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FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
ROBERT LOWINGER, on Behalf of Himself
and All Others Similarly Situated, Index No.:
Plaintiff,
SUMMONS
vs.
GREENSKY, INC., DAVID ZALIK, ROBERT
PARTLOW, JOEL BABBIT, GERALD
BENJAMIN, JOHN FLYNN, GREGG
FREISHTAT, NIGEL MORRIS, ROBERT
SHEFT, GOLDMAN SACHS & CO. LLC, J.P.
MORGAN SECURITIES LLC, MORGAN
STANLEY & CO. LLC, SUNTRUST
ROBINSON HUMPHREY, INC., MERRILL
LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, CITIGROUP GLOBAL
MARKETS INC., CREDIT SUISSE
SECURITIES USA LLC, RAYMOND JAMES
& ASSOCIATES, INC., GUGGENHEIM
SECURITIES, LLC, SANDLER O’NEILL &
PARTNERS, L.P., FIFTH THIRD
SECURITIES, INC. and DOES 1-25, inclusive,
Defendants.
To the above named Defendant(s):
You are hereby summoned to answer the complaint in this action and to serve a copy of
your answer, or, if the complaint is not served with this summons, to serve a notice of
appearance, on the Plaintiff’s attorney within 20 days after the service of this summons,
exclusive of the day of service (or within 30 days after the service is complete if this summons is
not personally delivered to you within the State of New York); and in case of your failure to
appear or answer, judgment will be taken against you by default for the relief demanded in the
complaint.
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The basis of the venue designated is pursuant to Section 22 of the Securities Act of 1933
and because a substantial portion of the transactions and wrongs complained of herein, including
Defendants’ primary participation in the wrongful acts detailed herein occurred in this County,
GreenSky, Inc.’s (“GreenSky”) Class A common shares trade in this County on the NASDAQ
Global Select Market (“NASDAQ”), GreenSky’s underwriters “deliver[ed] securities
entitlements with respect to the shares of Class A common stock against payment therefor in
New York, New York”, and the Underwriting Agreement for GreenSky’s Initial Public Offering
(“IPO”) set the closing location for GreenSky’s IPO in New York County.
Dated: January 16, 2018 STULL, STULL & BRODY
By: s/ Michael J. Klein
Aaron L. Brody
Michael J. Klein
6 East 45th Street
New York, NY 10017
Phone: (212) 687-7230
Fax: (212) 490-2022
abrody@ssbny.com
mklein@ssbny.com
Attorneys for Plaintiff
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To:
GREENSKY, INC. J.P. MORGAN SECURITIES LLC
5565 Glenridge Connector, Suite 700 383 Madison Avenue
Atlanta, Georgia 30342 New York, New York 10179-0001
DAVID ZALIK MORGAN STANLEY & CO. LLC
c/o GreenSky, Inc. 1585 Broadway
5565 Glenridge Connector, Suite 700 New York, New York 10036
Atlanta, Georgia 30342
ROBERT PARTLOW SUNTRUST ROBINSON HUMPHREY, INC.
c/o GreenSky, Inc. 3333 Peachtree Road Northeast
5565 Glenridge Connector, Suite 700 Atlanta, GA 30326
Atlanta, Georgia 30342
JOEL BABBIT MERRILL LYNCH, PIERCE, FENNER &
c/o GreenSky, Inc. SMITH INCORPORATED
5565 Glenridge Connector, Suite 700 One Bryant Park
Atlanta, Georgia 30342 New York, New York 10036
GERALD BENJAMIN CITIGROUP GLOBAL MARKETS INC.
c/o GreenSky, Inc. 388 Greenwich Street
5565 Glenridge Connector, Suite 700 New York, New York 10013
Atlanta, Georgia 30342
JOHN FLYNN CREDIT SUISSE SECURITIES USA LLC
c/o GreenSky, Inc. 11 Madison Avenue
5565 Glenridge Connector, Suite 700 24th Floor
Atlanta, Georgia 30342 New York, New York 10010
GREGG FREISHTAT RAYMOND JAMES & ASSOCIATES, INC.
c/o GreenSky, Inc. 880 Carillon Parkway
5565 Glenridge Connector, Suite 700 St. Petersburg, Florida 33716
Atlanta, Georgia 30342
NIGEL MORRIS GUGGENHEIM SECURITIES, LLC
c/o GreenSky, Inc. 330 Madison Avenue
5565 Glenridge Connector, Suite 700 New York, New York 10017
Atlanta, Georgia 30342
ROBERT SHEFT SANDLER O’NEILL & PARTNERS, L.P.
c/o GreenSky, Inc. 1251 Avenue of the Americas
5565 Glenridge Connector, Suite 700 6th Floor
Atlanta, Georgia 30342 New York, New York 10020
GOLDMAN SACHS & CO. LLC FIFTH THIRD SECURITIES, INC.
200 West Street Fifth Third Center Cincinnati
New York, New York 10282 38 Fountain Square Plaza Cincinnati, OH 45202
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
ROBERT LOWINGER, on Behalf of Himself
and All Others Similarly Situated, Index No.:
Plaintiff,
COMPLAINT FOR VIOLATIONS OF
vs. THE SECURITIES ACT OF 1933
GREENSKY, INC., DAVID ZALIK, ROBERT
PARTLOW, JOEL BABBIT, GERALD DEMAND FOR JURY TRIAL
BENJAMIN, JOHN FLYNN, GREGG
FREISHTAT, NIGEL MORRIS, ROBERT
SHEFT, GOLDMAN SACHS & CO. LLC, J.P.
MORGAN SECURITIES LLC, MORGAN
STANLEY & CO. LLC, SUNTRUST CLASS ACTION
ROBINSON HUMPHREY, INC., MERRILL
LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, CITIGROUP GLOBAL
MARKETS INC., CREDIT SUISSE
SECURITIES USA LLC, RAYMOND JAMES
& ASSOCIATES, INC., GUGGENHEIM
SECURITIES, LLC, SANDLER O’NEILL &
PARTNERS, L.P., FIFTH THIRD
SECURITIES, INC. and DOES 1-25, inclusive,
Defendants.
