Stichting Depositary APG, et al. v. Synchrony Financial, et al.

Court: United States District Court for the District of Connecticut
Case Number: 3:18-cv-01818
Class Period: 10/21/2016 - 11/01/2018
Case Leaders: Salvatore J. Graziano, Jeroen van Kwawegen, Adam H. Wierzbowski, Scott R. Foglietta, Jesse L. Jensen
Case Team: Nicole Santoro

This is a securities class action against Synchrony and certain of its senior executives (collectively, Defendants) under Sections 10(b), 20A, and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The action alleges that during the Class Period, Synchrony falsely represented that its consistent and disciplined underwriting practices had led to a higher quality loan portfolio than those of its competitors. In truth, Synchrony relaxed its underwriting standards and increasingly offered private-label credit cards to riskier borrowers to sustain growth. The truth about Synchrony’s credit standards began to be revealed on April 28, 2017, when the Company announced disappointing first quarter 2017 earnings driven by poor loan performance.

Following this disclosure, the Company represented that it had tightened credit standards, but falsely characterized those underwriting changes as modest. In fact, the Company had made significant modifications to its underwriting policies, but concealed that these modifications were damaging its relationships with its retail partners, including Walmart. Defendants concealed from investors that Synchrony’s retail partners were pushing back on these underwriting changes. Specifically, during Synchrony’s January 19, 2018 earnings call, Defendant Keane (Synchrony’s then-CEO) told investors, “We are not getting any pushback on credit.”

On July 12, 2018, news broke that Walmart was considering ending its partnership with Synchrony, with media outlets reporting that Walmart “want[ed] Synchrony to approve a higher percentage of applicants” and had “aired those concerns in a meeting with Synchrony’s board last year.” The media also reported that day that, in late 2017, Walmart launched “for the ‘first time,’ a formal request for bids from other credit card issuers,” and met with Capital One and Goldman Sachs in early 2018. This news contradicted Defendants’ false statement and caused Synchrony’s share price to fall 5.3%, to $32.69, by the close of that day (July 12, 2018), and to continue to decline another 1.6% on the following day (July 13, 2018), closing at $32.44.

On July 26, 2018, multiple news outlets reported that Walmart had chosen a competitor to replace Synchrony. Together, these two disclosures caused Synchrony’s shares to decline nearly 14%. Then, on November 1, 2018, Walmart sued Synchrony accusing the Company of improper underwriting in connection with the Walmart/Synchrony credit card program. As a result of this disclosure, Synchrony shares declined by over 10%.

On February 5, 2019, following the filing of a class action, the Court appointed Stichting Depositary APG Developed Markets Equity Pool as Lead Plaintiff, and BLB&G as Lead Counsel, for the Class. On April 5, 2019, Lead Plaintiff filed an Amended Class Action Complaint on behalf of a class of investors who purchased or otherwise acquired Synchrony common stock between October 21, 2016 and November 1, 2018 and in particular, alleged that the truth about Defendants’ fraud was revealed to investors through a series of three partial corrective disclosures that occurred on July 12, 2018, July 26, 2018, and November 1, 2018.

On June 26, 2019 Defendants filed their motion to dismiss. BLB&G filed an opposition on August 21, 2019 and on October 11, 2019 the Defendants filed their reply. Judge Bolden has scheduled a hearing on Defendants’ motion to dismiss the Complaint for March 18, 2020. On October 21, 2019, Lead Plaintiff filed before Judge Bolden a motion for partial modification of the PSLRA stay, seeking to obtain an unredacted copy of the complaint in Walmart’s 2018 lawsuit against Synchrony. Simultaneously, we filed a motion in the District Court for the Western District of Arkansas, seeking to unseal Walmart’s complaint. The Western District of Arkansas granted that motion on November 15, 2019, and Defendants appealed to the Eighth Circuit Court of Appeals. Defendants simultaneously moved the Western District of Arkansas and the Eighth Circuit Court of Appeals for an emergency stay of the District Court’s order granting our motion to unseal pending the appeal. On December 18, 2019, the Eighth Circuit Court of Appeals granted Defendants’ motion for a stay but denied Defendants’ motion for an expedited appeal, holding that the appeal was stayed pending a decision by the District of Connecticut on our motion for partial modification of the PSLRA stay.

Judge Bolden held oral argument, by phone, on Defendants’ motion to dismiss our complaint on March 26, 2020. On March 31, 2020, he issued an order granting Defendants’ motion to dismiss in its entirety and dismissing our claims with prejudice. This decision also rendered moot our motion for partial modification of the PSLRA stay. Judge Bolden held that the complaint failed to allege the falsity of any of the alleged false statements. We are currently appealing this decision before the Second Circuit Court of Appeals. Lead Plaintiff argued its appeal before the Second Circuit on November 12, 2020. On February 16, 2021, the Second Circuit affirmed in part and reversed in part Judge Bolden’s order granting Defendants’ motion to dismiss.

On May 17, 2021, Defendants filed a renewed motion to dismiss the Amended Complaint. Lead Plaintiff filed its opposition to this motion on July 1, 2021. On August 2, 2021, Defendants filed a reply in further support of their motion to dismiss. On February 11, 2022, the Court denied Defendants’ motion to dismiss, but apparently sustained only the last corrective disclosure, on July 12, 2018.

The case proceeded into discovery and on June 24, 2022, consistent with the Court’s ruling, Lead Plaintiff moved to certify a Class of investors who purchased or otherwise acquired the common stock of Synchrony between January 19, 2018 and July 12, 2018.

The Court has since ruled on discovery disputes and on September 26, sua sponte extended the case schedule. The parties continue to engage in discovery and, in accordance with the Court’s schedule, shall substantially complete document productions by December 2, 2022. In addition, Defendants will file their opposition to class certification by January 13, 2023 and Lead Plaintiff will file a reply in further support of their motion for class certification by February 17, 2023. Fact and expert discovery are scheduled to close on April 14, 2023.