DRAFT CLASS ACTION COMPLAINT
LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215) 638-4847 Facsimile: (215) 638-4867 GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg Robert V. Prongay Casey E. Sadler 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA PLAINTIFF, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. DFC GLOBAL CORP., JEFFREY A. WEISS, RANDY UNDERWOOD, and WILLIAM M. ATHAS, Defendants.
Case No. DRAFT
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
JURY TRIAL DEMANDED
DRAFT CLASS ACTION COMPLAINT 1
Plaintiff (“Plaintiff”), by and through his attorneys, alleges the following upon
information and belief, except as to those allegations concerning Plaintiff, which are alleged
upon personal knowledge. Plaintiff’s information and belief is based upon, among other things,
his counsel’s investigation, which includes without limitation: (a) review and analysis of
regulatory filings made by DFC GLOBAL CORP. (“DFC” or the “Company”), with the United
States Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases
and media reports issued by and disseminated by DFC; and (c) review of other publicly available
information concerning DFC.
NATURE OF THE ACTION AND OVERVIEW
1. This is a class action on behalf of purchasers of DFC’s securities between August
22, 2012 and August 22, 2013, inclusive (the “Class Period”), seeking to pursue remedies under
the Securities Exchange Act of 1934 (the “Exchange Act”).
2. DFC, through its subsidiaries, provides retail financial services to unbanked and
under-banked consumers, and small businesses.
3. On August 22, 2013, the Company announced its 2013 fiscal year financial results
and disclosed that for its 2013 fiscal fourth quarter, the Company had revenue of $266.7 million
for the quarter, compared to a consensus estimate of $285.2 million. According to the Company,
newly “restrictive regulatory requirements in the United Kingdom” were the cause of “higher
loan defaults” in the UK during the second half of the year, which negatively impacted the
Company’s financial results.
4. On this news, shares of DFC declined $4.59 per share, nearly 29%, to close on
August 23, 2013, at $11.31 per share, on unusually heavy volume.
5. Throughout the Class Period, Defendants made false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company's business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that stringent new regulatory requirements in the United Kingdom
were impacting the collectability of DFC’s loans in the United Kingdom; (2) that these increased
DRAFT CLASS ACTION COMPLAINT 2
regulatory requirements were causing additional loan losses for the Company; (3) that, as a
result, Company lacked adequate internal and financial controls; and (4) that, as a result of the
foregoing, the Company’s statements were materially false and misleading at all relevant times.
6. As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
7. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C.§§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
8. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
9. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and
Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the preparation and dissemination of materially false and/or misleading
information, occurred in substantial part in this Judicial District. Additionally, DFC’s principle
executive offices are located within this Judicial District.
10. In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
11. Plaintiff, as set forth in the accompanying certification, incorporated by reference
herein, purchased DFC common stock during the Class Period, and suffered damages as a result
of the federal securities law violations and false and/or misleading statements and/or material
omissions alleged herein.
DRAFT CLASS ACTION COMPLAINT 3
12. Defendant DFC is a Delaware corporation with its principal executive offices
located at 1436 Lancaster Avenue, Berwyn, Pennsylvania 19312-1288.
13. Defendant Jeffrey A. Weiss (“Weiss”) was, at all relevant times, Chairman of the
Board of Directors and Chief Executive Officer (“CEO”) and a director of DFC.
14. Defendant Randy Underwood (“Underwood”) was, at all relevant times,
Executive Vice President and Chief Financial Officer (“CFO”) of DFC.
15. Defendant William M. Athas (“Athas”) was, at all relevant times, Senior Vice
President, Finance, Chief Accounting Officer and Corporate Controller of DFC.
16. Defendants Weiss, Underwood and Athas are collectively referred to hereinafter
as the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of DFC’s reports to the
SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
17. DFC operates as the holding company for DFC Bank that purports to provide
banking and wealth management services to individuals and business customers located in the St.
Louis, Kansas City and Phoenix metropolitan markets.
Materially False and Misleading
DRAFT CLASS ACTION COMPLAINT 4
Statements Issued During the Class Period
18. The Class Period begins on August 22, 2012. On this day, the Company issued a
press release entitled, “DFC GLOBAL CORP. ANNOUNCES RECORD FISCAL YEAR
RESULTS.” Therein, the Company, in relevant part, stated:
Fiscal Year 2012 Financial Highlights
● Total consolidated revenue grew to a record $1.1 billion for the fiscal year, an increase of $273.3 million, or 34.7%, compared to the twelve months ended June 30, 2011. On a constant currency basis, total consolidated revenue increased by $280.4 million, or 35.6%.
● Total consumer lending revenue increased to $645.9 million for the fiscal year, representing an increase of $216.7 million, or 50.5%, compared to the prior year period. Revenue from internet-based loans grew to $259.5 million for the fiscal year compared to $86.8 million for the twelve months ended June 30, 2011.
● Total revenue from pawn lending increased to $80.9 million for the twelve months ended June 30, 2012 compared to $48.0 million for the prior year period. Pawn lending represented 7.6% of total consolidated revenue for the twelve months ended June 30, 2012.