Plaintiff Robert Lowinger (“Plaintiff”), individually and on behalf of all others similarly
situated, by his undersigned attorneys, alleges the following based upon personal knowledge as
to Plaintiff and Plaintiff’s own acts, and upon information and belief as to all other matters
based on the investigation conducted by and through Plaintiff’s attorneys, which included,
among other things, a review of Securities and Exchange Commission (“SEC”) filings made by
GreenSky, Inc (“GreenSky” or the “Company”), analyst and media reports, and other
commentary analysis concerning GreenSky. Plaintiff’s investigation into the matters alleged
herein is continuing and many relevant facts are known only to, or exclusively with within the
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custody and control of, Defendants. Plaintiff believes substantial additional evidentiary support
will exist for the allegations set forth herein after a reasonable opportunity for formal discovery.
NATURE AND SUMMARY OF THE ACTION
1. Plaintiff brings this action under §§ 11, 12(a)(2), and 15 of the Securities Act of
1933 (the “Securities Act”) against (1) GreenSky, (2) the below-defined “Individual Defendants”
who were certain of GreenSky’s senior executives and directors who signed the April 27, 2018,
registration statement filed with the SEC on Form S-1, as amended on May 7, 2018, and May 14,
2018, (the “Registration Statement”), which was incorporated by reference into a Form 424B4
prospectus on May 25, 2018 (the “Prospectus” and with the Registration Statement the “Offering
Documents”) in connection with GreenSky’s May 25, 2018, Initial Public Offering (the
“Offering” or the “IPO”), and (3) each of the investment banks that underwrote the offering (the
“Underwriter Defendants” and with GreenSky and the Individual Defendants, “Defendants”).
2. Pursuant to the IPO, GreenSky offered 38 million shares of its Class A common
stock (“GreenSky stock”) to the public, and the Underwriter Defendants had an option to
purchase up to 5.7 million shares of GreenSky stock, at the IPO price of $23.00, less the
underwriting discounts and commissions of $1.15 per share, within 30 days of the Prospectus
issuing. Through the Offering, GreenSky raised approximately $830.3 million, before accounting
for the Underwriter Defendants’ over-allotment option.
3. The Offering Documents contained materially untrue statements of material facts
and/or omitted to state material facts required in order to make those statements in the
Registration Statement not misleading. As a result, Plaintiff incurred statutory damages.
4. GreenSky is a financial technology company based in Atlanta, Georgia, and runs
an online platform that allows creditors to process loan applications at the point of sale.
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GreenSky’s platform is actively used by over 10,000 merchants. Consumers use GreenSky’s
mobile app to make purchases from those listed business by applying for on-the-spot financing.
5. GreenSky’s two principal sources of revenue are: (i) the “transaction fees” the
Company receives upfront when a consumer secures a loan through the GreenSky platform and
makes a purchase; and (ii) recurring fees generated from banks over the lives of loans it
facilitates. Transaction fees, which vary per the particular agreement between GreenSky and its
merchants, are critical to GreenSky’s business. For example, transaction fees accounted for over
84% of the Company’s revenue in 2017.
6. GreenSky traditionally catered to businesses in the home improvement and solar
energy market. GreenSky charged merchants an average of about 7% transaction fee on average
excluding solar panel merchants, as compared to outsized average take rate of 14% applied to
solar panel merchants. Thus, GreenSky charged solar panel business substantially higher
transaction fees than others on its platform.
7. Currently, GreenSky is moving into the elective healthcare industry market,
wherein it charges lower-than-average transaction fees. GreenSky has simultaneously started
moving away from its business with solar panel merchants.
8. Almost 20% of GreenSky’s transaction-fee revenue came from solar panel
merchants in the years leading up to the IPO, and 13% of GreenSky’s transaction-fee revenue in
2017. In 2018, however, GreenSky made merely 4% of its revenue in transaction fees from solar
panel businesses. Thus, following this transition away from the solar power business and towards
the elective healthcare market, GreenSky’s transaction fee revenue significantly declined and
will foreseeably continue to do so absent a change in focus back to its solar power business. As
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GreenSky’s loans shifted, its average transaction fee was down 70 basis points year-over-year in
the third quarter of 2018, due in large part to lower originations in the residential solar business.
9. Pursuant to the Securities Act, all Defendants are strictly liable for such material
misstatements and omissions therefrom (subject only, in the case of the Individual Defendants
and the Underwriter Defendants, to their ability to establish a “due diligence” affirmative
defense), and are so liable in their capacities as signers of the Registration Statement and/or as an
issuer or director of an issuer, statutory seller, offeror, and/or underwriter of the shares sold
pursuant to the Offering. For all of the claims stated herein, Plaintiff expressly disclaims any
allegation that could be construed as alleging fraud or intentional or reckless misconduct.
JURISDICTION AND VENUE
10. The claims asserted herein arise under and pursuant to Sections 11, 12 and 15 of
the Securities Act (15 U.S.C. §§ 77k, 77o and 77l). This Court has jurisdiction over the subject
matter of this action pursuant to 15 U.S.C. § 77v, which explicitly states that “[e]xcept as
provided in section 16(c), no case arising under this title and brought in any State court of
competent jurisdiction shall be removed to any court in the United States.” This is an action
asserting federal law claims; it does not fall within the definition of a “covered class action”1 and
is not removable under the Securities Litigation Uniform Standards Act of 1998.
11. Defendants each have sufficient contacts with New York, or otherwise
purposefully avail themselves of benefits from New York, or have property in New York, so as
to render the exercise of jurisdiction over the action by this Court consistent with traditional
notions of fair play and substantial justice. Defendants are either citizens of New York and/or the
1
Section 16(c) of the Securities Act refers to “covered class actions,” which are defined as
lawsuits brought as class actions or brought on behalf of more than 50 persons asserting claims
under state or common law.
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claims asserted against them arise from conduct that occurred within New York such that due
process of law will not be offended by this Court’s exercise of personal jurisdiction over each
Defendant. Specifically, many of the below-defined Underwriter Defendants have their principal
place of business in this County.
