Demand Media being investigated for issuing false and misleading statements to its shareholders

Demand Media (NYSE: DMD) is currently being investigated by Branham Law, LLP to decide whether it has violated securities laws by issuing false and misleading statements to its shareholders.

This investigation is a result of disclosures made about changes to Google’s search engine methodologies that have significantly reduced the references to the Company’s websites. References to the Company’s websites are a substantial source of revenue for DMD.

As many of you know Google starting cracking down on content farms and mini sites with its Panda & Penguin algorithms designed to help improve search results.

The key part of Google Panda was it wasnt just designed to stop pages ranking but actual sites – Google Panda impacts an entire site’s ranking or specific section rather than just the individual pages on a site, however after Panda Google launched Penguin and its aim was to check webspam and get rid of sites that were still ranking high by keyword stuffing articles, cloaking and duplicate articles.

The reason the Demand Media are being investigated it because prior to January 26, 2011, Google announced it was already implementing changes to its search engine methodology that would reduce the number of references to “content farm” websites like those operated by DMD.

Demand Media generates revenue when a user clicks on one of its highly ranked sites from an internet search engine, most often Google, which serves as the Company’s largest referer.

With these changes in search engine methodologies, visits to the Company’s websites have declined along with DMD’s revenues.

The purpose of Branham Law, LLP investigation focuses on whether the Company properly disclosed business risks and other potential problems in the registration statements and prospectus it issued in connection with the Company’s January 26, 2011 Initial Public Offering of DMD common stock.

You can see from the chart below when demand opened back in Jan 2011 – Stock was $26, it hit a low point in Sept 11 of $5 but has climbed back to $10 – Still some way off its original IPO

Chart forDemand Media, Inc. (DMD)

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