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What: Shares of Chinese online retailer Mecox Lane (Nasdaq: MCOX ) fell as much as 13.5% in early Monday trading after the company was notified that it faces at least one class action complaint about its IPO in October.
So what: U.S.-based Rosen Law Firm alleges that, contrary to Mecox Lane's IPO registration statement, its gross margins were being hurt by increased costs and expenses. So when Mecox Lane's shares fell a staggering 40% last week on a big jump in expenses, it was simply "the truth," according to the complaint, being revealed.
Now what: It's often profitable to be greedy when others are fearful, but this isn't the situation. Mecox Lane said it believes the complaint "lacks any merit" and plans to "defend themselves vigorously," but with a 60-ish P/E, it's really not worth the risk. Company insiders liquidated more than $129 million worth of Mecox Lane shares in the IPO, so investors might be wise to follow their lead.
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