12. This Court has personal jurisdiction over Defendant named herein under NY
CPLR Sections 301 and 302, and venue is proper in the County pursuant to Section 22 of the
Securities Act. Defendants conducted the IPO in this County, drafted the offering documents for
the IPO, in part, in this County, disseminated the statements alleged to be false and misleading
into this County and solicited purchasers of GreenSky stock in this County. GreenSky stock
trades in this County on the NASDAQ Global Select Market (“NASDAQ”). In addition,
GreenSky contracted, in the underwriting agreement, to conduct the IPO in this County. In sum,
Defendants’ tortious acts occurred in this County and caused injury to the purchasers of
GreenSky stock in this County, and each Defendant and members of the Class would foreseeably
expect any case or controversy stemming from the IPO to be adjudicated in the County.
PARTIES
Plaintiff
13. Plaintiff purchased shares of the GreenSky stock directly in the Offering pursuant
to the materially false and/or misleading Registration Statement and incurred statutory damages
as a result thereof.
Defendants
14. Defendant GreenSky is a technology company that powers commerce at the point
of sale. GreenSky is incorporated in Delaware, and its stock trades on the NASDAQ under the
ticker symbol “GSKY.” GreenSky’s corporate headquarters are located at 5565 Glenridge
Connector, Suite 700, Atlanta, Georgia.
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15. Defendant David Zalik (“Zalik”) was, at all relevant times, the Chief Executive
Officer, and Chairman of the Company’s Board of Director (the “Board”). Defendant Zalik
signed or authorized the signing of his name to the Registration Statement.
16. Defendant Robert Partlow (“Partlow”) was, at all relevant times, GreenSky’s
Chief Financial Officer, and signed or authorized the signing of his name to the Registration
Statement.
17. Defendant Joel Babbit (“Babbit”) was a member of the Board and signed or
authorized the signing of his name to the Registration Statement.
18. Defendant Gerald Benjamin (“Benjamin”) was a member of the Board and signed
or authorized the signing of his name to the Registration Statement.
19. Defendant John Flynn (“Flynn”) was a member of the Board and signed or
authorized the signing of his name to the Registration Statement.
20. Defendant Gregg Freishtat (“Freishtat”) was a member of the Board and signed or
authorized the signing of his name to the Registration Statement.
21. Defendant Nigel Morris (“Morris”) was a member of the Board and signed or
authorized the signing of his name to the Registration Statement.
22. Defendant Robert Sheft (“Sheft”) was a member of the Board and signed or
authorized the signing of his name to the Registration Statement.
23. GreenSky and the defendants named in ¶¶ 15-22, referred to herein as the
“Individual Defendants,” are strictly liable for the materially untrue and misleading statements
set forth in or incorporated by reference into the Registration Statement. The Individual
Defendants, because of their positions with GreenSky, possessed the power and authority to
control the Registration Statement’s contents and the documents incorporated by reference
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therein, including SEC reports; press releases; and presentations to securities analysts, money
and portfolio managers, and institutional investors; i.e. the information disclosed to the market.
24. Defendant Goldman Sachs & Co. LLC, an underwriter for the IPO, agreed to
purchase 10,108,000 shares of GreenSky stock, exclusive of the over-allotment option.
25. Defendant J.P. Morgan Securities LLC, an underwriter for the IPO, agreed to
purchase 10,108,000 shares of GreenSky stock, exclusive of the over-allotment option.
26. Defendant Morgan Stanley & Co. LLC, an underwriter for the IPO, agreed to
purchase 6,498,000 shares of GreenSky stock, exclusive of the over-allotment option.
27. Defendant SunTrust Robinson Humphrey, Inc., an underwriter for the IPO, agreed
to purchase 1,026,000 shares of GreenSky stock, exclusive of the over-allotment option.
28. Defendant Merrill Lynch, Pierce, Fenner & Smith Inc., an underwriter for the
IPO, agreed to purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment
option.
29. Defendant Citigroup Global Markets Inc., an underwriter for the IPO, agreed to
purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment option.
30. Defendant Credit Suisse Securities (USA) LLC, an underwriter for the IPO,
agreed to purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment option.
31. Defendant Raymond James & Associates, Inc., an underwriter for the IPO, agreed
to purchase 684,000 shares of GreenSky stock, exclusive of the over-allotment option.
32. Defendant Guggenheim Securities, LLC, an underwriter for the IPO, agreed to
purchase 342,000 shares of GreenSky stock, exclusive of the over-allotment option.
33. Defendant Sandler O’Neill & Partners, L.P., an underwriter for the IPO, agreed to
purchase 684,000 shares of GreenSky stock, exclusive of the over-allotment option.
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34. Defendant Fifth Third Securities, Inc., an underwriter for the IPO, agreed to
purchase 342,000 shares of GreenSky stock, exclusive of the over-allotment option.
35. The defendants named in ¶¶ 24-32, referred to herein as the “Underwriter
Defendants,” drafted and disseminated the Offering Documents and sold millions of shares of
GreenSky stock in the IPO, for which they received considerable fees and commissions. The
Underwriter Defendants’ failure to conduct an adequate due diligence investigation was a
substantial factor leading to the harm complained of herein. Representatives of the Underwriter
Defendants also assisted GreenSky and the Individual Defendants in planning the IPO. They
purported to conduct an adequate and reasonable investigation into the business, operations,
products, and plans of the Company, an undertaking known as a “due diligence” investigation.
During the course of their “due diligence,” the Underwriter Defendants had continual access to
confidential corporate information concerning GreenSky’s business, financial condition,
products, plans, and prospects. In addition to having unlimited access to material corporate
documents, the Underwriter Defendants and/or their agents, including their counsel, had access
to GreenSky’s lawyers, management, directors, and top executives to determine: (i) the strategy
to best accomplish the IPO; (ii) the terms of the IPO, including the price at which the GreenSky
stock would be sold; (iii) the language to be used in the Registration Statement; (iv) what
disclosures about GreenSky would be made in the Registration Statement; and (v) what
responses would be made to the SEC in connection with its review of the Registration Statement.
As a result of those constant contacts and communications, at a minimum, the Underwriter
Defendants were negligent in not knowing of GreenSky’s undisclosed existing problems and
plans, and the materially untrue statements and omissions contained in the Registration
Statement as detailed herein.
