SOUTHERN DISTRICT OF NEW YORK
FRANK BROZOVICH, Individually and on Behalf of all Others Similarly Situated,
AMERICAN EXPRESS COMPANY, KENNETH I. CHENAULT, and DANIEL T. HENRY,
Civil Action No.
[LEFT][LEFT][font="]CLASS ACTION COMPLAINT FOR VIOLATIONS
OF FEDERAL SECURITIES LAWS[/font][/LEFT]
JURY TRIAL DEMANDED
Plaintiff, Frank Brozovich, has alleged the following based upon the investigation of Plaintiff’s counsel, which included a review of United States Securities and Exchange Commission (“SEC”) filings by American Express Company (“American Express” or the “Company”), as well as regulatory filings and reports, securities analysts’ reports and advisories about the Company, press releases and other public statements issued by the Company, and media reports about the Company, and Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
[font="]NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS[/font]
1.This is a federal securities class action on behalf of all purchasers of the securities of American Express (the “Class”) between March 1, 2007 and November 12, 2008, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
2.American Express is currently the world’s largest issuer of charge cards and credit cards as measured by purchase volume. American Express is headquartered in New York City and its securities are traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “AXP.” American Express is known for choosing its cardholders based on quality credit ratings, which lends itself to a well-heeled consumer base. The Company’s focus has traditionally been on “the premium market sector” with “average spending per card [that] is substantially higher [ ] versus [ ] competitors.”
3.Having an American Express card was, in the past, exclusive and difficult to get because the standards by which American Express issued cards were, traditionally, high. These were the tenets of American Express’ “spend-centric” business model–spend-centric, as opposed to peers’ lend-centric economics.
4.In its quest for growth, American Express deviated from its spend-centric model. American Express undertook this risky strategy knowing that it is an “independent issuer,” which means that the Company incurs all losses associated with its cards (unlike MasterCard and Visa, for example). The public was aware that American Express independently issued revolving credit cards, but the Company reassured investors and analysts that it did not engage in such riskier transactions. Notwithstanding its reassurances to the public, since at least the start of the Class Period, the Company has deviated from its historical strategy and engaged in riskier lending.
5.On November 10, 2008, the Company won Federal Reserve System approval to convert to a bank holding company, making it eligible for government help under the Troubled Assets Relief Program (“TARP”). The new American Express bank could qualify for up to $3.5 billion of the Treasury Department’s money–a capital infusion required to save the Company from its riskier endeavors. As a result of the Company’s shift to risky card issuances, the American Express brand has been cheapened and the stock has plunged approximately 65% since March 2007.
6.This action alleges that the defendants misled investors by falsely representing American Express’s exposure to the riskiest credit card holders. Such reassurances were repeated by defendants throughout the Class Period in order to artificially support American Express’ stock price as the building credit crisis in the market punished most companies that dealt with risky customers.
7.The representations contained in American Express’s press releases, SEC filings, conference calls, and presentations during the Class Period, as set out below, were materially false and misleading when made because they failed to disclose the Company’s increasing reliance on riskier credit card programs.
8.On July 21, 2008, after American Express missed analysts’ estimates for Q2’07 and the Company withdrew its 2008 guidance, an analyst from Friedman Billings Ramsey & Co. (“Friedman Billings”) opined that the greater-than-expected shortfall resulted from “rapid growth in lending balances over recent years.” American Express shares dropped 7.11% the next day to close at $37.99 per share on this news. Profit in American Express’s U.S. card business plunged 96% as the provision for losses more than doubled to $1.5 billion from $640 million. Uncollectible debt rose to 5.3% of loans from 2.9% a year earlier.
9.Additional corrective disclosures through the end of the Class Period, described herein, revealed the full extent of American Express’s exposure to risky credit card holders, causing the Company’s stock to fall to $20.05 per share on November 12, 2008 after the final curative disclosure was digested by the market.
[font="]JURISDICTION AND VENUE[/font]
10.The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act [15 U.S.C. Â§Â§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (“SEC”) [17 C.F.R. Â§ 240.10b-5].
11.This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. Â§ 1337 and Section 27 of the Exchange Act [15 U.S.C. Â§ 78aa].
12.Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28 U.S.C. Â§ 1391(b), as many of the acts and practices complained of herein occurred in substantial part in this District. American Express maintains its headquarters in this District and the public securities of American Express are traded on a national securities exchange located in this District.
13.In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.
14.Plaintiff, Frank Brozovich, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of American Express at artificially inflated prices during the Class Period.
15.Defendant American Express is a New York corporation, headquartered in New York City, New York.
16.Defendant Kenneth I. Chenault (“Chenault”) is, and was during the Class Period, the Chairman and Chief Executive Officer (“CEO”) of American Express.
