According to a press release dated October 14, 2009, the complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results. Specifically, the complaint alleges that defendants engaged in improper behavior that harmed Advanta’s investors by failing to disclose the impact of the economic environment and the deteriorating credit trends on its business and that the Company failed to adequately and timely record losses for its impaired loans and customer delinquencies, causing its financial results to be materially false. Defendants also concealed the adverse effects the Company’s manipulations of its cash rewards program was having on its business. As a result of defendants’ false statements, Advanta’s stock traded at artificially inflated prices during the Class Period, reaching a high of $34.07 per share on June 19, 2007.
Then, on November 27, 2007, Advanta held a conference call with analysts and investors to discuss the Company’s business performance. Advanta announced that due to the volatility of the economy, guidance for 2008 would not be released. Additionally, since the release of the third quarter 2007 results on October 25, 2007, a higher percentage of customers had become delinquent on their credit card payments and a lower percentage of customers made payments, indicating a trend of charge-offs. After these disclosures, Advanta stock dropped, closing on November 27, 2007 at $11.06 per share, and falling to as low as $9.35 per share on November 28, 2007, a decline of 72% from Advanta’s Class Period high of $34.07 per share in June 2007.
According to the complaint, the true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows: (a) Advanta’s assets contained tens of millions of dollars worth of impaired credit card receivables for which the Company had not accrued losses; (b) prior to and during the Class Period, Advanta had been extremely aggressive in granting credit to customers without verifying the customers’ ability to pay, to such a degree that by the summer of 2009, Advanta customers’ default rate would be almost six times worse than industry average; (c) Advanta’s manipulation of its cash rewards program angered customers and caused the Company to lose good, creditworthy customers; (d) Advanta’s credit receivables were unduly risky due to the Company’s practice of issuing credit cards to small business owners without, in many instances, verifying income; (e) defendants failed to properly account for Advanta’s continuing delinquent customers and the credit trends in the Company’s portfolio, resulting ultimately in large charges to reflect impairments; and (f) the Company was not on track to be profitable in 2008.
On November 9, 2009, Advanta Corporation filed a Suggestion of Bankruptcy. On June 4, 2010, the Honorable Cynthia M. Rufe signed the Order appointing Western Pennsylvani Electrical Employees Pension Fund as lead plaintiff and approved Coughlin Stoia Geller Rudman & Robbins LLP as lead counsel. On August 3, 2010, the lead plaintiff filed an Amended Complaint. The Amended Complaint expanded the class period, the named defendants, and added violation of §20A of the Securities Exchange Act of 1934. On October 18, 2010, the defendants filed five separate motions to dismiss the Amended Complaint.
On September 30, 2011, the Honorable Cynthia M. Rufe granted and denied certain pending motions to dismiss. The plaintiffs have been granted leave to file an amended complaint.
On March 13, 2014, the parties entered into a Stipulation of Settlement.