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36. The Underwriter Defendants caused the Registration Statement to be filed with
the SEC and to be declared effective in connection with offers and sales of the Company’s shares
pursuant and/or traceable to the Offering and relevant offering materials, including to Plaintiff
and the other members of the Class.
37. Pursuant to the Securities Act, the Underwriter Defendants are liable for the
materially false and misleading statements in the Offering’s Registration Statement and
Prospectus. The Underwriter Defendants’ negligent “due diligence” investigation was a
substantial factor leading to the harm complained of herein.
38. The true names and capacities of defendants sued herein, under NY CPLR
§ 1024, as Does 1 through 25, inclusive and without limitation, are presently unknown to
Plaintiff, who therefore sue these defendants by such fictitious names. Plaintiff will seek to
amend this Complaint and include these Doe defendants’ true names and capacities when they
are ascertained. Each fictitiously named defendant is responsible in some manner for the
misconduct alleged herein and for the injuries suffered by the Class as a result of Defendants’
misconduct.
39. GreenSky, the Individual Defendants, the Underwriter Defendants, and the Does
1 through 25 are collectively referred to herein as “Defendants.”
SUBSTANTIVE ALLEGATIONS
The Company and Its Business
40. GreenSky, a financial technology company based in Atlanta, Georgia, runs an
online platform that allows creditors to process loan applications at the point of sale. GreenSky’s
platform is actively used by over 10,000 merchants. Consumers use GreenSky’s mobile
application to make purchases from those listed business by applying for on-the-spot financing.
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41. GreenSky’s two principal sources of revenue are: (i) “transaction fees” that it
receives upfront when a consumer secures a loan through its platform to make a purchase; and
(ii) recurring fees generated from banks over the lives of loans it facilitates. Transaction fees are
critical to GreenSky’s business and accounted for over 84% of the Company’s revenue in 2017.
These transaction fees vary per the particular agreement between GreenSky and its merchants.
42. GreenSky traditionally catered to businesses in the home improvement and solar
energy market. GreenSky charged solar panel business substantially higher transaction fees as
compared to others on its platform. GreenSky charged merchants an average of about 7%
transaction fee on average excluding solar panel merchants, as compared to outsized average
take rate of 14% applied to solar panel merchants.
43. Currently, GreenSky is moving into the elective healthcare industry market,
wherein the Company charges lower-than-average transaction fees. GreenSky has
simultaneously started moving away from its business with solar panel merchants.
44. Almost 20% of GreenSky’s transaction-fee revenue came from solar panel
merchants in the years leading up to the IPO, and 13% of GreenSky’s transaction-fee revenue
came from solar panel merchants in 2017. In 2018, however, GreenSky made merely 4% of its
revenue in transaction fees from solar panel businesses. Thus, following this transition away
from the solar power business and towards the elective healthcare market, GreenSky’s
transaction fee revenue significantly declined, and will foreseeably continue to do so absent a
change in focus back to its solar power business. As GreenSky’s loans shifted, its average
transaction fee was down 70 basis points year-over-year in the third quarter of 2018, due in large
part to lower originations in the residential solar business.
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45. On April 27, 2018, GreenSky filed the Registration Statement, and on May 25,
2018, it filed the Prospectus for its IPO.
46. On May 29, 2018, GreenSky’s IPO closed and the Company sold 43.7 million
shares of GreenSky stock at $23.00 per share in its IPO, for gross proceeds of over $1 billion.
Materially False and Misleading Statements and Omissions
47. With respect to GreenSky’s transaction-fee revenue, the Offering Documents
stated, in relevant part:
We have a strong recurring revenue model built upon repeat and
growing usage by merchants. We derive most of our revenue and
profitability from upfront transaction fees that merchants pay us
every time they facilitate a transaction using our platform. Thus,
our profitability is strongly correlated with merchant transaction
volume. The transaction fee rate depends on the terms of financing
selected by a consumer….
48. The Offering Documents also stressed:
Transaction fees. We earn a specified transaction fee in connection
with each purchase made by a consumer based on a loan’s terms
and promotional features. Transaction fees are billed to, and
collected directly from, the merchant and are considered to be
earned at the time of the merchant’s transaction with the consumer.
We also may earn a specified interchange fee in connection with
purchases where payments are processed through a credit card
payment network. Transaction fees constitute the majority of our
total revenues, accounting for approximately 83% of our total
revenues for the three months ended March 31, 2018.
49. The Offering Documents tout GreenSky’s purported growth over the relevant
time period:
We have achieved significant growth in active merchants,
transaction volume, total revenue, net income and Adjusted
EBITDA. Our low-cost go-to-market strategy, coupled with our
recurring revenue model, has helped us generate strong margins.
Transaction volume (which we define as the dollar value of loans
facilitated on our platform during a given period) was $3.8 billion
in 2017, representing an increase of 31% from $2.9 billion in 2016.
Further, transaction volume was $1.0 billion in the three months
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ended March 31, 2018, representing an increase of 47% from
$0.7 billion in the three months ended March 31, 2017. Active
merchants (which we define as home improvement merchants and
healthcare providers that have submitted at least one consumer
application during the 12 months ended at the date of
measurement) totaled 12,231 as of March 31, 2018, representing
an increase of 52% from 8,048 as of March 31, 2017. Our total
revenue grew 23% from $264 million in 2016 to $326 million in
2017, net income grew 12% from $124 million in 2016 to $139
million in 2017, and Adjusted EBITDA grew 21% from $131
million in 2016 to $159 million in 2017. For the period ended
March 31, 2018, total revenue was $85 million, net income was
$19 million and Adjusted EBITDA was $27 million.
50. The Offering Documents additionally assert that the elective healthcare sector
represents a growth opportunity:
In 2016, we began expanding into elective healthcare, which, like
the home improvement market, is a large, fragmented market
featuring creditworthy consumers who tend to make large-ticket
purchases. We believe the elective healthcare market rivals in size
the home improvement market in terms of annual spending
volume, based on the number and cost of annual procedures
performed. Elective healthcare providers include doctors, dentists,
outpatient surgery centers and clinics providing orthodontics,
cosmetic and aesthetic dentistry, vision correction, bariatric
surgery, cosmetic surgery, hair replacement, reproductive
medicine, veterinary medicine and hearing aid devices. We believe
that because of population aging, innovations in medical
technology and ongoing healthcare cost inflation, we are well-
positioned to increase volume in the growing elective healthcare
industry vertical.
