In connection with this IPO, 9,714,286 ADSs were offered by the Company and 2,028,571 ADSs were offered by certain selling shareholders. The total price to the public in connection with this offering was over $128.97 million, with underwriters’ discounts and commissions totaling over $9.041 million, shares sold by the selling shareholders totaling over $22.314 million, and shares sold by the Company totaling $106.857 million.Specifically, the complaint charges that defendants each failed to conduct an adequate due diligence investigation into the Company prior to the IPO, and they also each failed to reveal, at the time the IPO closed – well after the end of the third quarter of 2010, the period ended September 30, 2010 – that the Company was not proceeding according to plan and that Mecox’s gross margins had been adversely impacted by increased costs and expenses which would make it impossible for Mecox to achieve its projected results sponsored and/or endorsed by defendants prior to and at the time of the IPO. It was only on November 29, 2010, after the close of trading – and after the Company and certain of its insiders liquidated over $128.97 million of Mecox shares in connection with the IPO – that Mecox revealed the truth about the Company: that the problems which existed at the time of the IPO would result in disappointing results for the third quarter of 2010, including a decline in gross margins of almost 400 basis points year-over-year, a 20.4% increase in Selling, General and Administrative expenses, and a 19.8% increase in Operating expenses. These increases were driven, in part, by an 11.6% increase in marketing expenses and a 40.2% increase in compensation and benefits expenses. Moreover, while the Company reported a purported significant increase in 3Q:10 net income, all of that increase came from an interest depreciation charge-off, without which the Company would have reported a loss for the quarter of between $3.50 and $4.00 per share.
The following trading day, on the publication of this news, Mecox stock price declined precipitously. As evidence of this, as shares of the Company resumed trading the following day, shares of Mecox fell almost 40%, plummeting from $13.38 per share on November 29, 2010, to close at $8.15 per share the following day, November 30, 2010. On December 1, 2010, shares of the Company continued to decline as investors digested this news, trading to a low of $6.45 before closing the trading day at $6.65. The two day decline of almost 50% occurred on exceptionally heavy trading volume with over 14.759 million shares traded during the two trading days, which was more than ten times the Company’s recent average daily trading volume.About Kahn Swick & Foti, LLC KSF, whose partners include the Former Louisiana Attorney General Charles C. Foti, Jr., is a law firm focused on securities class action and shareholder derivative litigation with offices in New York and Louisiana. KSF's lawyers have significant experience litigating complex securities class actions nationwide on behalf of both institutional and individual shareholders. Recent cases include In re Virgin Mobile USA IPO Litigation, 2:07-cv-05619-SDW-MCA ( D. N.J.), Co-Lead Counsel, $19.5 Million Settlement Preliminarily Approved ; In re BigBand Networks, Inc Securities Litigation , 3:07-CV-05101-SBA (C.D. Cal.), Co-Lead Counsel , $11 million settlement ; In re U.S. Auto Parts Networks, Inc. Securities Litigation , 2:07-cv-02030-GW-JC (C.D. Cal.), Lead Counsel, $10 million settlement. KSF is also federally court-appointed Co-Lead Counsel in THE shareholder derivative cases against AIG and Bank of America (Merrill Lynch merger) emanating from their recent multi-billion dollar economic declines. To learn more about KSF, you may visit www.ksfcounsel.com.