17.Defendant Daniel T. Henry (“Henry”) is, and was during the Class Period, Executive Vice President and Chief Financial Officer (“CFO”). Henry has been Executive Vice President and Chief Financial Officer of the Company since October 2007. Since February 2007, Henry had been serving as Executive Vice President and Acting Chief Financial Officer of the Company.
18.Defendants Chenault and Henry are collectively referred to as the “Individual Defendants” and, along with American Express, as the “Defendants.”
19.Because of the Individual Defendants’ positions with the Company, they had access to the adverse undisclosed information about the Company’s business, operations, operational trends, financial statements and markets via access to internal corporate documents (including the Company’s operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to them in connection therewith.
20.It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false, misleading and incomplete information conveyed in the Company’s public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers of American Express, by virtue of their high-level positions with the Company, directly participated in the management of the Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.
21.As officers and controlling persons of a publicly-held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded on the New York Stock Exchange (“NYSE”), and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate prompt, accurate and truthful information with respect to the Company’s financial condition and performance, growth, operations, financial statements, business, markets, management and earnings, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company’s publicly-traded common stock would be based upon truthful and accurate information. The Individual Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations.
22.The Individual Defendants participated in the drafting, preparation, and/or approval of the various public and shareholder and investor reports and other communications complained of herein and were aware of, or recklessly disregarded, the misstatements contained therein and omissions therefrom, and were aware of their materially false and misleading nature. Because of their Board membership and/or executive and managerial positions with American Express, each of the Individual Defendants had access to the adverse undisclosed information about American Express’s financial condition and performance as particularized herein and knew (or recklessly disregarded) that these adverse facts rendered the positive representations made by or about American Express and its business issued or adopted by the Company materially false and misleading.
23.The Individual Defendants, because of their positions of control and authority as officers and/or directors of the Company, were able to and did control the content of the various SEC filings, press releases and other public statements pertaining to the Company during the Class Period. Each Individual Defendant was provided with copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.
24.Each of the Defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of American Express common stock by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (i) deceived the investing public regarding American Express’s business, operations, management and the intrinsic value of American Express securities; and (ii) caused Plaintiff and other members of the Class to purchase American Express securities at artificially inflated prices.
[font="]PLAINTIFF’S CLASS ACTION ALLEGATIONS
25.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 purchasers of the securities of American Express (the “Class”), between March 1, 2007 and November 12, 2008 inclusive (the “Class Period”) and who were damaged when the truth about American Express’s credit card exposure was fully disclosed. 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.
26.The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, American Express had more than 1.16 billion shares of common stock outstanding that traded on the NYSE. While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by American Express 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.
27.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.
28.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.
29.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 misrepresented material facts about the business, operations and management of American Express; and
(c)To what extent the members of the Class have sustained damages and the proper measure of damages.
30.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 the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make 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.
The Company’s False Statements Regarding Exposure to
U.S. Riskier Credit Card Holders
31.The Class Period begins on March 1, 2007, when American Express filed its annual report on Form 10-K for fiscal year 2006 (“2006 10-K”) with the SEC. The Form 10-K was signed by the Individual Defendants.
32.On October 22, 2007, CFO Henry told the investing public that:
Affluent and high-spending cardholders sheltered the company from problem borrowers with the riskiest credit histories, who have defaulted on U.S. home loans in record levels this year.
33.On February 28, 2008, American Express filed its annual report on Form 10-K for fiscal year 2007 (“2007 10-K”) with the SEC. The Form 10-K was signed by the Individual Defendants.
34.In the 2007 10-K, Defendants again stated that they do not engage in risky lending.
35.On August 6, 2008, the Company told investors and analysts: “Our industry-leading growth in accounts receivable has resulted from our spend-centric strategy, not from a change in our target customer, portfolio mix or any other measurable departure from past practices.”The Company repeatedly emphasized that “year to date growth rate [wa]s not being driven by the acquisition of lower quality card members.”
36.The representations contained in American Express’s press releases, SEC filings, conference calls, and presentations during the Class Period, as set out below, were materially false and misleading when made because they failed to disclose that the Company was indeed targeting riskier customers.
[font="]THE TRUTH BEGINS TO EMERGE THROUGH[/font]
A SERIES OF PARTIAL DISCLOSURES
37.On September 17, 2008, an analyst from Friedman Billings remarked on the fact that American Express’s credit-card delinquencies were rising much faster than expected. American Express shares lost 8.4% of their value, closing at $36.41 per share, down $2.93.
38.On September 29, 2008, Citigroup cut its estimates for American Express’s profit on rising borrower defaults. Analysts at Citigroup opined, “Deterioration in consumers’ core creditworthiness will weigh on results.” Citigroup cut its 2008 estimate to $2.75 per share, from $2.85 per share, and trimmed the 2009 estimate to $2.95 from $3.15. As a result, American Express shares lost 17.59% of their value, closing at $32.55 per share, down $6.95.