51. The statements referenced in ¶¶ 47-50 were materially false and misleading
because defendants made false and/or misleading statements, as well as failed to disclose
material adverse facts about the Company’s business, operational and compliance policies.
Specifically, defendants made materially false and/or misleading statements and/or failed to
disclose that GreenSky was transitioning its merchant business from solar panel merchants to
merchants in the elective healthcare industry, prior to the IPO, but the impact to GreenSky’s
business and financial results was undisclosed in the Registration Statement. There were
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FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ROBERT LOWINGER, on Behalf of Himself and All Others Similarly Situated, Index No.: Plaintiff, SUMMONS vs. GREENSKY, INC., DAVID ZALIK, ROBERT PARTLOW, JOEL BABBIT, GERALD BENJAMIN, JOHN FLYNN, GREGG FREISHTAT, NIGEL MORRIS, ROBERT SHEFT, GOLDMAN SACHS & CO. LLC, J.P. MORGAN SECURITIES LLC, MORGAN STANLEY & CO. LLC, SUNTRUST ROBINSON HUMPHREY, INC., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, CITIGROUP GLOBAL MARKETS INC., CREDIT SUISSE SECURITIES USA LLC, RAYMOND JAMES & ASSOCIATES, INC., GUGGENHEIM SECURITIES, LLC, SANDLER O’NEILL & PARTNERS, L.P., FIFTH THIRD SECURITIES, INC. and DOES 1-25, inclusive, Defendants. To the above named Defendant(s): You are hereby summoned to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiff’s attorney within 20 days after the service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. 1 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 The basis of the venue designated is pursuant to Section 22 of the Securities Act of 1933 and because a substantial portion of the transactions and wrongs complained of herein, including Defendants’ primary participation in the wrongful acts detailed herein occurred in this County, GreenSky, Inc.’s (“GreenSky”) Class A common shares trade in this County on the NASDAQ Global Select Market (“NASDAQ”), GreenSky’s underwriters “deliver[ed] securities entitlements with respect to the shares of Class A common stock against payment therefor in New York, New York”, and the Underwriting Agreement for GreenSky’s Initial Public Offering (“IPO”) set the closing location for GreenSky’s IPO in New York County. Dated: January 16, 2018 STULL, STULL & BRODY By: s/ Michael J. Klein Aaron L. Brody Michael J. Klein 6 East 45th Street New York, NY 10017 Phone: (212) 687-7230 Fax: (212) 490-2022 abrody@ssbny.com mklein@ssbny.com Attorneys for Plaintiff 2 2 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 To: GREENSKY, INC. J.P. MORGAN SECURITIES LLC 5565 Glenridge Connector, Suite 700 383 Madison Avenue Atlanta, Georgia 30342 New York, New York 10179-0001 DAVID ZALIK MORGAN STANLEY & CO. LLC c/o GreenSky, Inc. 1585 Broadway 5565 Glenridge Connector, Suite 700 New York, New York 10036 Atlanta, Georgia 30342 ROBERT PARTLOW SUNTRUST ROBINSON HUMPHREY, INC. c/o GreenSky, Inc. 3333 Peachtree Road Northeast 5565 Glenridge Connector, Suite 700 Atlanta, GA 30326 Atlanta, Georgia 30342 JOEL BABBIT MERRILL LYNCH, PIERCE, FENNER & c/o GreenSky, Inc. SMITH INCORPORATED 5565 Glenridge Connector, Suite 700 One Bryant Park Atlanta, Georgia 30342 New York, New York 10036 GERALD BENJAMIN CITIGROUP GLOBAL MARKETS INC. c/o GreenSky, Inc. 388 Greenwich Street 5565 Glenridge Connector, Suite 700 New York, New York 10013 Atlanta, Georgia 30342 JOHN FLYNN CREDIT SUISSE SECURITIES USA LLC c/o GreenSky, Inc. 11 Madison Avenue 5565 Glenridge Connector, Suite 700 24th Floor Atlanta, Georgia 30342 New York, New York 10010 GREGG FREISHTAT RAYMOND JAMES & ASSOCIATES, INC. c/o GreenSky, Inc. 880 Carillon Parkway 5565 Glenridge Connector, Suite 700 St. Petersburg, Florida 33716 Atlanta, Georgia 30342 NIGEL MORRIS GUGGENHEIM SECURITIES, LLC c/o GreenSky, Inc. 330 Madison Avenue 5565 Glenridge Connector, Suite 700 New York, New York 10017 Atlanta, Georgia 30342 ROBERT SHEFT SANDLER O’NEILL & PARTNERS, L.P. c/o GreenSky, Inc. 1251 Avenue of the Americas 5565 Glenridge Connector, Suite 700 6th Floor Atlanta, Georgia 30342 New York, New York 10020 GOLDMAN SACHS & CO. LLC FIFTH THIRD SECURITIES, INC. 200 West Street Fifth Third Center Cincinnati New York, New York 10282 38 Fountain Square Plaza Cincinnati, OH 45202 3 3 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ROBERT LOWINGER, on Behalf of Himself and All Others Similarly Situated, Index No.: Plaintiff, COMPLAINT FOR VIOLATIONS OF vs. THE SECURITIES ACT OF 1933 GREENSKY, INC., DAVID ZALIK, ROBERT PARTLOW, JOEL BABBIT, GERALD DEMAND FOR JURY TRIAL BENJAMIN, JOHN FLYNN, GREGG FREISHTAT, NIGEL MORRIS, ROBERT SHEFT, GOLDMAN SACHS & CO. LLC, J.P. MORGAN SECURITIES LLC, MORGAN STANLEY & CO. LLC, SUNTRUST CLASS ACTION ROBINSON HUMPHREY, INC., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, CITIGROUP GLOBAL MARKETS INC., CREDIT SUISSE SECURITIES USA LLC, RAYMOND JAMES & ASSOCIATES, INC., GUGGENHEIM SECURITIES, LLC, SANDLER O’NEILL & PARTNERS, L.P., FIFTH THIRD SECURITIES, INC. and DOES 1-25, inclusive, Defendants. Plaintiff Robert Lowinger (“Plaintiff”), individually and on behalf of all others similarly situated, by his undersigned attorneys, alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and upon information and belief as to all other matters based on the investigation conducted by and through Plaintiff’s attorneys, which included, among other things, a review of Securities and Exchange Commission (“SEC”) filings made by GreenSky, Inc (“GreenSky” or the “Company”), analyst and media reports, and other commentary analysis concerning GreenSky. Plaintiff’s investigation into the matters alleged herein is continuing and many relevant facts are known only to, or exclusively with within the 4 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 custody and control of, Defendants. Plaintiff believes substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for formal discovery. NATURE AND SUMMARY OF THE ACTION 1. Plaintiff brings this action under §§ 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against (1) GreenSky, (2) the below-defined “Individual Defendants” who were certain of GreenSky’s senior executives and directors who signed the April 27, 2018, registration statement filed with the SEC on Form S-1, as amended on May 7, 2018, and May 14, 2018, (the “Registration Statement”), which was incorporated by reference into a Form 424B4 prospectus on May 25, 2018 (the “Prospectus” and with the Registration Statement the “Offering Documents”) in connection with GreenSky’s May 25, 2018, Initial Public Offering (the “Offering” or the “IPO”), and (3) each of the investment banks that underwrote the offering (the “Underwriter Defendants” and with GreenSky and the Individual Defendants, “Defendants”). 