● Consolidated adjusted EBITDA was a record $303.7 million for the twelve months ended June 30, 2012, representing an increase of $73.5 million, or 31.9%, compared to the prior fiscal year, while also increasing by $75.3 million, or 32.7%, on a constant currency basis during the same period.
● Diluted operating earnings per share was a record $2.16 for fiscal year 2012 compared to $1.59 for the prior fiscal year period, representing an increase of 35.8%, and exceeding the Company’s guidance of between $2.08 and $2.11 per share.
● The Company expanded its global store network to 1,399 stores with the opening of 114 de novo stores in fiscal year 2012.
* * *
Fiscal 2012 Fourth Quarter Business Update
DRAFT CLASS ACTION COMPLAINT 5
Total consolidated revenue in the United Kingdom increased by £17.3 million, or 26.1%, for the quarter compared to the three months ended June 30, 2011. Consumer lending revenue grew by £12.7 million, or 27.3%, for the three months ended June 30, 2012, compared to the fourth quarter of the prior fiscal year, reflecting additional revenue from the Company’s internet lending businesses, as well as continued strong performance and growth of its store-based business. Revenue from internet lending in the United Kingdom, which includes the MEM internet lending business that the Company acquired in April 2011, increased to £37.9 million for the quarter ended June 30, 2012, compared to £28.3 million for the prior year’s fiscal fourth quarter, representing growth of 33.9%. The U.K. pawn lending business contributed £6.1 million of total revenue for the quarter, representing growth of 6.5% over the prior year period. During the quarter, the Company opened 29 new stores in the United Kingdom, which amounts to 91 new store openings for fiscal year 2012 and 210 new stores opened over the past three fiscal years, which the Company expects will provide significant earnings contribution as these stores mature.
19. On August 29, 2012, DFC filed its Annual Report with the SEC on Form 10-K for
the 2012 fiscal year. The Company’s Form 10-K was signed by Defendants Weiss, Underwood
and Athas, and reaffirmed the Company's financial results previously announced on August 22,
2012. The Company’s Form 10-Q also contained Sarbanes-Oxley also contained Sarbanes-
Oxley required certifications, signed by Defendants Weiss, Underwood and Athas, who certified:
1. I have reviewed this annual report on Form 10-K of DFC Global Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
DRAFT CLASS ACTION COMPLAINT 6
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls
and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant’s internal control over financial reporting.
20. Additionally, the Company’s annual report filed with the SEC on Form 10-K
described DFC’s revenue recognition and loan loss reserves policies as follows:
Revenue Recognition
DRAFT CLASS ACTION COMPLAINT 7
With respect to company-operated stores, revenues from our check cashing, money order sales, money transfer and other ancillary services reported in other revenues on its statement of operations are all recognized when the transactions are completed at the point-of-sale in the store. For unsecured short-term consumer loans, which generally have terms ranging from 1 to 45 days, revenues are recognized using the interest method. Loan origination fees are recognized as an adjustment to the yield on the related loan. Our reserve policy regarding these loans is summarized below in “Consumer Loan Loss Reserves Policy.” Secured pawn loans are offered at most of our retail financial services locations in the United Kingdom and Poland and at our pawn shops in the United Kingdom, Sweden, Finland and Spain. Pawn loans are short-term in nature and are secured by the customer’s personal property, which we refer to as a pledge. At the time of pledge, the loan is recorded and interest and fees, net of costs are accrued for over the life of the loan. If the loan is not repaid, the collateral is deemed forfeited and the pawned item will, in most markets, go up for auction. If the item is sold, proceeds are used to recover the loan value, interest accrued and fees. Generally, excess funds received from the sale are repaid to the customer. As with our unsecured short-term consumer loans, revenues are recognized using the interest rate method and loan origination fees, net, are recognized as an adjustment to the yield on the related loan. DFS fee income associated with originated loan contracts is recognized as revenue by us concurrent with the funding of loans by the third party lending financial institution. We also earn additional fee income from sales of service agreement and guaranteed asset protection (“GAP”) insurance contracts. DFS may be charged back (“chargebacks”) for service agreement and GAP fees in the event contracts are prepaid, defaulted or terminated. Service agreement and GAP contract fees are recorded at the time the contracts are sold and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Service warranty and GAP contract fees, net of estimated chargebacks, are included in Other Revenues in the accompanying consolidated statements of operations. Consumer Loan Loss Reserves Policy We maintain a loan loss reserve for anticipated losses for unsecured consumer loans that we directly originate but have not yet become due (presented as “Consumer Loans” on the balance sheet). To estimate the appropriate level of loan loss reserves, we consider known relevant internal and external factors that affect loan collectability, including the amount of outstanding loans owed to us, historical loans charged off, current collection patterns and current economic trends. Our loan loss reserve on Consumer Loans is based on our net charge-offs,
DRAFT CLASS ACTION COMPLAINT 8
typically expressed as a percentage of loan amounts originated for the last twelve months applied against the principal balance of outstanding loans. As these conditions change, we may need to make additional allowances in future periods. Generally, when an unsecured loan is originated, the customer receives the cash proceeds in exchange for a post-dated check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and reflected as a deduction to the gross loans in default balances and is included in loan loss provision expense in the period that the loan is placed in default status. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current collection patterns and current economic trends is included in loan loss provision expense. If a loan remains in defaulted status for an extended period of time, typically 180 days, an allowance for the entire amount of the loan is recorded and the receivable is ultimately charged off. Recoveries on loans that were completely charged off are credited to the allowance when collected. We do not maintain a loan loss reserve for potential future losses on pawn loans. Pawn loans are secured by the customer’s pledged item. Pawn loans generally represent 50% to 80% of the appraised fair value of the pledged item, thus significantly mitigating our exposure to losses on defaulted pawn loans. Our historical redemption rate on pawn loans is in excess of 80%, which means that for more than 80% of its pawn loans, the customer pays back the amount borrowed, plus interest and fees, and we return the pledged item to the customer. In the instance where the customer defaults on a pawn loan (fails to redeem), the pledged item is either sold at auction or sold to a third party in our retail stores after the customer default. Except in very isolated instances, the amount received at auction or in our store is in excess of the original loan principal plus accrued interest and fees. Generally, excess amounts received over and above our recorded asset value and any related administrative costs and fees are returned to the customer. 21. On October 25, 2012, the Company issued a press release entitled, “DFC
GLOBAL CORP. ANNOUNCES FISCAL FIRST QUARTER RESULTS.” Therein, the
Company, in relevant part, stated:
Fiscal Year 2013 First Quarter Highlights
● Total consolidated revenue grew to a record $276.7 million for the quarter, an increase of $15.1 million, or 5.8%, compared to the three months ended September 30, 2011. On a constant currency basis, total consolidated revenue increased by $21.2 million, or 8.1%.
