Green Dot executives hid important information from shareholders about the decline of its prepaid-card business, which was core to the company’s profits, said Dino DiBlasio, a former employee and current shareholder. It was alleged in Monday’s lawsuit..
The former head of quality engineering also alleged that executives and directors knew the company’s anti-money laundering practices were inadequate but continued to do business with them anyway, ultimately winning a Green Dot. Costly consent orders from the Federal Reserve.
By keeping this information secret, founders and former CEO Steven Streit and former CFO Mark Schifke inflated Green Dot’s stock price “long enough to enable them to sell $62 million of their own Green Dot stock at artificially inflated prices,” according to the lawsuit.
The lawsuit also names directors Jeffrey O’Sher, Ellen Ritchie, William Jacobs, Saturnino Fanlo, George Shaheen, Peter Feld and J. Chris Brewster, as well as former directors Kenneth Aldrich, Rajeev Date and Gurinder Bridgeforth Hodges, former CEO Dan Henry and current CEO George Gresham.
The complaint was filed Monday in the U.S. District Court for the Central District of California.
Best known for its digital banking partnership with Walmart, Green Dot is the world’s largest prepaid debit card company. The company sells prepaid cards at approximately 100,000 retailers nationwide, including CVS and Dollar Tree, and also operates a banking-as-a-service platform and has numerous co-branded card partnerships.
When Green Dot went public in 2010, more than three-quarters of the company’s revenue came from its prepaid card business, with 50.8 percent coming from new cards, maintenance fees, ATM fees and other charges and 26.6 percent from cash transfer revenue, according to the lawsuit.
But as that business faced decline in 2018 and 2019, the company’s executives “misled investors about the declining growth of Green Dot’s traditional prepaid debit card business and diverted investor attention from this ‘flagship’ product to BaaS and direct deposit accounts, even though the majority of these accounts were fee-free,” court documents state. “Defendants concealed the reasons for their new focus, including the declining performance of traditional prepaid cards and new competition from much cheaper digital alternatives, including neobanks such as PayPal, Venmo, and Chime.”
By the end of 2018, Green Dot’s prepaid card user base had plummeted, and the resulting decline in revenue “negated nearly all of the company’s growth in its low-margin BaaS and direct deposit businesses,” according to the lawsuit.
Green Dot’s shares fell when executives revealed that user growth was a meager 1%.
“Defendants continued their scheme by continuing to mislead investors into believing that this was a continuation of Green Dot’s product mix trends that would negatively impact profitability. Instead, Defendants presented this adverse news as good news and argued that ‘we are, in some sense, a victim of our own success,'” the complaint states.
Di Blasio is suing all of the defendants for breach of fiduciary duty and abuse of control, causing “significant injury” to Green Dot.
He is suing Streit and Schifke for unjust enrichment. Finally, he is suing Ritchie, Feld, Osher, Henry, Jacobs, Brewster, Hodges, Date, Fanlo, Gresham and Shaheen for making materially misleading statements to shareholders in the bank’s 2022 and 2023 proxy statements.
A Green Dot spokesman said the company cannot comment on pending litigation. Francis Bottini Jr.Di Blasio’s lawyer did not respond to a request for comment.
