Ally Financial facing class action suit over 2014 IPO

The auto loan giant Ally Financial is facing a securities class action lawsuit stemming from allegations the company violated the Securities Act of 1933. To learn more about this case, visit Battea’s Ally Financial case summary.

The suit, filed in the State of Michigan Circuit Court for the County of Wayne, notes that Ally conducted its IPO in April, 2014, but revealed in December of that year that it had been subpoenaed by the U.S. Department of Justice. The DOJ was conducting an investigation into the company’s subprime auto lending and securitization of subprime car loans. The class action lawsuit specifically alleges that Ally officials omitted facts that they were supposed to include in filings with the U.S. Securities and Exchange Commission at the time of the IPO, including information about rising delinquency rates for those subprime auto loans, problems with its underwriting standards, and aggressive tactics the company used against low-income borrowers.

Then, in 2016, more issues began to arise. On June 3 of last year, experts began to express concern about subprime auto loans in general, and Automotive News reported that Ally was dialing back some of its participation in that market.

Subprime auto loan practices landed Ally Financial in hot water.Subprime auto loan practices landed Ally Financial in hot water.

A closer look
In 2014, Ally was not only under investigation from the DOJ, but also the SEC, according to The New York Times. This came at a time when the federal government owned large shares of the auto finance firm, which it had previously been forced to bail out during the recession. At the time, the U.S. Treasury Department was attempting to sell its shares in the company, which added up to a stake of more than 11 percent. When that was completed, the company was able to exit the Troubled Asset Relief Program, which it entered in December 2008.

At the time, the DOJ was generally looking into the subprime auto loan industry, which had taken off in recent years, and the SEC wanted to determine how financial institutions were packaging these subprime loans before selling them off, the Times reported. Securitizations of auto loans had risen by about 150 percent between 2009 and 2014, but Ally was apparently trying to ratchet back its participation, issuing some $2.75 billion in such securitizations, down from the previous year’s $4.06 billion.

How did the stock move?
Ally Financial opened its IPO at about $25 per share in April 2014, and by the end of that year, shortly after the revelations about the DOJ investigation, it had only slipped somewhat, dropping to $23.65 through Jan. 2, 2015. But over the course of 2015, the decline was more pronounced. Though it hit a trough in late January of that year (just $18.71), that was exceeded by the end of 2015 at $18.64 on New Year’s Eve 2015.

The stock stayed below or very near that level throughout 2016 as well, hitting an all-time low of $15.73 per share in January, and only recovering to $19.02 by year’s end. Currently, Ally Financial trades at $19.27 per share.

For more information on this case or other class action litigations, please contact Sam Wankel, Senior Vice President, Research, Battea Global Litigation Research, Inc., at 203-987-4949 or info@battea.com.