DRAFT CLASS ACTION COMPLAINT 9
● Total unsecured consumer lending revenue increased to $178.6 million for the quarter, representing an increase of $25.5 million, or 16.2%, on a constant currency basis compared to the prior year period. Revenue from internet-based loans grew to $75.5 million for the quarter, representing an increase of $18.6 million, or 31.4%, on a constant currency basis compared to the prior year period.
● Total revenue from pawn lending decreased by 1.3% to $19.7 million for the three months ended September 30, 2012, on a constant currency basis compared to the prior year period, due to a decline in the price of gold which resulted in lower auction and scrap margins on un-redeemed pawn pledges during the quarter.
● Reflecting significant investments incurred during the quarter to support future period expansion and growth, as well as additional operating expenses related to a large number of recently opened de novo stores in the United Kingdom, consolidated adjusted EBITDA was $72.9 million for the three months ended September 30, 2012, representing a decrease of $1.6 million, or 2.1%, compared to the prior year period. On a constant currency basis, consolidated adjusted EBITDA increased by $0.1 million during the same period.
● Diluted operating earnings per share was $0.47 for the fiscal 2013 first quarter compared to $0.52 for the first quarter of the previous fiscal year.
● The Company opened 23 de novo stores during the quarter across the United Kingdom, Canada, Poland and Spain, and acquired 19 competitor stores in the United Kingdom and 2 franchise stores in Canada.
* * *
Fiscal 2013 First Quarter Business Update
The Company achieved record revenue of $276.7 million for the quarter, representing an increase of $21.2 million, or 8.1%, on a constant currency basis compared to the three months ended September 30, 2011. Total unsecured consumer lending revenue increased by $25.5 million on a constant currency basis, or 16.2%, over the prior year period. Of this amount, revenue from internet-based loans grew to $75.5 million for the quarter, representing an increase of $18.6 million, or 31.4%, on a constant currency basis compared to the prior year period. Secured pawn lending contributed $19.7 million of total revenue for the quarter, decreasing by 1.3% compared to the prior year period, excluding the impact of currency exchange rates. Total revenue from secured pawn lending, which is primarily derived from loans secured by gold jewelry, was unfavorably impacted by lower margins on the liquidation of unredeemed pawn pledges, as a result of a decline in the price of gold relative to when the collateral was initially
DRAFT CLASS ACTION COMPLAINT 10
pawned. The total pawn loan book for the Company grew to $162.9 million at the end of the quarter compared to $137.0 million as of September 30, 2011, representing an increase of 18.9%. On a sequential quarter basis, compared to June 30, 2012, the total pawn loan book for the Company increased by 5.8%, which should bode well for pawn interest growth in the next fiscal quarter. Total consolidated revenue in the United Kingdom increased by £10.7 million, or 14.2%, for the quarter compared to the three months ended September 30, 2011. Total unsecured consumer lending revenue grew by £10.7 million, or 21.0%, for the three months ended September 30, 2012, compared to the first quarter of the prior fiscal year, reflecting additional revenue from the Company’s internet lending business, as well as continued growth of its store-based business. Revenue from internet lending in the United Kingdom increased to £40.3 million for the quarter ended September 30, 2012, compared to £31.3 million for the prior year’s fiscal first quarter, representing growth of 28.9%. The U.K. secured pawn lending business contributed £6.9 million of total revenue for the quarter compared to £6.8 million for the prior year period, and was unfavorably impacted by lower margins on the liquidation of un-redeemed pledges.
22. On November 9, 2012, DFC filed its Quarterly Report with the SEC on Form 10-
Q for the 2013 fiscal first quarter. The Company’s Form 10-Q was signed by Defendant Athas
and reaffirmed the Company’s financial results previously announced on October 25, 2012. The
Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by
Defendants Weiss, Underwood and Athas, substantially similar to the certifications contained in
¶__, supra.
