DEFINED BENEFIT PLAN OF THE MID-JERSEY TRUCKING INDUSTRY AND TEAMSTERS LOCAL 701 PENSION AND ANNUITY FUND v. PAYPAL HOLDINGS, INC. et al

On October 04, 2022, Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund (“Mid-Jersey Trucking” or “Plaintiff”), (represented by James E. Cecchi and Lindsey H. Taylor of Carella Byrne Cecchi Brody Agnello, P.C. and Daniel L. Berger and Caitlin M. Moyna of Grant & Eisenhofer, P.A.), filed a civil class-action against PayPal Holdings, Inc. (“PayPal” or the “Company”), Daniel Schulman (“Schulman”), and John Rainey (“Rainey,” together with PayPal and Schulman, the “Defendants”), seeking compensatory relief with interest for the alleged dissemination of materially false and/or misleading information and/or failure to disclose material facts. This case was filed in the U.S. District Court for the District of New Jersey with Judges Georgette Castner and Lois H. Goodman presiding.

This is a federal securities class action on behalf of all persons or entities who purchased PayPal common stock between February 3, 2021, and February 1, 2022, inclusive (the “Class Period”). 

In the complaint, the plaintiff alleged that “[t]hroughout the Class Period, PayPal touted the massive growth in its Net New Active Accounts (NNAs) and instructed investors to value the high growth in this metric as one of the most important indicators of how the Company was performing. That’s because in theory, the more accounts on the platform, the more opportunity there will be to earn transaction fees from the ever-increasing number of accounts.”

The plaintiff further alleged that “[u]ndisclosed to investors, however, and as Defendants have now admitted, while touting its NNA growth, the Company failed to disclose that many of the additional users acquired through its cash account creation incentive campaigns were illusory, because those incentive campaigns that were easily susceptible to fraud. Specifically, PayPal failed to disclose that its aggressive cash incentive campaigns significantly increased PayPal’s susceptibility to bot farms, that were able to systematically take advantage of PayPal’s $10.00 account opening by creating millions of illegitimate accounts, which ultimately generated no future revenue for the Company.”

The plaintiff also alleged that “investors were unaware of the lengths the Company was going to keep inactive customers and fake bot accounts on the platform to prevent churn and inflate its NNA guidance which would have provided a more realistic view of the true demand for the Company’s platform.”

Additionally, the Plaintiff alleged that “the Company admitted it was inflating its NNA guidance number by manipulating the natural churn rate by incentivizing customers to stay on the platform who ordinarily would have been considered inactive i.e. accounts illegitimately created solely for the purpose of taking advantage the cash incentives associated with the creation of a PayPal account.”

The plaintiff further alleged, “despite continually touting NNAs as an important indicative factor to the Company’s financial success, PayPal admitted that its guidance regarding the NNA metric was in fact materially inflated by marketing campaigns that invited the creation of millions of illegitimate accounts.” 

Plaintiff alleged that “unbeknownst to investors, the Company was only reporting the hyper-growth in NNAs the Company’s unusually heavy reliance on marketing campaigns that were easily targeted by fraudulent actors who were not really active or profitable to the Company.”

The plaintiff stated two claims for relief, including claims for the allegations of violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. 

In the prayer for relief, the plaintiff requested an award of damages, together with pre-judgment and post-judgment interest.

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