An opposition brief filed at the end of last week asserted that a PayPal shareholders’ complaint should pass muster. The lawsuit chiefly concerns alleged coverups PayPal made with regard to its compliance with a 2015 Consumer Finance Protection Bureau (CFPB) settlement over its failure to properly vet certain merchants, including for-profit schools.
The complaint argued that PayPal touted its compliance with the consent agreement, yet there was no doubt that “predatory for-profit schools using PayPal Credit misled customers about deferred promotions.” The lawsuit said that PayPal’s lax oversight not only enabled these schools to mislead students in violation of its obligations under the CFPB order, but also that company insiders kept that fact from investors.
In addition, the complaint sought to hold the defendants accountable for their failure to disclose an investigation by the Securities and Exchange Commission (SEC) over a Federal Reserve rule governing debit card interchange fees. The share price allegedly fell several times, culminating in a 10.2% loss in July 2021 when Bloomberg News revealed that PayPal faced probes by both the CFPB and the SEC.
The motion comes after PayPal urged the Northern District of California court overseeing the case to dismiss it. In response, last week’s opposition walked through the elements of a successful securities law claim, reiterating that the shareholder satisfied the applicable pleading standards.
First, the shareholders pressed that the alleged misrepresentations the defendants made are actionable. The plaintiffs’ theory asserts that the company and its leaders said they were ensuring compliance with the CFPB order and touted PayPal’s “world-class” compliance regime. Instead, those statements concealed the truth—that the company was under regulatory scrutiny for misrepresentations about promotional offers associated with PayPal Credit and interchange fees, the opposition said.
In support of intent, the stockholders argued that the almost $168 million that two individual defendants made from “insider sales” during the class period was “disproportionate.” In addition, the opposition pointed to a statement by a confidential witness commenting that the company’s models should have flagged the for-profit schools as “high-risk merchants.”
The dismissal hearing is scheduled for July 8 before Judge Charles R. Breyer.
The plaintiffs are represented by lead counsel Pomerantz LLP and Labaton Sucharow LLP, The Rosen Law Firm P.C., and Roche Freedman LLP. PayPal is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP.