2. Pursuant to the IPO, GreenSky offered 38 million shares of its Class A common stock (“GreenSky stock”) to the public, and the Underwriter Defendants had an option to purchase up to 5.7 million shares of GreenSky stock, at the IPO price of $23.00, less the underwriting discounts and commissions of $1.15 per share, within 30 days of the Prospectus issuing. Through the Offering, GreenSky raised approximately $830.3 million, before accounting for the Underwriter Defendants’ over-allotment option. 3. The Offering Documents contained materially untrue statements of material facts and/or omitted to state material facts required in order to make those statements in the Registration Statement not misleading. As a result, Plaintiff incurred statutory damages. 4. GreenSky is a financial technology company based in Atlanta, Georgia, and runs an online platform that allows creditors to process loan applications at the point of sale. 2 5 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 GreenSky’s platform is actively used by over 10,000 merchants. Consumers use GreenSky’s mobile app to make purchases from those listed business by applying for on-the-spot financing. 5. GreenSky’s two principal sources of revenue are: (i) the “transaction fees” the Company receives upfront when a consumer secures a loan through the GreenSky platform and makes a purchase; and (ii) recurring fees generated from banks over the lives of loans it facilitates. Transaction fees, which vary per the particular agreement between GreenSky and its merchants, are critical to GreenSky’s business. For example, transaction fees accounted for over 84% of the Company’s revenue in 2017. 6. GreenSky traditionally catered to businesses in the home improvement and solar energy market. GreenSky charged merchants an average of about 7% transaction fee on average excluding solar panel merchants, as compared to outsized average take rate of 14% applied to solar panel merchants. Thus, GreenSky charged solar panel business substantially higher transaction fees than others on its platform. 7. Currently, GreenSky is moving into the elective healthcare industry market, wherein it charges lower-than-average transaction fees. GreenSky has simultaneously started moving away from its business with solar panel merchants. 8. Almost 20% of GreenSky’s transaction-fee revenue came from solar panel merchants in the years leading up to the IPO, and 13% of GreenSky’s transaction-fee revenue in 2017. In 2018, however, GreenSky made merely 4% of its revenue in transaction fees from solar panel businesses. Thus, following this transition away from the solar power business and towards the elective healthcare market, GreenSky’s transaction fee revenue significantly declined and will foreseeably continue to do so absent a change in focus back to its solar power business. As 3 6 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 GreenSky’s loans shifted, its average transaction fee was down 70 basis points year-over-year in the third quarter of 2018, due in large part to lower originations in the residential solar business. 9. Pursuant to the Securities Act, all Defendants are strictly liable for such material misstatements and omissions therefrom (subject only, in the case of the Individual Defendants and the Underwriter Defendants, to their ability to establish a “due diligence” affirmative defense), and are so liable in their capacities as signers of the Registration Statement and/or as an issuer or director of an issuer, statutory seller, offeror, and/or underwriter of the shares sold pursuant to the Offering. For all of the claims stated herein, Plaintiff expressly disclaims any allegation that could be construed as alleging fraud or intentional or reckless misconduct. JURISDICTION AND VENUE 10. The claims asserted herein arise under and pursuant to Sections 11, 12 and 15 of the Securities Act (15 U.S.C. §§ 77k, 77o and 77l). This Court has jurisdiction over the subject matter of this action pursuant to 15 U.S.C. § 77v, which explicitly states that “[e]xcept as provided in section 16(c), no case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court in the United States.” This is an action asserting federal law claims; it does not fall within the definition of a “covered class action”1 and is not removable under the Securities Litigation Uniform Standards Act of 1998. 11. Defendants each have sufficient contacts with New York, or otherwise purposefully avail themselves of benefits from New York, or have property in New York, so as to render the exercise of jurisdiction over the action by this Court consistent with traditional notions of fair play and substantial justice. Defendants are either citizens of New York and/or the 1 Section 16(c) of the Securities Act refers to “covered class actions,” which are defined as lawsuits brought as class actions or brought on behalf of more than 50 persons asserting claims under state or common law. 4 7 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 claims asserted against them arise from conduct that occurred within New York such that due process of law will not be offended by this Court’s exercise of personal jurisdiction over each Defendant. Specifically, many of the below-defined Underwriter Defendants have their principal place of business in this County. 12. This Court has personal jurisdiction over Defendant named herein under NY CPLR Sections 301 and 302, and venue is proper in the County pursuant to Section 22 of the Securities Act. Defendants conducted the IPO in this County, drafted the offering documents for the IPO, in part, in this County, disseminated the statements alleged to be false and misleading into this County and solicited purchasers of GreenSky stock in this County. GreenSky stock trades in this County on the NASDAQ Global Select Market (“NASDAQ”). In addition, GreenSky contracted, in the underwriting agreement, to conduct the IPO in this County. In sum, Defendants’ tortious acts occurred in this County and caused injury to the purchasers of GreenSky stock in this County, and each Defendant and members of the Class would foreseeably expect any case or controversy stemming from the IPO to be adjudicated in the County. PARTIES Plaintiff 13. Plaintiff purchased shares of the GreenSky stock directly in the Offering pursuant to the materially false and/or misleading Registration Statement and incurred statutory damages as a result thereof. Defendants 14. Defendant GreenSky is a technology company that powers commerce at the point of sale. GreenSky is incorporated in Delaware, and its stock trades on the NASDAQ under the ticker symbol “GSKY.” GreenSky’s corporate headquarters are located at 5565 Glenridge Connector, Suite 700, Atlanta, Georgia. 5 8 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 15. Defendant David Zalik (“Zalik”) was, at all relevant times, the Chief Executive Officer, and Chairman of the Company’s Board of Director (the “Board”). Defendant Zalik signed or authorized the signing of his name to the Registration Statement. 