Complete dismissal of shareholder litigation brought against MoneyLion

On May 15, 2024, Davis Polk won a complete victory for its clients, MoneyLion Inc. and certain of the company’s directors and officers, in a securities action brought in New York federal court. 

The plaintiffs were former preferred stockholders of MoneyLion, whose preferred stock was automatically converted to Class A common stock under the terms of a certificate of designations, which provided for automatic conversion if MoneyLion’s common stock traded above a certain price for a specified time. Following an April 2023 reverse stock split, MoneyLion’s share price surpassed the relevant thresholds, triggering an automatic conversion. 

The plaintiffs alleged that the defendants effected the reverse stock split at an unduly high ratio for the improper purpose of triggering an automatic conversion and depriving the plaintiffs of their preferred rights. The plaintiffs asserted a claim under section 14(a) of the Securities Exchange Act of 1934, alleging that the proxy statement soliciting shareholder approval of the reverse stock split contained material misstatements and omissions about the defendants’ alleged motives and the likely impact of the reverse split on the preferred stock. The plaintiffs also asserted state law claims for breach of fiduciary duty and breach of contract.

Davis Polk moved to dismiss the complaint in full. We argued, among other things, that the plaintiffs failed to state a claim under section 14(a) because the alleged misstatements and omissions were immaterial as a matter of law and because the plaintiffs failed to allege transaction causation. We argued that the state law claims likewise failed to state a claim but that the court need not reach the merits of those claims and could dismiss them for lack of jurisdiction after disposing of the federal claim. The court (District Judge P. Kevin Castel) agreed on each of these points. The court dismissed the section 14(a) claim, agreeing with Davis Polk’s arguments with respect to materiality and transaction causation, and then declined to exercise supplemental jurisdiction over the state law counts, dismissing those claims without prejudice.

Headquartered in New York, MoneyLion Inc. is a financial technology company which provides personalized banking solutions and financial information to American consumers.

The Davis Polk team includes partner Brian M. Burnovski and associates Adam M. Greene and Alec Abitbol. All members of the Davis Polk team are based in the New York office.