Yahoo may have misled investors about its financial condition and future business prospects causing its stock to trade at artificially inflated prices.

This is a securities fraud class action lawsuit against Yahoo! and certain of its officers and directors.

The class action complaint alleges that Yahoo's stock rose precipitously on Yahoo's positive statements concerning Yahoo!'s sales growth, record reported revenues and earnings and strong business fundamentals, which Yahoo stated would provide further stability and growth, reaching a Class Period high of over $43 per share on January 6, 2006.

On July 19, 2006, the Yahoo's stock price fell by 22% on heavy volume after Yahoo announced second quarter 2006 financial results that were lower than investors had been led to expect and analysts downgraded Yahoo's stock, erasing billions of dollars in market capitalization. According to the class action complaint, Yahoo statements describing Yahoo's business model, financial results and continued sales and earnings growth potential were false and misleading as:

(a) Yahoo generated fraudulent revenue by deliberately misleading Internet advertising business customers to induce these customers to buy Yahoo advertising products through deceptive means;

(b) Yahoo made false, misleading, and deceptive representations regarding its advertising technology and products to investors and potential investors, industry analysts, and customers to increase sales and stock prices;

(c) Yahoo's false, deceptive, and misleading representations were material in that they had a natural tendency to influence, or were capable of influencing, purchasing decisions, and they related to the essential characteristics, quality, and/or nature of competing products and commercial activities, including relevance, potential click-throughs and quality;

(d) Yahoo's advertising technology was operationally defective, causing its own advertising offerings to substantially under-perform those of its rivals;

(e) whereas Yahoo's rivals were paying high-traffic vendors to route traffic through their Web sites, Yahoo was charging large vendors for access and was dependent on that revenue to make its revenue targets, making Yahoo's Web site a less desirable location for vendors to drive traffic to; and

(f) Yahoo was losing market share to Google and other Internet search providers.