Court Allows Action Against DFC Global Corp. to Proceed

6/17/2015 - Judge Berle M Schiller of the United States District Court for the Eastern District of Pennsylvania has denied defendants’ motions to dismiss the Consolidated Class Action Complaint in In re DFC Global Corp. Securities Litigation, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933.  Barrack Rodos & Bacine serves as co-lead counsel in the action, representing an institutional investor lead plaintiff group.

The complaint alleges that DFC Global Corp, a payday lender with core operations in the United Kingdom, and members of its senior management team, made false and misleading statements about the company’s lending practices, claiming that those practices were “conservative” or “responsible.”  The complaint alleges that DFC Global habitually extended loans to individuals who could not repay them and repeatedly rolled over loans to borrowers for a fee in order to avoid reporting defaults without any additional credit assessment.  The complaint also alleges that, contrary to public statements that DFC Global “very effectively” managed the credit risk in its payday loan portfolio through its “superior credit analytics” and “daily monitoring” of loan payments, in reality, and as confirmed by various former employees of the Company, DFC Global did not perform any meaningful credit or affordability assessments before originating its payday loans as U.K. regulations required, and did not effectively employ credit analytics to manage the Company’s credit risk. 

The Court held that the allegations of the complaint satisfied the heightened pleading standards of the federal securities laws and of the Private Securities Law Reform Act of 1995, finding that the complaint sufficiently alleges defendants concealed from the investing public the company’s true financial and operational condition and its irresponsible high-risk lending practices.  The Court also upheld claims against the underwriters of DFC Global’s April 7, 2011 secondary offering, in which it sold approximately six million shares of DFC Global common stock, finding that the complaint sufficiently alleges that the offering materials were false and misleading. In analyzing the lead plaintiffs’ claims, the Court held that the factual allegations in the consolidated complaint “tell a tale of a far-reaching and egregious abdication of lending responsibility,” and noted the “predatory nature of the alleged conduct explicitly set forth in the allegations.”

This important decision allows the lead plaintiffs to move forward with the prosecution of this case as a proposed class action on behalf of investors who purchased DFC Global securities during the class period from January 28, 2011 through February 3, 2014.

If you have any questions about the June 16, 2015 decision, or the litigation against DFC Global, please contact BR&B partner Lisa Port (lport@barrack.com).