In September, a class action lawsuit (Mannacio v. Discover Financial Services, et al., No. 23-cv-06788 (N.D. Ill.)) was filed against Discover Financial Services (“Discover”) alleging Discover and certain current and/or former executives violated the Securities Exchange Act of 1934. Specifically, the class action complaint alleged that the defendants made false and/or misleading statements and/or failed to disclose that: (i) Discover maintained deficient risk management and compliance procedures; (ii) as a result, Discover, among other things, failed to comply with applicable student loan servicing standards, misclassified certain credit card accounts, overcharged customers, and failed to stem its ballooning credit card delinquency rate; and (iii) when these issues became known, they subjected Discover to significant financial exposure, regulatory scrutiny, and reputational harm.
A couple weeks later, a shareholder filed a derivative suit (Swaziek v. Hochschild, et al., No. 23-cv-13890 (N.D. Ill.)) alleging: (i) violations of the Securities Exchange Act of 1934; (ii) breach of fiduciary duty; (iii) unjust enrichment; (iv) abuse of control; (v) gross mismanagement; and (vi) waste of corporate assets. In his complaint on behalf of the company, the shareholder alleged Discover’s Board of Directors (the “Board”) misrepresented compliance failings over the course of approximately four and a half years and repurchased more than 58 million shares at a cost of approximately $6.4 billion from March 2021 through June 2023. According to the shareholder’s complaint, Discover overpaid by over $1 billion for the stock repurchases.