16. Defendant Robert Partlow (“Partlow”) was, at all relevant times, GreenSky’s Chief Financial Officer, and signed or authorized the signing of his name to the Registration Statement. 17. Defendant Joel Babbit (“Babbit”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 18. Defendant Gerald Benjamin (“Benjamin”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 19. Defendant John Flynn (“Flynn”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 20. Defendant Gregg Freishtat (“Freishtat”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 21. Defendant Nigel Morris (“Morris”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 22. Defendant Robert Sheft (“Sheft”) was a member of the Board and signed or authorized the signing of his name to the Registration Statement. 23. GreenSky and the defendants named in ¶¶ 15-22, referred to herein as the “Individual Defendants,” are strictly liable for the materially untrue and misleading statements set forth in or incorporated by reference into the Registration Statement. The Individual Defendants, because of their positions with GreenSky, possessed the power and authority to control the Registration Statement’s contents and the documents incorporated by reference 6 9 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 therein, including SEC reports; press releases; and presentations to securities analysts, money and portfolio managers, and institutional investors; i.e. the information disclosed to the market. 24. Defendant Goldman Sachs & Co. LLC, an underwriter for the IPO, agreed to purchase 10,108,000 shares of GreenSky stock, exclusive of the over-allotment option. 25. Defendant J.P. Morgan Securities LLC, an underwriter for the IPO, agreed to purchase 10,108,000 shares of GreenSky stock, exclusive of the over-allotment option. 26. Defendant Morgan Stanley & Co. LLC, an underwriter for the IPO, agreed to purchase 6,498,000 shares of GreenSky stock, exclusive of the over-allotment option. 27. Defendant SunTrust Robinson Humphrey, Inc., an underwriter for the IPO, agreed to purchase 1,026,000 shares of GreenSky stock, exclusive of the over-allotment option. 28. Defendant Merrill Lynch, Pierce, Fenner & Smith Inc., an underwriter for the IPO, agreed to purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment option. 29. Defendant Citigroup Global Markets Inc., an underwriter for the IPO, agreed to purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment option. 30. Defendant Credit Suisse Securities (USA) LLC, an underwriter for the IPO, agreed to purchase 2,736,000 shares of GreenSky stock, exclusive of the over-allotment option. 31. Defendant Raymond James & Associates, Inc., an underwriter for the IPO, agreed to purchase 684,000 shares of GreenSky stock, exclusive of the over-allotment option. 32. Defendant Guggenheim Securities, LLC, an underwriter for the IPO, agreed to purchase 342,000 shares of GreenSky stock, exclusive of the over-allotment option. 33. Defendant Sandler O’Neill & Partners, L.P., an underwriter for the IPO, agreed to purchase 684,000 shares of GreenSky stock, exclusive of the over-allotment option. 7 10 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 34. Defendant Fifth Third Securities, Inc., an underwriter for the IPO, agreed to purchase 342,000 shares of GreenSky stock, exclusive of the over-allotment option. 35. The defendants named in ¶¶ 24-32, referred to herein as the “Underwriter Defendants,” drafted and disseminated the Offering Documents and sold millions of shares of GreenSky stock in the IPO, for which they received considerable fees and commissions. The Underwriter Defendants’ failure to conduct an adequate due diligence investigation was a substantial factor leading to the harm complained of herein. Representatives of the Underwriter Defendants also assisted GreenSky and the Individual Defendants in planning the IPO. They purported to conduct an adequate and reasonable investigation into the business, operations, products, and plans of the Company, an undertaking known as a “due diligence” investigation. During the course of their “due diligence,” the Underwriter Defendants had continual access to confidential corporate information concerning GreenSky’s business, financial condition, products, plans, and prospects. In addition to having unlimited access to material corporate documents, the Underwriter Defendants and/or their agents, including their counsel, had access to GreenSky’s lawyers, management, directors, and top executives to determine: (i) the strategy to best accomplish the IPO; (ii) the terms of the IPO, including the price at which the GreenSky stock would be sold; (iii) the language to be used in the Registration Statement; (iv) what disclosures about GreenSky would be made in the Registration Statement; and (v) what responses would be made to the SEC in connection with its review of the Registration Statement. As a result of those constant contacts and communications, at a minimum, the Underwriter Defendants were negligent in not knowing of GreenSky’s undisclosed existing problems and plans, and the materially untrue statements and omissions contained in the Registration Statement as detailed herein. 8 11 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 36. The Underwriter Defendants caused the Registration Statement to be filed with the SEC and to be declared effective in connection with offers and sales of the Company’s shares pursuant and/or traceable to the Offering and relevant offering materials, including to Plaintiff and the other members of the Class. 37. Pursuant to the Securities Act, the Underwriter Defendants are liable for the materially false and misleading statements in the Offering’s Registration Statement and Prospectus. The Underwriter Defendants’ negligent “due diligence” investigation was a substantial factor leading to the harm complained of herein. 38. The true names and capacities of defendants sued herein, under NY CPLR § 1024, as Does 1 through 25, inclusive and without limitation, are presently unknown to Plaintiff, who therefore sue these defendants by such fictitious names. Plaintiff will seek to amend this Complaint and include these Doe defendants’ true names and capacities when they are ascertained. Each fictitiously named defendant is responsible in some manner for the misconduct alleged herein and for the injuries suffered by the Class as a result of Defendants’ misconduct. 39. GreenSky, the Individual Defendants, the Underwriter Defendants, and the Does 1 through 25 are collectively referred to herein as “Defendants.” SUBSTANTIVE ALLEGATIONS The Company and Its Business 40. GreenSky, a financial technology company based in Atlanta, Georgia, runs an online platform that allows creditors to process loan applications at the point of sale. GreenSky’s platform is actively used by over 10,000 merchants. Consumers use GreenSky’s mobile application to make purchases from those listed business by applying for on-the-spot financing. 