Bidz.com Inc., an Internet auction business that specializes in jewelry sales, took a hit two years ago when a research article alleged that its bids appeared to be rigged and that a major shareholder was a convicted felon.

Despite denials from the company, the accusations cut the Bidz’s stock value in half over five days, and it kept sliding from there.

Now the Culver City company’s taking another body blow: Shareholders have filed suit over the issues that led to the research report, alleging that the online auctioneer wasn’t up front about its business practices and the personal histories of the company’s key figures. As a result, investors claim its actions have cost them millions of dollars.

In the past month, individual shareholders have filed four lawsuits against Bidz, three in federal court and one in Los Angeles Superior Court. Three of the suits are seeking class-action status. The plaintiffs, all represented by different lawyers, are seeking an unspecified amount in damages. At least one similar suit was filed earlier.

It’s a dramatic turn of events for the company, which is the largest online retailer of jewelry in the country. It auctions merchandise such as necklaces, rings, earrings and watches to customers around the world, and last year it brought in more than $200 million in revenue.

Meanwhile, Bidz’s business is suffering. Last quarter it reported about $31.2 million in revenue, down from $61.9 million in the same quarter last year.

Its stock price is hovering at around $3 after hitting a high of $19.93 in November 2007 before the allegations of impropriety hit.

The decline in revenue can be attributed partly to the recession: Bidz’s lifeblood is jewelry purchases, which consumers are less likely to make these days. But the drop in stock price is at least in part because the looming lawsuits have made investors skittish.

“The company has had a history of legal issues which to some degree have overhung the shares of the stock.” said Fred Moran, managing director and Internet stock analyst at Benchmark Co. LLC in Boca Raton, Fla.

Bidz Chief Executive David Zinberg did not return e-mails seeking comment. The company’s attorney declined to comment.

Bidz issued a May statement in response to the first shareholder lawsuit saying that the plaintiff’s claims are without merit and that it intends to defend itself against the allegations.

Rise and fall

Zinberg co-founded Bidz in 1998 after years as a pawnbroker and bail bondsman. The company carved itself a niche in the online retail space with an uncommon sales format: Bidz sells its merchandise mostly jewelry via auctions that often last less than an hour.

Buyers place bids on merchandise at the Bidz Web site and watch the auction unfold in real time. Most merchandise is low priced; in fact, opening bids typically are $1. However, the site occasionally sells items for thousands of dollars.

To keep stocked with inventory, Bidz often buys merchandise in bulk or from liquidation and bankruptcy sales. While it focuses on jewelry, the company has branched into other areas; in 2002, it gained some press coverage when it auctioned off the limousine of a former Soviet party boss for $28,404.

The unorthodox low-price auctioning strategy propelled Bidz to consistent annual growth and investors rewarded the company by pushing up its shares. In mid-September 2007, Bidz shares were trading at about $8, then jumped to close at almost $20 in mid-November.

That’s when things took a turn for the worse.

Citron Research, a financial analysis Web site, posted an article that November claiming that Bidz’s business raised “many red flags.” The most significant of Citron’s series of allegations was that Bidz engaged in “shill bidding,” which involves planting false bids in an auction to drive up the price of merchandise. As evidence, the article cited several items that sold for hundreds of dollars above suggested retail price.

Citron also showed evidence that the same three screen names were placing hundreds of bids on items in what appeared to be an effort to drive up prices. However, Citron acknowledged that it could not tell for sure whether the repeat bids were false or legitimate.

Citron also said in the same report that one of Bidz’s major shareholders, Saied Aframian, had served time in prison after a conviction for receiving property from an armed jewelry heist in Washington, D.C., and that Aframian has a stake in Los Angeles Jewelry Productions Inc., a jewelry manufacturer that at one point in the company’s early days supplied almost half of Bidz’s inventory. (The company now provides much less, according to filings.)

The day after the Citron report was posted, Zinberg denied during a conference call that the company engaged in “shill bidding.” And while he acknowledged that Aframian had a criminal record, he said the company hadn’t known about it.

But Zinberg’s statements did not assuage shareholder concerns; the stock plummeted.

Since then, the company hasn’t rebounded to its former heights. And Bidz still has ties to Aframian: Its recent filings show that he owns 5.1 percent of the company, making him Bidz’s fourth-largest shareholder.

Lawsuits everywhere

While each of the lawsuits was filed by a different shareholder, each essentially makes the same allegations: Bidz did not tell shareholders about the histories of some of its principle figures, and the company either engaged in questionable bidding practices or failed to prevent them.

The plaintiffs contend that such disclosures would have factored into shareholders’ decisions on whether to buy the company’s stock.

Attorneys for the plaintiffs did not return requests for comment.

Three of the lawsuits are seeking class-action status on behalf of all Bidz shareholders who bought stock during a three-month period in 2007. The lawsuits claim that three-month period was the last and best opportunity the company had to tell shareholders about alleged improprieties.

While it isn’t unusual for multiple shareholders to sue a company when allegations of financial irregularities are brought to light, it is rare that such suits are brought two years after the alleged events occurred, said legal experts not associated with the case and who reviewed it at the Business Journal’s request.

One likely scenario is that after the company’s stock fell from close to $20 in 2007 to around $3 this year, one shareholder filed suit to try to recoup losses, said Dale Short, head of the corporate legal department at TroyGould PC in Century City. That could have triggered the others.

Regardless of the legal actions, it may be challenging for Bidz to climb back in either sales or share value.

“Since the U.S. consumer went into hiding, the estimates for Bidz earnings have fallen through the floor,” said Moran of Benchmark.