts

Yelp, Inc. was founded in 2004 to provide crowd-sourced reviews of local businesses. Yelp's business model is largely based upon selling ads to businesses that are displayed to users who search Yelp for reviews and information about local businesses; selling ad space accounts for the vast majority of Yelp's revenue. In 2015, Yelp began transitioning from a cost-per-impression system to a cost-per-click advertising system. Under the old system, Yelp charged businesses for every thousand advertisements shown; the new click-based system, however, only charged the businesses when users clicked on an advertisement. Through 2016 and into early 2017, despite focusing efforts on local business advertising and increasing the size of the company's salesforce, Yelp's local business advertisers experienced low user engagement, and many planned to discontinue using the service once their short-term contracts expired. During this time period, however, certain executives at Yelp made statements and representations to shareholders and potential investors that the business was strong, and indicated that many of the company's local business advertising clients intended to renew their contracts. When the reality of the situation became public, Nicholas Ingrao filed a derivative complaint on behalf of Yelp against these executives.

PLAINTIFF'S CONTENTIONS: Plaintiff contended that three Yelp executives, CEO Jeremy Stoppelman, CFO Charles Baker, and COO Joseph Nachman had made false or misleading statements regarding Yelp's local business advertising operations; that these statements breached the executives' fiduciary duties of care, good faith, and loyalty to shareholders; that defendants' actions exposed the company to liability as violations of federal securities laws; that, as officers of the company, defendants were not shielded from liability for injury to the corporation caused by their actions; and that Stoppelman sold stock at inflated prices based on his insider knowledge regarding the true condition of the company's advertising business. Plaintiff further contended that he had notified the board of Yelp regarding these matters, but the board had taken no action regarding his complaint.

DEFENDANTS' CONTENTIONS: Defendants denied any wrongdoing and all of Plaintiff's material allegations.

Result

The parties reached an agreement wherein defendants will pay $18 million to Yelp, and Yelp will adopt a series of corporate governance reforms designed to enhance its internal controls and operations.