The original Complaint charges Heartland and certain of the Company's executive officers with violations of federal securities laws. Heartland together with its subsidiaries, provides bank card payment processing services to more than 250,000 merchants and businesses nationwide. Specifically, the Complaint alleges that throughout the Class Period defendants made false and/or misleading statements, and failed to disclose material adverse facts about the Company's business, operations and prospects. Specifically, defendants misrepresented or failed to disclose: (1) that the Company’s safety and security measures designed to protect consumers’ financial records and data from security breaches were inadequate and ineffective; (2) that the Company’s payment processing system had been infected with malware as early as May 2008; (3) that defendants were made aware of a potential breach of Heartland’s payment processing network; (4) that, as a result of the above, the Company faced liabilities associated with the breach and increasing costs associated with implementing appropriate security measures; (5) that, as a result of the foregoing, the Company was at risk of losing customers; and (6) that the Company lacked adequate internal controls.
On January 20, 2009, Heartland revealed that the Company’s payment processing network had been breached by malicious software, exposing tens of millions of debit cardholders to fraud. As consumers used their debit cards, so-called “sniffer software” had been capturing, among other things, card numbers, expiration dates and cardholder names. According to an article published that same day in The New York Times, the breach occurred as early as May 2008.
On this news, shares of Heartland declined $1.26 per share, or 8.16%, to close on January 20, 2009, at $14.18 per share, on unusually heavy volume. Over the next two days, shares of Heartland further declined $6.00 per share, or an additional 42.31%, to close on January 22, 2009 at $8.18 per share.
On February 24, 2009, Heartland again shocked investors when it reported earnings for the 2008 fiscal year and fourth quarter. The Company posted a lower-than-expected quarterly profit and disclosed that it might incur losses from the recent security breach of its system and that the Company could not estimate the amount of losses that might be incurred in connection with the security breach.
On this news, shares of Heartland declined $2.31 per share, or 30.12%, to close on February 24, 2009, at $5.34 per share, on unusually heavy volume. During the Class Period, shares of Heartland’s common stock declined $21.84 per share, or approximately 80%, from its Class Period high of $27.19 per share on September 19, 2008.
On May 27, 2009, Judge Anne E. Thompson granted the motion to consolidate three related actions under the caption In re Heartland Payment Systems, Inc., No. 09-CV-01043. The judge also approved the motion to appoint the Teamsters Local Union No. 727 Pension Fund and Genesee County Employee’s Retirement System as lead plaintiffs and approved lead plaintiffs’ selection of Coughlin Stoia Geller Rudman & Robbins LLP & Faruqi and Faruqi as co-lead counsel and Cohn Lifland Pearlman Herrmann & Knopf LLP to serve as liaison counsel. On August 20, 2009, the lead plaintiffs filed an Amended Complaint. On September 25, 2009, the defendants filed a motion to dismiss the Amended Complaint.
According to a press release dated December 9, 2009, Heartland Payment Systems® (NYSE: HPY), a leading provider of credit/debit/prepaid card processing, payroll, check management and payment services, announced that on December 7, 2009, the United States District Court for the District of New Jersey, granted Heartland’s motion to dismiss the consolidated shareholder class action, titled In Re Heartland Payment Systems, Inc. Securities Litigation, which had been filed against Heartland, Heartland’s Chairman and Chief Executive Officer and, Heartland’s President and Chief Financial Officer. The case, which arose out of the breach to the company’s processing system previously disclosed by the Company on January 20, 2009, was dismissed in its entirety with prejudice.