- Company Name
- GreenSky, Inc.
- Stock Symbol
- Class Period
- Purchasers of GreenSky Class A common stock pursuant or traceable to the Company’s May 25, 2018 initial public offering
- Motion Deadline
- January 26, 2019
- Southern District of New York
The complaint charges GreenSky, certain of its directors and the underwriters of its May 25, 2018 initial public offering (“IPO”) with violations of the Securities Act of 1933. GreenSky facilitates the provision of consumer loans by matching merchants who sell big-ticket items that may require consumer financing, such as home improvements, with banking partners that underwrite the loans.
In the IPO, GreenSky sold 43.7 million GreenSky Class A shares to public investors at $23 per share, generating over $1 billion in gross proceeds. These proceeds went entirely to Company insiders, including management.
The complaint alleges that defendants made false and misleading statements and omissions in the registration statement and prospectus filed in connection with the Company’s IPO (the “Offering Documents”). Specifically, the complaint alleges that GreenSky failed to disclose that the Company’s earnings potential had been materially impaired leading up to the IPO, as it had lost a significant majority of its most profitable merchant partners. Historically, approximately 20% of the Company’s merchant partners were in the solar panel business. These merchants paid GreenSky elevated transaction fees that averaged 14% of the total loan amount, double the average 7% transaction fee across all merchant categories. Unbeknownst to investors, GreenSky had dramatically reduced its dealings with solar panel merchants to only 4% of its total book of business, while at the same time increasing the proportion of merchants in the elective healthcare industry who offered a below average transaction fee rate. Rather than disclose the impact of these changes on the Company’s earnings potential, the Offering Documents represented that the change in GreenSky’s business mix instead represented one of the Company’s most significant “growth opportunities.”
For the first two reporting periods after the IPO, GreenSky shocked investors by revealing that the change in business mix had dramatically reduced the Company’s transaction fee rate and thereby had impaired its adjusted earnings potential. Specifically, the transaction fee rate had dropped by 53 basis points during the second quarter of 2018 – the same quarter during which defendants had conducted the IPO – and by 35 basis points during third quarter of 2018. In addition, the Company revealed that its adjusted earnings were expected to decline 46% sequentially and by 35% year-over-year during the fourth quarter of 2018. By November 6, 2018, the price of GreenSky Class A shares had fallen to $9.28 per share, 60% below the price at which $1 billion worth of GreenSky Class A shares had been sold to investors in the IPO less than six months previously.