On March 24, 2017, shareholders of PayPal Holdings Inc., the parent company of mobile-payment provider Venmo, filed a derivative suit against its directors in the District Court of Delaware. A derivative suit is a form of class action in which shareholders can sue company officers or directors on behalf of the company.
2016 Investigations for Unfair and Deceptive Practices
In April and May of last year, Venmo was investigated by the Federal Trade Commission (FTC) and the Texas Attorney General’s Office for engaging in unfair and deceptive practices. Venmo eventually settled with the Texas Attorney General for a $175,000 fine and assurances that they would update their business practices. The investigation by the FTC is still ongoing.
The plaintiff shareholders claim in the suit that the directors of PayPal willfully or recklessly caused PayPal to make false or misleading statements which led to direct damages against PayPal. The false and misleading statements are alleged to have been made in PayPal’s quarterly reports, annual reports, and proxy statements which failed to disclose any of the alleged unfair and deceptive business practice or the fact that those practices would lead to increased regulatory scrutiny.
The suit alleges that as a direct consequence of those investigations becoming public, the share price for PayPal immediately dropped by up to 14.6% in the following months.
Defendants’ answer is due by April 17.
A copy of the complaint can is below.