23. On January 24, 2013, the Company issued a press release entitled, “DFC
GLOBAL CORP. ANNOUNCES FISCAL SECOND QUARTER RESULTS.” Therein, the
Company, in relevant part, stated:
Fiscal Year 2013 Second Quarter Highlights
● Total consolidated revenue grew to a record $292.9 million for the quarter, an increase of 11.2%, or $29.5 million, compared to the prior-year period. On a constant currency basis, total consolidated revenue increased 9.1%.
● Total unsecured consumer lending revenue increased to $189.5 million for the quarter, representing an increase of $26.0 million, or 16.3%, on a
DRAFT CLASS ACTION COMPLAINT 11
constant currency basis compared to the prior-year period. Revenue from internet-based loans grew to $78.2 million for the quarter, representing an increase of $15.0 million, or 24.2%, on a constant currency basis compared to the prior-year period.
● Total revenue from pawn lending increased to $21.7 million for the three months ended December 31, 2012, representing an increase of 5.2% on a constant currency basis compared to the prior-year period.
● Consolidated adjusted EBITDA was $77.2 million for the three months ended December 31, 2012, representing an increase of $2.6 million, or 3.5%, compared to the prior-year period. The total includes significant expenditures incurred during fiscal year 2013 to support future period expansion and growth, as well as additional operating expenses related to a large number of recently opened de novo stores in the United Kingdom. On a constant currency basis, consolidated adjusted EBITDA increased by $0.8 million, or 1.1%, compared to the prior-year period.
● Diluted operating earnings per share was $0.56 for the fiscal 2013 second quarter, an increase of 7.7% compared to $0.52 for the prior-year period.
● Company narrows its fiscal 2013 diluted operating earnings guidance to between $2.35 to $2.45 per share from the Company’s previous estimate of $2.35 to $2.55 per share.
● The Company repurchased 1.6 million shares of its common stock at an average share price of $16.89 during the three months ended December 31, 2012.
* * *
Fiscal 2013 Second Quarter Financial Results
For the quarter ended December 31, 2012, the Company recorded revenue of $292.9 million, an increase of 9.1% on a constant currency basis compared to the prior-year period. Total unsecured consumer lending revenue was $189.5 million, up 16.3% on a constant currency basis over the prior-year period, and includes revenue from internet-based loans of $78.2 million, which increased 24.2% on a constant currency basis compared to the prior-year period. Secured pawn lending contributed revenue of $21.7 million, an increase of 5.2% compared to the prior-year period, excluding the impact of currency exchange rates. In terms of revenue by geography, total consolidated revenue in the United Kingdom increased by £11.7 million, or 14.8%, to £90.7 million for the second fiscal quarter compared to £79.0 million for the prior-year period. Total unsecured consumer lending revenue grew by £10.7 million, or 19.8%, to £64.8 million for
DRAFT CLASS ACTION COMPLAINT 12
the three months ended December 31, 2012, compared to £54.1 million for the prior-year period. Revenue from internet lending in the U.K. increased 22.3% versus the prior-year period, or £7.4 million, to £40.4 million for the quarter ended December 31, 2012. The Company’s U.K. secured pawn lending business contributed £7.9 million of total revenue for the second fiscal quarter, representing year-over-year growth of 13.4%. 24. On February 8, 2013, DFC filed its Quarterly Report with the SEC on Form 10-Q
for the 2013 fiscal second quarter. The Company’s Form 10-Q was signed by Defendant Athas
and reaffirmed the Company’s financial results previously announced on January 24, 2013. The
Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by
Defendants Weiss, Underwood and Athas, substantially similar to the certifications contained in
¶__, supra.
25. On May 1, 2013, the Company issued a press release entitled, “DFC GLOBAL
CORP. ANNOUNCES FISCAL THIRD QUARTER 2013 RESULTS.” Therein, the Company,
in relevant part, stated:
Fiscal Year 2013 Third Quarter Highlights
● Total consolidated revenue was $283.6 million for the quarter, an increase of 5.0%, or $13.6 million, compared to the prior-year period. On a constant currency basis, total consolidated revenue increased 5.8%.
● Total unsecured consumer lending revenue was $181.7 million for the quarter, representing an increase of $20.4 million, or 12.5%, on a constant currency basis compared to the prior-year period. Revenue from internet-based loans was $75.5 million for the quarter, representing an increase of $9.5 million, or 14.2%, on a constant currency basis compared to the prior-year period.
● Total revenue from pawn lending for the quarter was $21.4 million, an increase of $0.3 million on a constant currency basis. Pawn lending revenue was unfavorably impacted by a year-over-year decline in gold prices.
● Consolidated adjusted EBITDA was $55.1 million for the three months ended March 31, 2013 compared to $76.2 million for the prior-year
DRAFT CLASS ACTION COMPLAINT 13
period. On a constant currency basis, consolidated adjusted EBITDA decreased by $20.8 million compared to the prior-year period.
● Diluted pro forma operating earnings per share was $0.24 for the fiscal 2013 third quarter compared to $0.54 for the prior-year period.
