Classmates.com is paying $9.5 million to settle a lawsuit that alleges that the social network is duping people to buy paid memberships. Each of the 3.16 million users with “gold” premium accounts are expected to receive $3 for receiving messages that appear to be from old classmates.  But they are fake.

Classmates is also facing a potential class-action lawsuit that alleges privacy violations.  The social network changed the default settings to make information more public.  Classmates is owned by United Online. [MediaPost]

United Online, parent company of Classmates.com announced that they are withdrawing their IPO for the school reunion-focused social networ.  Currently Classmates.com is facing a lot of competitive pressures (such as MySpace/Facebook/Friendster/Hi5), but is pulling out due to current market conditions.  United Online still plans on eventually having a Classmates.com IPO according to a 10K filing.

United Online has already capitalized $3.6 million in IPO costs by December 31, 2007 and if they don’t have an IPO for Classmates, then these costs will have to be filed as an expense in a future period.  Classmates.com recently restructured to become its own reporting unit.  Currently Classmates has 3.2 million+ paid accounts.

Other United Online properties include MyPoints, Freeservers, Juno, and NetZero.

Classmates Media Corporation was one of the first social networks to become popular. Classmates is especially known for their pop-up ads that Internet users would see constantly. Classmates’ advertising is very viral. On Monday, Classmates announced that they are filing for an IPO and is moving on up and out of the schoolyard.

Classmates is owned by United Online Inc. (UOL), who will maintain control of the company through stock ownership even after the IPO. Classmates intends on using the money from the IPO to pay back expenses to UOL. Some of the remaining money raised from the IPO will also go towards company growth.

Classmates currently has about 8.4 million registered members, who generally provides the name of the elementary school, middle school, high school, and colleges that they have attended. This way if there is any upcoming 5-, 10-, 15-, etc. year reunions, those members could be notified. It was a pretty simple idea, but a great concept. I believe that a lot of today’s social networks were inspired by Classmates.

Goldman, Sachs & Co., along with Deutsche Bank Securities and JPMorgan will be underwriting the offering and Classmates will trade under the NASDAQ Global Market as the symbol, CLAS.