PayPal Holdings, Inc.

Case Details

Class Period: February 3, 2021 - February 1, 2022
Date Filed: October 04, 2022
Case Number: 3:22cv05864
Jurisdiction: New Jersey District Court
icon-casetype Case Type: Securities Case

Case Summary

The complaint alleges violations of Sections 10(b) and 20(a) of the 1934 Securities Exchange Act. Specifically, the lawsuit alleges that throughout the Class Period, Defendants touted massive growth in its NNAs and instructed investors to view the high growth in this metric as an important indicator of the Company’s successful performance. PayPal earns a fee with each payment transaction, and thus the more active accountholders it could claim, the more revenues it could generate. To achieve growth in its NNAs, however, PayPal was becoming increasingly reliant on cash marketing incentives, which induced subscribers to register for new accounts in exchange for a cash payment. However, this marketing technique was susceptible to creation of fraudulent accounts by users looking only to receive the cash payment, and who had no intention of using PayPal as a digital payment platform. These fraudulent accounts would provide no revenue to PayPal. As the complaint further notes, PayPal did not inform investors that many of the new accounts generated through its cash incentive marketing program, which were boosting its NNA numbers, were illusory. These cash payments led to the creation of millions of fraudulent accounts. At the same time, the Company was going to great lengths to keep inactive users and fake accounts on its platform, so its NNA numbers would remain inflated. The truth was finally disclosed on February 1, 2022, when PayPal reported disappointing fourth quarter and full year results for 2021. The Company admitted that 4.5 million accounts were believed to have been illegitimately created, and therefore slashed its projections. The Company also admitted that its cash incentive marketing strategy was likely the root of its problems. As a result, it would now focus on increasing the engagement of its active users, which would reduce its ability to maintain growth in its NNA figures. When investors learned the truth about PayPal’s inflated NNA figures, the price of its common stock fell $43.23 per share in one day, dropping from a closing price of $175.80 per share on February 1, 2022 to close at $132.57 per share, on February 2, 2022, a one-day decline of approximately 25%.