● Company reaffirms fiscal 2013 pro forma diluted operating earnings guidance of $1.70 to $1.80 per share.
● The Company’s GAAP earnings were impacted by one-time restructuring and other charges for employee severance and other costs related to the reorganization of the Company’s business operations between global retail and internet platforms, in addition to a goodwill and intangible asset write-down associated with the Dealers’ Financial Services business as a result of a delay in the Company’s negotiations with new potential lending partners who would underwrite future MILES program loans.
● The Company repurchased 230,000 shares of its common stock at an average share price of $17.26 during the three months ended March 31, 2013.
“As we previously reported, our financial results for the fiscal third quarter were significantly impacted by the transition to the new responsible lending guidelines in the United Kingdom, which were developed in consultation with the local regulatory authorities and our industry association members,” said Jeff Weiss, the Company’s Chairman and Chief Executive Officer. “As a result of the temporary ‘credit crunch’ for customers with multiple loans, which was caused by adhering to these new guidelines, we experienced higher loan defaults in our U.K. business during the fiscal third quarter, clearly affecting our bottom line. In response, we further tightened our lending underwriting criteria to minimize the risk to our business, which naturally reduced our loan growth in the United Kingdom during this period. Despite these issues, strong demand for consumer loans across our geographies enabled our overall consolidated loan portfolio during the fiscal third quarter to increase 13.7% from the prior-year period. We have begun to see moderate sequential quarter growth in our unsecured loan book in the United Kingdom as we began the fiscal fourth quarter.”
“Throughout my more than twenty years with the Company, we have had to navigate through regulatory changes in both the United States and Canada,” continued Mr. Weiss. “In each case, our multi-product business model provided us with the necessary flexibility to successfully adapt to the changing operating environments. We believe the regulatory transition in the United Kingdom is comparable to what we have previously faced in our other markets. Similar to Canada and the United States, we fully expect our U.K. business will reemerge from this transition a much stronger business even better positioned against our competitors.”
DRAFT CLASS ACTION COMPLAINT 14
* * *
Fiscal 2013 Third Quarter Financial Results For the quarter ended March 31, 2013, the Company recorded revenue of $283.6 million, an increase of 5.8% on a constant currency basis compared to the prior-year period. Total unsecured consumer lending revenue was $181.7 million, up 12.5% on a constant currency basis over the prior-year period, and includes revenue from internet-based loans of $75.5 million, an increase of 14.2% on a constant currency basis compared to the prior-year period. Secured pawn lending contributed revenue of $21.4 million, an increase of 1.2% compared to the prior-year period, excluding the impact of currency exchange rates. The consolidated loan loss provision, expressed as a percentage of gross consumer lending revenue, was 27.4% for the quarter ended March 31, 2013 compared to 20.6% for the prior-year period. The loan loss provision for the quarter was significantly impacted by higher loan defaults in the United Kingdom resulting from the recently implemented three loan roll-over limitation, and a change in estimate to the loan loss provision for customers placed on payment plans following three roll-overs. The Company believes customer loan default rates will improve moderately on a sequential quarter basis for the fiscal quarter ending June 30, 2013. As a percentage of loan originations or principal lent, the consolidated loan loss provision for the quarter ended March 31, 2013 was 6.5%. 26. On May 10, 2013, DFC filed its Quarterly Report with the SEC on Form 10-Q for
the 2013 fiscal third quarter. The Company’s Form 10-Q was signed by Defendant Athas and
reaffirmed the Company’s financial results previously announced on May 1, 2013. The
Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by
Defendants Weiss, Underwood and Athas, substantially similar to the certifications contained in
¶__, supra.
27. The statements contained in ¶¶__-__ were materially false and/or misleading
when made because defendants failed to disclose or indicate the following: (1) that stringent new
regulatory requirements in the United Kingdom were impacting the collectability of DFC’s loans
in the United Kingdom; (2) that these increased regulatory requirements were causing additional
loan losses for the Company; (3) that, as a result, Company lacked adequate internal and
DRAFT CLASS ACTION COMPLAINT 15
financial controls; and (4) that, as a result of the foregoing, the Company’s statements were
materially false and misleading at all relevant times.
