The shareholders prosecuting a case against PayPal Inc. over alleged misrepresentations made to investors prior to a stock price decline have urged the Northern District of California not to toss the securities fraud class action. The opposition to PayPal’s motion to dismiss comes after the court ruled against the shareholders in August.
The December 2021 case alleges that PayPal and its executives lied about the company’s compliance with a Consumer Finance Protection Bureau (CFPB) settlement concerning certain practices the consumer watchdog deemed deceptive. The complaint also refers to an investigation by the Securities and Exchange Commission (SEC) over a Federal Reserve rule governing debit card interchange fees. The complaint accuses the defendant of hiding probes from the CFPB and the SEC until the filing of an official document revealing the news.
On that news, PayPal’s share price fell by more than 6% and a few more percentage points in the days thereafter, the suit says. Earlier this year, Judge Charles R. Breyer consolidated several cases against the company and its leaders.
Now, the plaintiffs argue that the court’s August ruling misapplied the law concerning the elements of falsity, scienter, and loss causation. The plaintiffs maintain that their prior complaint was sufficient to meet the pleading standards under Rule 9(b) of the Federal Rules of Civil Procedure, which govern fraud allegations, and the Private Securities Litigation Reform Act of 1995 (PSLRA).
“Nevertheless, Plaintiffs have chosen to amend and strengthen their claims with additional facts and allegations,” the filing says. Among other arguments, the plaintiffs press that the misrepresentations are actionable as the defendants failed to disclose the misleading financial products it promoted to students, some of which were disseminated for five years, and PayPal’s resulting noncompliance with the CFPB consent order and multiple federal statutes and regulations.
Further, the company allegedly did not disclose that it continued to enroll customers in PayPal Credit without their consent for several years after the consent order was entered, as multiple confidential witnesses with personal knowledge and documentary proof from the CFPB now confirm.
The filing also points to an alleged “shadow banking scheme,” used to reap fees in excess of the Federal Reserve’s regulations by using a small financial institution as a conduit to claim an exemption. This was illegal, the filing says, noting that despite “obvious violations of federal law,” PayPal downplayed the likelihood of apprehension and penalty by regulatory authorities.
The opposition also presents evidence of intent, explaining that actions were either reckless or intentional, and reiterates the complaint’s theory of loss causation.
The plaintiffs are represented by co-lead counsel Labaton Sucharow LLP and Pomerantz LLP. PayPal is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP.
