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TrueCar Fails to Disclose Changes in Connection with USAA Securities Class Action

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Is a company liable when it sees a change coming in its largest source of income, but fails to predict the results? The complaint for this class action quotes an official for TrueCar, Inc. as saying that “we saw these coming. It wasn’t like we were blind to them.” If that is so, the complaint claims, TrueCar’s many positive statements about its prospects were violations of the Securities Exchange Act of 1934. 

The class for this action is all persons and entities who bought the publicly-traded common stock of TrueCar from at least as early as February 16, 2017 through November 6, 2017.

TrueCar owns an online platform for automobile information and communication, including data and price reports for new and used cars and communications from dealers to consumers. Over 90% of its income comes from fees per vehicles sold or subscription arrangements.

Its single largest source of visitors and unit sales comes from its relationship with USAA, an institution that serves current and former military members.

During the class period, the complaint claims that TrueCar made positive statements about its prospects and growth. For example, on February 16, 2017, a company press release stated that the company expected “double-digit rates of unit and revenue growth for some time.”

On a conference call the same day, the company’s CFO touted the relationship with USAA: “You look at the USAA channel, we had great growth in the fourth quarter. We had a record in the month of December.” At the end of that month, the company stated that “we expect all of our channels to grow and grow nicely, TrueCar-branded, USAA.”

Later that year, the company conducted an offering, selling some 2,700,000 of it 12,000,000 beneficially-owned shares. The offering closed on May 2.

On May 9, the company held a conference call in which its CFO noted, “I’m pleased to say that we are starting 2017 with significant momentum.”

However, the complaint claims that the company’s statements were false or misleading. According to the complaint, USAA—the company’s largest source of income—had made changes to the website maintained for it by TrueCar that would decrease the volume of car purchases generated by USAA.

Still, the company continued its positive statements, mentioning “high unit growth rates” in August, and claiming it expected “20% to 22% year-over-year growth” in the third quarter. But at the same time, the complaint said, it lowered guidance, leading to a fall in its stock price of nearly 20%.

Unfortunately, on November 6, 2017, the company announced that it had failed to meet its third-quarter guidance. Only then, the complaint says, did it reveal that USAA had made changes to its website that it believed would serve the financial needs of its members, but which had resulted in “a decline in traffic, prospects and units” for TrueCar.

At this news, the company’s stock price fell again, by roughly 35%.

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