39.On November 10, 2008, after the market closed, American Express sought refuge in government relief. The Company won Federal Reserve System approval to convert itself into a bank holding company, making it eligible for up to $3.5 billion worth of the Treasury’s money under TARP. This shift in American Express’s business indicates “deep problems at the company,” according to Red Gillen, a senior analyst at Celent. “They are clearly in trouble,” he said. American Express’s stock fell from $23.50 per share to $22.00 per share the next day.
[font="]ADDITIONAL SCIENTER ALLEGATIONS
40.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 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 American Express, their control over, and/or receipt and/or modification of American Express’s allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning American Express, participated in the fraudulent scheme alleged herein.
41.Because of their position with the Company, Defendants at all times had the opportunity to, and did, commit the wrongdoing alleged herein.
[font="]Applicability Of Presumption Of Reliance: [/font][font="]
Fraud On The Market Doctrine
42.At all relevant times, the market for American Express’s common stock was an efficient market for the following reasons, among others:
(a)American Express’ stock met the requirements for listing, and was listed and actively traded on the NYSE, a highly efficient and automated market;
(b)As a regulated issuer, American Express filed periodic public reports with the SEC and the NYSE;
(c)American Express regularly communicated with public investors via established market communication mechanisms, including through regular disseminations 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
(d)American Express was followed by several securities analysts employed by major brokerage firms who wrote reports which 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.
43.As a result of the foregoing, the market for American Express’s common stock promptly digested current information regarding American Express from all publicly available sources and reflected such information in American Express’s stock price. Under these circumstances, all purchasers of American Express’s common stock during the Class Period suffered similar injury through their purchase of American Express’s common stock at artificially inflated prices and a presumption of reliance applies.
44.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. Many of the specific statements pleaded herein were not identified as “forward-looking statements” when made. To the extent there were any forward-looking statements, 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. Alternatively, to the extent that the statutory safe harbor does 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 particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of American Express who knew that those statements were false when made.
[font="]LOSS CAUSATION/ECONOMIC LOSS
45.Defendants’ wrongful conduct, as alleged herein, directly and proximately caused the damages suffered by Plaintiff and the Class.
46.During the Class Period, Plaintiff and the Class purchased securities of American Express at artificially inflated prices. The price of American Express common stock 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’ losses, as alleged above.
Violation Of Section 10(b) Of
The Exchange Act Against 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 regarding American Express’s business, operations, management and the intrinsic value of American Express common stock; and (ii) cause Plaintiff and other members of the Class to purchase American Express’s common stock 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 (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company’s common stock in an effort to maintain artificially high market prices for American Express’ securities in violation of Section 10(b) of the 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 the business and operations of American Express as specified herein.
51.The 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 American Express’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 omitting to state material facts necessary in order to make the statements made about American Express and its business operations 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 American Express common stock 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 his 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 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 or recklessly disregarded was materially false and misleading.
53.The Defendants had actual knowledge of the misrepresentations and 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 American Express’s operating condition from the investing public and supporting the artificially inflated price of its common stock. As demonstrated by Defendants’ overstatements and misstatements of the Company’s business, operations and earnings throughout the Class Period, Defendants, if they did not have actual knowledge of the misrepresentations and 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 misleading information and failure to disclose material facts, as set forth above, the market price of American Express’s securities was artificially inflated during the Class Period. In ignorance of the fact that market prices of American Express’s publicly-traded 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 common stock trades, and/or on the absence of material adverse information that was known to or recklessly disregarded by Defendants but not disclosed in public statements by defendants during the Class Period, Plaintiff and the other members of the Class acquired American Express securities during the Class Period at artificially high prices and were damaged when the value of their securities declined upon disclosure of the truth about Defendants false and misleading statements.
55.At the time of said misrepresentations and 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 American Express’s financial results, which were not disclosed by Defendants, Plaintiff and other members of the Class would not have purchased or otherwise acquired their American Express securities, or, if they had acquired such common stock 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.
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 American Express 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 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, American Express and the Individual Defendants each violated Section 10(b) and Rule 10b-5 by their acts and 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.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)Determining that this action is a proper class action, designating Plaintiff as Lead Plaintiff and certifying Plaintiff as a class representative under Rule 23 of the Federal Rules of Civil Procedure;
(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.
[font="]JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: February 19, 2009 GLANCY BINKOW & GOLDBERG LLP
Katherine Den Bleyker, Esquire
Lionel Glancy, Esquire
Michael Goldberg, Esquire
Richard A. Maniskas, Esquire
1801 Ave. of the Stars
Los Angeles, CA 90067
Tel: (310) 201-9150
Toll free: (888) 773-9224
Fax: (310) 201-9160
E-mail: [email="[email protected]][email protected][/email]
New York, NY 10018
Tel: (212) 382-2221
Fax: (212) 382-3944
Attorneys for Plaintiff Frank Brozovich