On March 31, 2026, Judge Robert Kirsch of the United States District Court for the District of New Jersey dismissed with prejudice a putative class action asserting claims under Section 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder against a financial technology company (the “Company”) and certain of its former officers.
In re PayPal Holdings Inc. Sec. Litig., 22-cv-5864-RK (D.N.J. Mar. 31, 2026). Plaintiffs alleged that defendants made materially false and misleading statements regarding the Company’s growth and future prospects through its Net New Active Accounts (“NNA”) metrics. The Court’s previous dismissal order, which we covered
here, held plaintiffs failed to adequately allege any materially false or misleading statement and granted plaintiffs leave to amend. Finding that plaintiffs’ second amended complaint still failed to allege any actionable misstatement, the Court dismissed the action with prejudice.
The Court considered twelve alleged misstatements, which it grouped into two categories: (1) the Company’s actual NNA metrics and (2) the Company’s NNA acquisition strategy and the engagement level of those accounts. At the outset, the Court observed that the allegedly false and misleading statements identified in plaintiffs’ second amended complaint were essentially “repeated verbatim” from plaintiffs’ previously dismissed pleading. It held that, under the law of the case doctrine, the Court’s prior ruling applied with equal force to the majority of the alleged misstatements, warranting dismissal, and that plaintiffs failed to identify any extraordinary circumstance that justified departure from this rule.
Nevertheless, the Court analyzed the alleged misstatements category-by-category and found that none were actionable. First, the Court addressed plaintiffs’ argument that the Company’s NNA results announced after October 2021 were false and misleading because defendants allegedly were aware at the time that “incentive programs had generated millions of illegitimately created accounts.” In support, plaintiffs alleged, based on confidential-witness accounts, that the NNA metrics were inflated by illegitimate accounts and that defendants were aware of this. The Court held that none of the confidential-witness allegations provided sufficient detail to infer defendants’ knowledge of illegitimate accounts, including because the confidential witnesses were two or three reporting levels below the individual defendants, did not identify actual meetings or communications in which defendants learned contrary information, and did not specify with requisite particularity when, how, or where defendants were made aware of inaccuracies in the NNA statistics.
The Court turned next to the Company’s statements regarding its “strategy to grow NNAs and the engagement levels of those accounts,” which plaintiffs claimed were false and misleading because defendants were allegedly pursuing low-engagement users rather than high-quality users they touted publicly. The Court found plaintiffs still failed to plead falsity. It reiterated its prior holding that many of these statements were inactionable puffery and rejected the argument that a subsequent stock price decline could establish materiality. Even setting aside puffery, the Court held that plaintiffs alleged no facts from which to infer that defendants knew or should have known at the time that the Company’s growth strategies would yield low engagement users, and instead impermissibly relied upon “fraud-by-hindsight” by pointing to post-class period disclosures as evidence of falsity—an approach the Third Circuit has rejected.
The Court dismissed the action with prejudice, finding that leave to replead would be futile, particularly given plaintiffs’ failure to meaningfully address in their second amended complaint any of the deficiencies identified by the Court in its prior dismissal order.