9 12 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 41. GreenSky’s two principal sources of revenue are: (i) “transaction fees” that it receives upfront when a consumer secures a loan through its platform to make a purchase; and (ii) recurring fees generated from banks over the lives of loans it facilitates. Transaction fees are critical to GreenSky’s business and accounted for over 84% of the Company’s revenue in 2017. These transaction fees vary per the particular agreement between GreenSky and its merchants. 42. GreenSky traditionally catered to businesses in the home improvement and solar energy market. GreenSky charged solar panel business substantially higher transaction fees as compared to others on its platform. GreenSky charged merchants an average of about 7% transaction fee on average excluding solar panel merchants, as compared to outsized average take rate of 14% applied to solar panel merchants. 43. Currently, GreenSky is moving into the elective healthcare industry market, wherein the Company charges lower-than-average transaction fees. GreenSky has simultaneously started moving away from its business with solar panel merchants. 44. Almost 20% of GreenSky’s transaction-fee revenue came from solar panel merchants in the years leading up to the IPO, and 13% of GreenSky’s transaction-fee revenue came from solar panel merchants in 2017. In 2018, however, GreenSky made merely 4% of its revenue in transaction fees from solar panel businesses. Thus, following this transition away from the solar power business and towards the elective healthcare market, GreenSky’s transaction fee revenue significantly declined, and will foreseeably continue to do so absent a change in focus back to its solar power business. As GreenSky’s loans shifted, its average transaction fee was down 70 basis points year-over-year in the third quarter of 2018, due in large part to lower originations in the residential solar business. 10 13 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 45. On April 27, 2018, GreenSky filed the Registration Statement, and on May 25, 2018, it filed the Prospectus for its IPO. 46. On May 29, 2018, GreenSky’s IPO closed and the Company sold 43.7 million shares of GreenSky stock at $23.00 per share in its IPO, for gross proceeds of over $1 billion. Materially False and Misleading Statements and Omissions 47. With respect to GreenSky’s transaction-fee revenue, the Offering Documents stated, in relevant part: We have a strong recurring revenue model built upon repeat and growing usage by merchants. We derive most of our revenue and profitability from upfront transaction fees that merchants pay us every time they facilitate a transaction using our platform. Thus, our profitability is strongly correlated with merchant transaction volume. The transaction fee rate depends on the terms of financing selected by a consumer…. 48. The Offering Documents also stressed: Transaction fees. We earn a specified transaction fee in connection with each purchase made by a consumer based on a loan’s terms and promotional features. Transaction fees are billed to, and collected directly from, the merchant and are considered to be earned at the time of the merchant’s transaction with the consumer. We also may earn a specified interchange fee in connection with purchases where payments are processed through a credit card payment network. Transaction fees constitute the majority of our total revenues, accounting for approximately 83% of our total revenues for the three months ended March 31, 2018. 49. The Offering Documents tout GreenSky’s purported growth over the relevant time period: We have achieved significant growth in active merchants, transaction volume, total revenue, net income and Adjusted EBITDA. Our low-cost go-to-market strategy, coupled with our recurring revenue model, has helped us generate strong margins. Transaction volume (which we define as the dollar value of loans facilitated on our platform during a given period) was $3.8 billion in 2017, representing an increase of 31% from $2.9 billion in 2016. Further, transaction volume was $1.0 billion in the three months 11 14 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/16/2019 ended March 31, 2018, representing an increase of 47% from $0.7 billion in the three months ended March 31, 2017. Active merchants (which we define as home improvement merchants and healthcare providers that have submitted at least one consumer application during the 12 months ended at the date of measurement) totaled 12,231 as of March 31, 2018, representing an increase of 52% from 8,048 as of March 31, 2017. Our total revenue grew 23% from $264 million in 2016 to $326 million in 2017, net income grew 12% from $124 million in 2016 to $139 million in 2017, and Adjusted EBITDA grew 21% from $131 million in 2016 to $159 million in 2017. For the period ended March 31, 2018, total revenue was $85 million, net income was $19 million and Adjusted EBITDA was $27 million. 50. The Offering Documents additionally assert that the elective healthcare sector represents a growth opportunity: In 2016, we began expanding into elective healthcare, which, like the home improvement market, is a large, fragmented market featuring creditworthy consumers who tend to make large-ticket purchases. We believe the elective healthcare market rivals in size the home improvement market in terms of annual spending volume, based on the number and cost of annual procedures performed. Elective healthcare providers include doctors, dentists, outpatient surgery centers and clinics providing orthodontics, cosmetic and aesthetic dentistry, vision correction, bariatric surgery, cosmetic surgery, hair replacement, reproductive medicine, veterinary medicine and hearing aid devices. We believe that because of population aging, innovations in medical technology and ongoing healthcare cost inflation, we are well- positioned to increase volume in the growing elective healthcare industry vertical. 51. The statements referenced in ¶¶ 47-50 were materially false and misleading because defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operational and compliance policies. Specifically, defendants made materially false and/or misleading statements and/or failed to disclose that GreenSky was transitioning its merchant business from solar panel merchants to merchants in the elective healthcare industry, prior to the IPO, but the impact to GreenSky’s business and financial results was undisclosed in the Registration Statement. There were 12 15 of 23 FILED: NEW YORK COUNTY CLERK 01/16/2019 02:44 PM INDEX NO. 650303/2019 NYSCEF DOC. NO. 1