Disclosures at the End of the Class Period
28. On August 22, 2013, the Company issued a press release entitled, “DFC Global
Corp. Announces Fiscal Fourth Quarter and Full-Year 2013 Results.” Therein, the Company, in
relevant part, stated:
DFC Global Corp. (NASDAQ: DLLR), a leading international diversified financial services company serving primarily unbanked and under-banked consumers for over 30 years, today announced its results for the fiscal fourth quarter and full year ended June 30, 2013. Fiscal Year 2013 Financial Highlights Total consolidated revenue was $1.1 billion for the fiscal year, an increase of 5.7%, or $60.6 million, compared to the prior-year period. On a constant currency basis, total consolidated revenue increased 6.4%. Total unsecured consumer lending revenue was $728.3 million for the fiscal year, representing an increase of $87.4 million, or 13.5%, on a constant currency basis compared to the prior-year period. Revenue from internet-based loans was $298.4 million for the fiscal year, representing an increase of $42.2 million, or 16.2%, on a constant currency basis compared to the prior-year period. Total revenue from pawn lending for the fiscal year was $81.9 million, an increase of $1.5 million, or 1.9%, on a constant currency basis. Pawn lending interest and the margin on the disposition of unredeemed pawn pledge inventory was unfavorably impacted by a year-over-year decline in gold prices. Consolidated adjusted EBITDA was $274.5 million for the twelve months ended June 30, 2013 compared to $303.7 million for the prior-year period. On a constant currency basis, consolidated adjusted EBITDA decreased by $27.8 million compared to the prior-year period. Diluted pro forma operating earnings per share was $1.76 for fiscal year 2013 compared to $2.16 for the prior-year period. Diluted earnings per share on a GAAP basis was a loss of $0.02 for fiscal year 2013 compared to a positive $1.16 for the prior-year period The Company repurchased 3.5 million shares of its common stock at an average share price of $15.53 during the twelve months ended June 30, 2013. Since June
DRAFT CLASS ACTION COMPLAINT 16
30, the Company repurchased an additional 0.4 million shares at an average price of $15.49. A table reconciling pro forma income before income taxes and diluted pro forma operating earnings per share to GAAP basis income before income taxes and adjusted EBITDA is presented on pages 11 and 12 of this news release. “Fiscal 2013 presented our Company with a number of unique challenges, particularly in the United Kingdom,” said Jeff Weiss, the Company’s Chairman and Chief Executive Officer. “The Company’s retail and internet businesses have recently transitioned to more restrictive regulatory requirements in the United Kingdom. The new requirements provide guidance principally with respect to loan disclosures, loan affordability assessments, loan extension limitations, and collection practices. The industry association shift to a three loan roll-over limitation, which we believe is more restrictive than the current policies of many of our competitors, is causing many of the outstanding short-term consumer loans in the United Kingdom to become due. Consequently, we have experienced higher loan defaults in our U.K. business during the second half of the fiscal year. Accordingly, the Company tightened its underwriting criteria which resulted in decreased loan originations in fiscal 2013 in the United Kingdom and, while the transition to the new regulatory guidelines proceeds, we expect to maintain lower loan originations at least through the first half of fiscal 2014 in order to reduce the risk of higher loan defaults during this period.” “Furthermore, the Company expects to be at a continuing competitive disadvantage in the United Kingdom until all industry providers are required to operate consistently under the new regulatory framework,” added Mr. Weiss. “Over the long-term, we expect sustained growth and an opportunity to expand the Company’s market share to materialize in the United Kingdom, as we believe some of our competitors will naturally struggle to operate under the new restrictive regulatory framework and exit the market. This process has already started, as a number of lenders recently left the market, while the Office of Fair Trading (OFT) has also rescinded the licenses of several other loan providers. In the meantime, however, the internet lending market has become highly competitive, with some providers bidding up new customer leads to cover shortfalls in revenue stemming from limitations on roll-overs. That being said, we anticipate revenue growth will continue to be dampened until this transition runs its course, and the consumer and competitive landscape normalizes. In addition, the Company expects to continue to incur additional costs in fiscal 2014 to support global regulatory activities, including regulatory advisory consulting, legal opinions and analysis, and regulatory compliance. These regulatory costs should be somewhat offset by ongoing cost savings from the business restructuring we completed during fiscal year 2013, as we streamlined our workforce in line with the reorganization and segmentation of our global business operations between retail and internet distribution channels.”
DRAFT CLASS ACTION COMPLAINT 17
Concluded Mr. Weiss, “With respect to our U.K. business, the Company’s approach in fiscal 2014 is to complete the implementation of the regulatory changes in the first quarter, then hone the store and internet-based platforms within these new guidelines over the course of the first half of the fiscal year. We intend to continue moderating loan book growth until the industry transition is judged to be nearly complete and customer credit performance follows a more expected and predictable pattern. New internet-based multi-payment loan products, while presently still in the latter stages of testing, are expected to contribute a significant amount of year-over-year revenue growth. However, these products are expected to generate marginal EBITDA contribution in fiscal 2014, due to a larger mix of new customers without a defined credit history with us, and therefore at a higher risk of potential default. While we were naturally disappointed with our financial results in the United Kingdom for the year, as many of our shareholders know, we have been down this road before with regulatory transitions in the United States and Canada. Similarly, we fully expect our U.K. business will also reemerge from this transition period a much stronger business operating in a clarified marketplace that is even better positioned for success against our competitors in meeting the needs of our customers.” Fiscal 2013 Fourth Quarter Financial Results For the quarter ended June 30, 2013, the Company recorded revenue of $269.1 million, an increase of 2.6% on a constant currency basis compared to the prior-year period. Total unsecured consumer lending revenue was $178.5 million, up 9.4% on a constant currency basis over the prior-year