Securities Fraud Lawsuit Filed Against The Cash Store Financial Service, Inc. (CSFS)

Securities lawyers have filed a lawsuit against The Cash Store Financial Services (CSFS) in United States District Court for the Southern District of New York, Case No. 13-CV-3385.  The complaint concerns CSFS purchases that the plaintiff made on the NYSE and alleges in pertinent part as follows:

[O]n December 10, 2012, that it had overstated its assets by $44 million and would be issuing restatements (the “Restatements”) of its previously issued interim financial statements for the three and six months ended March 31, 2012, and the nine months ending June 30, 2012 …

In its press release, Cash Store admitted that the consumer loans (the “Loans”) and “intangible assets” it had purchased for $116 million in January 2012 (the “Loan Transaction”) from certain third party lenders (the “Third Party Lenders”) were worth nearly $37 million less than the Company had previously represented. Cash Store also acknowledged that it had previously overstated the fair value of its internally generated loans by an additional $7 million.

But the Company had still not disclosed all the material facts regarding the Loans and the Loan Transaction. Over the next several months, Cash Store continued to trickle out more details regarding the fraudulent misrepresentations and actionable omissions that had led to its Restatements.

On January 4, 2013, more than three weeks after the Restatement Release, Cash Store finally acknowledged that the two biggest beneficiaries of the $37 million cash giveaway to the Third Party Lenders were entities owned and/or managed by family members of certain undisclosed Company officers and directors.

Furthermore, the Company finally acknowledged that the Company’s inquiry into the accounting for the Loan Transaction was prompted by a whistleblower complaint to Cash Store’s Audit Committee (the “Whistleblower Allegations”), which in turn had resulted in the formation of a Special Committee of the Board to conduct an investigation.

On February 1, 2013, Cash Store buried in its Form 20-F filed with the SEC the stunning admission that the biggest recipient ($45.5 million) of the enormous overpayment to the Third Party Lenders was an entity owned and managed by the father and brother of … the son-in-law of Cash Store’s Chairman and CEO….

Cash Store’s piecemeal admission, after a year of making no related party disclosures whatsoever, that the Loan Transaction included a $37 million “Premium” paid to relatives of the Company’s officers and directors demonstrates a knowing and deliberate effort by Defendants to violate the federal securities laws by fraudulently misrepresenting and concealing the true facts of this unlawful transaction from the investing public.

On December 10, 2012, the market price of CSFS shares fell19%.  See the complaint here.