West Palm Beach Police Pension Fund v. DFC Global Corp.

Court: United States District Court, Eastern District of Pennsylvania
Case Number: 2:13-cv-06731-BMS
Judge: Berle M. Schiller
Case Contacts: Hannah Ross, John Rizio-Hamilton

This action was first filed on November 20, 2013 against DFC Global and certain of the Company’s senior executives.  On April 10, 2014, Judge Berle M. Schiller appointed West Palm Beach, Arkansas Teacher, the Macomb County Employees Retirement System, and the Laborers’ District Council and Contractors’ Pension Fund of Ohio as Lead Plaintiff, and appointed BLB&G and Barrack, Rodos & Bacine as Lead Counsel.  On April 22, 2014, Judge Schiller consolidated the Securities Act and Exchange Act cases and on July 21, 2014, Lead Plaintiffs filed a consolidated class action complaint with a class period of January 28, 2011 through February 4, 2014.  The Complaint asserted claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“Securities Act”) arising from the Company’s secondary offering of common stock conducted on April 7, 201.

DFC Global is a payday lending company that offers short-term loans to low-income borrowers. The Company derives approximately 50% of its revenue from the United Kingdom (“U.K.”), which requires all payday lenders to adhere to strict regulatory requirements. Such requirements include performing an affordability assessment on all borrowers, as well as restricting the number of times a loan can be rolled over.  Throughout the Class Period and/or in the offering materials for the Company’s April 2011 secondary offering, DFC Global misrepresented to investors that it complied with government regulations and guidance with regard to U.K. irresponsible lending practices, and that the Company made “prudent,” “conservative,” and “responsible” underwriting decisions when making loans. The Company also knowingly misrepresented its loan loss reserves and issues false financial statements throughout the Class Period.

In truth, the Company: (i) systematically issued high-fee predatory loans to consumers that had no reasonable means to be repaid; (ii) continuously rolled over or refinanced its loans in order to delay or avoid defaults; (iii) failed to conduct adequate affordability assessments on its customers; and as a result (iv) failed to comply with industry regulations and guidance. DFC Global also (v) understated its loss reserves; and (vi) issued fraudulent earnings guidance because it was dependent upon the Company’s improper lending practices.

On April 1, 2013, the Company preannounced results for its third quarter of 2013 that were seriously impacted by poor loan performance. Specifically, the Company announced that a new U.K. limitation on the amount of times a loan could be rolled over caused a significant number of DFC Global’s loans to become immediately due and default. The Company as a whole experienced a loss rate of above 25%, and a loss rate of approximately 35% in the U.K. Because of the spiking loss rates, the Company also slashed its fiscal year 2013 earnings per share guidance from $2.35-$2.45 per share to $1.70-$1.80 per share. On this news, the price of the Company’s stock dropped from $16.64 per share to $13.04 per share, or almost 22%.

Then, on August 22, 2013, DFC Global announced earnings for its fourth quarter of 2013 during which it again reported soaring loan defaults in the U.K. with the Company’s loan loss provision increasing to 25.7%. Additionally, DFC Global disclosed that it expected to incur a recurring $10-$15 million of expenses for regulatory, legal, audit, and compliance-related costs relating to its payday lending program. DFC Global’s losses in the U.K. were so severe that the Company was unable to provide earnings per share guidance for fiscal 2014. This news caused the price of DFC Global stock to drop from $15.90 per share to $11.31 per share, or almost 29%. Lead Plaintiffs filed a consolidated class action complaint on July 21, 2014. Briefing on Defendant’s motions to dismiss was completed on January 20, 2015, and on June 16, 2015, Judge Schiller denied Defendants’ motion to dismiss in all respects.

Lead Plaintiffs filed a motion for class certification on October 2, 2015 and discovery is ongoing.