period, and includes revenue from internet-based loans of $69.3 million, which decreased 0.6% on a constant currency basis compared to the prior-year period. Secured pawn lending, which was unfavorably impacted by lower gold prices, contributed $19.1 million of total revenue, an increase of 2.4% compared to the prior-year period, excluding the impact of currency exchange rates. The consolidated loan loss provision for unsecured loans, expressed as a percentage of gross consumer lending revenue, was 25.7% for the quarter ended June 30, 2013 compared to 20.8% for the three months ended June 30, 2012. The loan loss provision for the quarter was unfavorably impacted by higher loan defaults in the United Kingdom principally resulting from the continuing effects of the implementation of the three loan roll-over limitation, in addition to a modification of the Company’s collection practices, which place additional limitations on the number and duration of direct debits to a customer’s account. The Company anticipates that loan losses will be higher over the near-term because of the change in collection practices, but believes a portion of the provisioned loans may eventually be collected manually by in-house collectors, as the Company begins to leverage the significant investments it has made in global dialer technology and new collections and call center facilities. The Company expects the loan loss provision for its short-term loan
DRAFT CLASS ACTION COMPLAINT 18
products in the United Kingdom will likely improve each sequential quarter in fiscal year 2014, as other loan providers in the country transition to similar regulatory restrictions, and the consumer credit environment begins to normalize. However, the Company’s new internet-based multi-payment loan products in the U.K. are expected to carry a higher-loan loss provision in the near-term as a result of a significant mix of new customers who do not have a credit history with the Company. As a percentage of total unsecured loan originations or principal lent, the consolidated loan loss provision for the quarter ended June 30, 2013 was 6.2%. Included in the loan loss provision, the Company also recorded a $7.1 million provision during the quarter to reserve for the decreased current value of potential unredeemed pawned gold inventory as a result of the decline in the market price of gold as measured at the end of the fiscal year. This provision was added back in the calculation of adjusted EBITDA and diluted pro forma operating earnings per share. The Company continually adjusts the amount it is willing to loan on new pawned items in relation to the current spot price of gold. Collectively, including a net $14.2 million in non-operating and unusual charges for the three months ended June 30, 2013, and $31.5 million of net non-operating and unusual charges for the three months ended June 30, 2012, income before income taxes on a GAAP basis was $15.9 million for the quarter ended June 30, 2013 compared to income before income taxes of $7.1 million for the prior-year period, resulting in net income of $7.4 million for the quarter compared to a net loss of $4.2 million for the prior-year period. Diluted earnings per share on a GAAP basis was $0.18 for the three months ended June 30, 2013 compared to a net loss per share of $0.09 for the three months ended June 30, 2012. With respect to the Company’s operating earnings, excluding net non-operating and unusual charges for both periods, pro forma income before income taxes was $30.1 million for the fiscal 2013 fourth quarter, compared to pro forma income before income taxes of $38.6 million for the prior-year period. Considering a pro forma effective income tax rate from operations of 32.0%, diluted pro forma operating earnings per share was $0.49 for the fiscal 2013 fourth quarter compared to $0.58 per share for the prior-year period. A table reconciling pro forma income before income taxes and diluted pro forma operating earnings per share to GAAP basis income before income taxes and GAAP basis diluted earnings per share is presented on page 11 of this news release. Fiscal Year 2014 Outlook “We anticipate that fiscal 2014 will be a transition year for our businesses in the United Kingdom with improving performance there each successive quarter, as the regulatory transition runs its course,” stated Randy Underwood, Executive Vice President and Chief Financial Officer. “However, it is difficult to forecast with precision the impact and timing our loan program modifications will have on
DRAFT CLASS ACTION COMPLAINT 19
our business in the U.K. in the midst of an evolving marketplace. Furthermore, the recent significant volatility in worldwide gold prices makes it a challenge to reasonably project the expected profit contribution of our purchased gold and pawn lending products in fiscal 2014. In addition, the Company expects to incur approximately $10.0 million to $15.0 million of expense in fiscal 2014 to support ongoing regulatory related activities, including regulatory advisory costs, legal opinions and analysis, and audit and regulatory compliance costs in fiscal 2014. Given the significant fluidity of these aspects of our business, which would require a very wide and therefore less meaningful earnings per share range given the compounding tax consequences of each issue, we have decided to provide adjusted EBITDA guidance until we have clearer visibility as to the amount and timing of these issues. As the fiscal year progresses and the outlook for fiscal 2014 becomes clearer, we hope to once again provide earnings per share guidance. Therefore, for fiscal 2014, we are projecting adjusted EBITDA of between $200.0 million and $240.0 million.”
(Emphasis added).
29. On this news, shares of DFC declined $4.59 per share, nearly 29%, to close on
August 23, 2013, at $11.31 per share, on unusually heavy volume.
CLASS ACTION ALLEGATIONS
30. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased DFC’s
securities between August 22, 2012 and August 22, 2013, inclusive (the “Class Period”) and who
were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and
directors of the Company, at all relevant times, members of their immediate families and their
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had
a controlling interest.
31. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, DFC’s securities were actively traded on the
NASDAQ Stock Exchange (the “NASDAQ”). While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
DRAFT CLASS ACTION COMPLAINT 20
Plaintiff believes that there are hundreds or thousands of members in the proposed Class.
Millions of DFC shares were traded publicly during the Class Period on the NASDAQ. As of
May 7, 2013, DFC had 40,490,679 shares of common stock outstanding. Record owners and
other members of the Class may be identified from records maintained by DFC or its transfer
agent and may be notified of the pendency of this action by mail, using the form of notice similar
to that customarily used in securities class actions.
32. Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
33. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
34. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) Whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of DFC; and
(c) To what extent the members of the Class have sustained damages and the
proper measure of damages.
35. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
DRAFT CLASS ACTION COMPLAINT 21
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
36. The market for DFC’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, DFC’s securities traded at artificially inflated prices during the Class Period.
Plaintiff and other members of the Class purchased or otherwise acquired DFC’s securities
relying upon the integrity of the market price of the Company’s securities and market
information relating to DFC, and have been damaged thereby.
37. During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of DFC’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. Said statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
misrepresented the truth about DFC’s business, operations, and prospects as alleged herein.
38. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about DFC’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
DRAFT CLASS ACTION COMPLAINT 22
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company's securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company's securities at
artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
39. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
40. During the Class Period, Plaintiff and the Class purchased DFC’s securities at
artificially inflated prices and were damaged thereby. The price of the Company's securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’s losses.
SCIENTER ALLEGATIONS
41. As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding DFC, his/her control over, and/or receipt
and/or modification of DFC’s allegedly materially misleading misstatements and/or their
DRAFT CLASS ACTION COMPLAINT 23
associations with the Company which made them privy to confidential proprietary information
concerning DFC, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE (FRAUD-ON-THE-MARKET DOCTRINE)
42. The market for DFC’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, DFC’s securities traded at artificially inflated prices during the Class Period. On
August 22, 2013, the Company’s stock closed at a Class Period high of $19.92 per share.
Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of DFC’s securities and market
information relating to DFC, and have been damaged thereby.
43. During the Class Period, the artificial inflation of DFC’s stock was caused by the
material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about DFC’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of DFC and its
business, operations, and prospects, thus causing the price of the Company's securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company stock. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company's securities
at such artificially inflated prices, and each of them has been damaged as a result.
44. At all relevant times, the market for DFC’s securities was an efficient market for
the following reasons, among others:
DRAFT CLASS ACTION COMPLAINT 24
(a) DFC stock met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b) As a regulated issuer, DFC filed periodic public reports with the SEC
and/or the NASDAQ;
(c) DFC regularly communicated with public investors via established market
communication mechanisms, including through regular dissemination of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and/or
(d) DFC was followed by securities analysts employed by brokerage firms
who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
45. As a result of the foregoing, the market for DFC’s securities promptly digested
current information regarding DFC from all publicly available sources and reflected such
information in DFC’s stock price. Under these circumstances, all purchasers of DFC’s securities
during the Class Period suffered similar injury through their purchase of DFC’s securities at
artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
46. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
DRAFT CLASS ACTION COMPLAINT 25
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of DFC who knew that the statement was false when made.
FIRST CLAIM Violation of Section 10(b) of
The Exchange Act and Rule 10b-5 Promulgated Thereunder Against All Defendants
47. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
48. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase DFC’s securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,
took the actions set forth herein.
49. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to
maintain artificially high market prices for DFC’s securities in violation of Section 10(b) of the
DRAFT CLASS ACTION COMPLAINT 26
Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below.
50. Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about DFC’s financial
well-being and prospects, as specified herein.
51. These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of DFC’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about DFC and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
52. Each of the Individual Defendants' primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company's
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company's internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
DRAFT CLASS ACTION COMPLAINT 27
familiarity with the other defendants and was advised of, and had access to, other members of the
Company's management team, internal reports and other data and information about the
Company's finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company's dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
53. The defendants had actual knowledge of the misrepresentations and/or omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were available to them. Such
defendants' material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing DFC’s financial well-being and prospects from the
investing public and supporting the artificially inflated price of its securities. As demonstrated
by Defendants’ overstatements and/or misstatements of the Company's business, operations,
financial well-being, and prospects throughout the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to
obtain such knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
54. As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of
DFC’s securities was artificially inflated during the Class Period. In ignorance of the fact that
market prices of the Company’s securities were artificially inflated, and relying directly or
indirectly on the false and misleading statements made by Defendants, or upon the integrity of
the market in which the securities trades, and/or in the absence of material adverse information
that was known to or recklessly disregarded by Defendants, but not disclosed in public
DRAFT CLASS ACTION COMPLAINT 28
statements by Defendants during the Class Period, Plaintiff and the other members of the Class
acquired DFC’s securities during the Class Period at artificially high prices and were damaged
thereby.
55. At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that DFC was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their DFC securities, or,
if they had acquired such securities during the Class Period, they would not have done so at the
artificially inflated prices which they paid.
56. By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
57. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
58. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
59. The Individual Defendants acted as controlling persons of DFC within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the
Company's operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
DRAFT CLASS ACTION COMPLAINT 29
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company's reports, press releases, public
filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
60. In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
61. As set forth above, DFC and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and other members of the Class suffered damages in connection with their purchases of
the Company's securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
DRAFT CLASS ACTION COMPLAINT 30
(b) Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: August __, 2013 LAW OFFICES OF HOWARD G. SMITH By: DRAFT Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215) 638-4847 Facsimile: (215) 638-4867
GLANCY BINKOW & GOLDBERG LLP
Lionel Z. Glancy Michael Goldberg Robert V. Prongay Casey E. Sadler 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
Attorneys for Plaintiff