* Groupon accused of setting illegal expiration dates
* Settlement covers nationwide litigation
* Groupon denies allegations in agreeing to settle
* Shares tumble 16.9 pct after revision to results (Adds details from settlement, background, byline)
By Jonathan Stempel
April 2 Groupon Inc, which runs the world's largest online coupon site, has agreed to an $8.5 million settlement of nationwide litigation alleging the expiration dates on its coupons are illegal.
The settlement resolves 17 lawsuits that had been combined in a federal court in San Diego and which accused the Chicago-based company and retailers it works with of violating federal and state consumer protection laws.
News of the settlement surfaced after Groupon unexpectedly revised on Friday its results for the fourth quarter, its first as a public company, and said it had a "material weakness" in its internal controls because of a failure to set aside enough money for customer refunds.
Groupon shares closed down $3.10, or 16.9 percent, at $15.28 on the Nasdaq on Monday.
In the lawsuits, the plaintiffs said Groupon violated laws such as the federal Credit Card Accountability Responsibility and Disclosure Act, which prohibits the sale of gift cards that expire in fewer than five years.
The plaintiffs said Groupon "effectively creates a sense of urgency" among consumers to buy its vouchers by offering "daily deals" for a short amount of time, usually 24 hours.
"Consumers therefore feel pressured and are rushed into buying the gift certificates and unwittingly become subject to the onerous sales conditions imposed," including a ban on cash refunds and a requirement that gift certificates be used in a single transaction, court papers show.
Groupon denied liability in agreeing to settle, according to the settlement papers. Spokeswoman Julie Mossler said the company does not discuss pending litigation.
John Stoia, a lawyer at Robbins Geller Rudman & Dowd representing the plaintiffs, did not immediately respond to a request for comment.
The settlement requires approval by U.S. District Judge Dana Sabraw in San Diego.
It covers consumers who received Groupon vouchers between November 2008 and Dec. 1, 2011. These people may redeem the vouchers past the expiration dates, or recover from the $8.5 million settlement fund.
The company also agreed over the next three years not to sell more than 10 percent of its daily deals with expiration dates of fewer than 30 days.
Groupon went public last November in one of the most highly anticipated initial public offerings of an Internet company.
However, some analysts and investors criticized its accounting and Groupon changed how it reports results under pressure from regulators. The company's rivals include Amazon.com Inc and LivingSocial.
The case is In re: Groupon Marketing and Sales Practices Litigation, U.S. District Court, Southern District of California, No. 11-md-02238. (Reporting By Jonathan Stempel in New York; editing by Gary Hill and Andre Grenon)