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.