On June 1, 2020, the Honorable Alvin K. Hellerstein for the United States District Court for the Southern District of New York granted certification of a class of investors in this securities class action against financial technology startup GreenSky Inc. that accuses the company of making misleading statements ahead of its initial public offering.
On March 29, 2019, the court appointed Cohen Milstein Co-Lead Counsel. The Fund Group was appointed Lead Plaintiff.
On May 20, 2019, Cohen Milstein and Co-Lead Counsel filed an amended complaint in In re GreenSky Securities Litigation, a consolidated putative securities class action against GreenSky, its directors and officers, as well as its underwriters, including Goldman Sachs, J.P. Morgan, Morgan Stanley, Citigroup Global Markets, Credit Suisse Securities. Plaintiffs allege that Defendants made false and misleading statements in GreenSky's Initial Public Offering (IPO) documents, in violation of the Securities Act of 1933.
Defendant GreenSky, Inc. (NASDAQ: GSKY) is a financial technology company, based in Atlanta, Georgia, and incorporated in Delaware. GreenSky operates an online platform that enables creditors to process loan applications at the point of sale. More than 10,000 businesses are active users of GreenSky’s platform.
GreenSky filed a registration statement on April 27, 2018 and a prospectus on May 25, 2018 (together, the “Offering Documents”) in connection with its impending IPO. GreenSky’s IPO closed on May 29, 2018. The Company sold 43.7 million shares of Class A common stock at $23.00 per share in its IPO, for gross proceeds of over $1 billion.
Plaintiffs allege that GreenSky’s Offering Documents were false and misleading as they failed to disclose the substantial change in the composition of GreenSky’s merchant business mix and the resulting diminution in transaction-fee revenue, accounting for 87% of its overall revenue, as it moved from solar panel energy merchant sector to the healthcare sector.
Prior to its IPO, GreenSky catered primarily to home improvement and solar energy businesses. GreenSky charged its solar panel merchants substantially higher transaction fees relative to other merchants. In recent years prior to 2018, GreenSky derived approximately 20% of its transaction-fee revenue from solar panel merchants.
However, as indicated in GreenSky’s Offering Documents, GreenSky solar panel transaction volume was being “actively reduced,” while the company expanded into the elective healthcare sector.
Specifically, Plaintiffs allege, among other things, that GreenSky’s Offering Documents, and the growth and financial performance projections within, reflected the performance of the solar panel merchant business, while neglecting to mention contemporaneous deterioration in GreenSky’s transaction-fee revenue due to the shift away from the solar business and the markedly lower transaction fees GreenSky charged to healthcare companies. It further omitted the specific deleterious effects of the Company’s changing merchant mix on EBITDA.
The truth about GreenSky’s financial performance started to emerge on August 7, 2018, when it released its 2018 second quarter financial results, which indicated that the Company’s transaction-fee rate was approximately 53 basis points below the rate achieved in the second quarter of 2017. On November 6, 2018, GreenSky issued its 2018 third quarter financial results, which indicated that its transaction-fee rate was 35 basis points below the rate achieved in the third quarter of 2017. On both earnings calls, Defendant David Zalik, Chief Executive Officer noted that revenue decline was due to the transition away from solar markets into healthcare. GreenSky’s EBITDA growth was also adjusted from 20-25% to 4-10%.
On November 6, 2018, GreenSky’s stock price plummeted to $9.28 per share, sharply down from the IPO price of $23.00 per share and post-offering high of $26.77 per share.
The Board of Directors subsequently approved the repurchase of $150 million of GreenSky common stock.
The original case, Mustafin v. GreenSky, Inc. et al, Case No. 1:18-cv-11071, U.S. District Court, Southern District of New York, was filed on November 27, 2018.
The consolidated case name is: In re GreenSky Securities Litigation, Case No. 18 Civ. 11071, U.S. District Court, Southern District of New York.