PayPal Class Action Lawsuit
A recently filed class action lawsuit alleges PayPal made false statements regarding the company’s performance, which led to significant financial losses for investors who bought or sold PayPal stock.
Plaintiffs claim that PayPal engaged in marketing strategies that unlawfully boosted the number of new accounts on its platform and failed to disclose that many of the additional users acquired through its efforts were illegitimate accounts. Additionally, the plaintiffs allege that PayPal went to great lengths to keep inactive accounts on its platform to prevent investors from getting a realistic view of the true demand for its product.
PayPal Publicly Touted Account Growth
PayPal continually discussed and emphasized the high growth in net new active accounts (NNAs) to impress investors and provided short-term and medium-term targets for the number new accounts it would add. For instance, in February 2021, PayPal predicted that it would add 50 million new users in 2021 and double the number of active accounts to 750 million by 2025.
In its 2022 Proxy statement, the company claimed NNAs reinforce the “critical importance of growing our customer base to build for the future,” and said the number of NNAs is a “key operational metric that the Company uses internally to measure ongoing performance.”
PayPal Defrauded Investors
PayPal allegedly defrauded investors by inflating its new accounts measurement systems through use of marketing campaigns that led to millions of newly created illegitimate accounts, known as NNAs, making the company look healthier than it may have been.
NNAs were often fraudulently created to take advantage of cash incentives which had been offered through marketing campaigns targeted to students and others. The campaigns were designed to increase new account acquisition while hiding the rate of “churn” and declining levels of engagement.
Specifically, PayPal failed to disclose that cash incentive campaigns significantly increased the company’s susceptibility to bot farms that systematically took advantage of the $10.00 account opening bonus by creating millions of illegitimate accounts with generated no future revenue for PayPal.
Fraudulent marketing and other activities included:
- Marketing specifically to students in schemes lasting five years or more
- Offering cash incentives to new account creators
- Continuing to enroll customers in PayPal credit without their knowledge
- Shadow banking scheme which allowed evasion of financial service regulations
- Downplaying the likelihood of apprehension and penalty
PayPal Stock Cratered After Disclosing Truth
PayPal on February 1, 2022, reported disappointing fourth quarter and full year 2021 results — identifying 4.5 million accounts that it believes to be illegitimately created due to the incentive campaigns. PayPal also admitted it expects only 15-20 million NNAs for 2022 and that the Company “no longer believe(s) that the 750 million medium-term account aspiration set last year, is appropriate.”
Essentially, as alleged in the complaint, PayPal acknowledged that it had been artificially boosting its NNA guidance figure by manipulating the typical user churn rate. This was achieved by offering incentives to customers to remain on the platform, even if they would have been considered inactive under normal circumstances.
On these shocking disclosures, PayPal’s stock price fell $43.23, or nearly 25%, in one-day – representing a $62 billion drop in market capitalization. PayPal’s actions caused a precipitous decline in the market value of the company’s stock when the truth was disclosed, causing investors to suffer significant losses and damages.
Investors Seek Compensation
The class action lawsuit filed against PayPal alleges the company made false statements regarding business, operations and prospects which were purposefully misleading or lacked reasonable basis.
If you suffered a loss in PayPal investments due to buying or selling PayPal stock between February 3, 2021, and February 1, 2022, you may be eligible for compensation including losses, out-of-pocket costs, and fees.