Plaintiff's law firm issued a press release on September 6, 2018, announcing the lawsuit. According to the press release, Qurate markets and sells various consumer products primarily through live merchandise-focused televised shopping programs, websites, and mobile applications. Qurate Retail, Inc. is comprised of eight leading retail brands – QVC, HSN, zulily, Ballard Designs, Frontgate, Garnet Hill, Grandin Road, and Improvements, all dedicated to providing a "third way to shop" that goes beyond transactional eCommerce and traditional stores. The Company is number one in video commerce, with a worldwide reach of nearly 360 million homes via 16 television channels and multiple media outlets. QVC, Inc. ("QVC") is Qurate's largest segment, accounting for roughly 85 percent of the Company's total revenue in 2016.
As a promotional tool used to spur sales, QVC offers a payment plan called Easy-Pay to its customers in the U.S., U.K., Germany and Italy (known as Q-Pay in Germany, and Italy). Easy Pay allows QVC customers to pay for certain merchandise in two or more monthly installments. When Easy-Pay is elected by the QVC customer, the first installment is billed to the customer's credit card upon shipment and an Easy-Pay receivable is established to account for the collection of subsequent installments.
Qurate is exposed to the credit risk on the Easy-Pay receivables. Specifically, if the QVC customer does not remit payment for the subsequent Easy-Pay installments, Qurate is required to record a loss and write off the Easy-Pay receivable. Under Generally Accepted Accounting Principles, the Company is required to establish adequate reserves for its Easy-Pay receivables.
The Complaint alleges that throughout the Class Period, Qurate repeatedly attributed its growth to broad-based marketing and higher personalized customer experience, which the Company claimed would spur continued revenue growth. However, Defendants' Class Period statements pertaining to the Company's revenue growth were materially false and misleading because Defendants failed to disclose that: (1) the Company was aggressively loosening the credit standards of its Easy-Pay program to attract a large group of new customers; (2) the Company's strong sales growth was due to this loose credit policy; (3) accounts receivable associated with this new group of customers posed a high risk of write-off; and (4) as a result of the foregoing, the Company's positive statements about its business, operations, and prospects lacked a reasonable basis.