COMPLAINT FOR CIVIL PENALTY
Plaintiff, Securities and Exchange Commission ("Commission"), for its Complaint against defendant AmeriCredit Corp. ("AmeriCredit") alleges and states that:
1. On January 4, 2002, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, Keith Cyr, an AmeriCredit employee, sold AmeriCredit stock while he was in possession of material nonpublic information about AmeriCredit, in breach of a fiduciary duty that Cyr owed to AmeriCredit's shareholders.
2. AmeriCredit directly or indirectly controlled Cyr, as an employee of the company.
3. AmeriCredit knew or recklessly disregarded the fact that Cyr was likely to trade in the company's stock while he was in possession of material nonpublic information. On January 4, 2002, AmeriCredit knew or recklessly disregarded that Cyr possessed material nonpublic information. AmeriCredit also knew or recklessly disregarded that Cyr had traded in AmeriCredit stock two days earlier, on January 2, and AmeriCredit knew or recklessly disregarded that Cyr possessed material nonpublic information when he placed the January 2 trade. Because AmeriCredit knew or recklessly disregarded that Cyr had already traded in the company's stock while he was in possession of material nonpublic information about the company, AmeriCredit knew or recklessly disregarded the fact that Cyr was likely to trade in the company's stock again when he was in possession of material nonpublic information
4. AmeriCredit also failed to take appropriate steps to prevent the illegal trade that Cyr effected on January 4, 2002.
5. Accordingly, AmeriCredit is liable for a civil penalty, pursuant to Section 21A of the Exchange Act.
JURISDICTION AND VENUE
6. The Commission brings this action pursuant to authority conferred upon it by Section 21A of the Exchange Act, to impose a civil penalty against AmeriCredit.
7. This Court has jurisdiction over this action pursuant to Sections 21A(a)(1)(B) and 27 of the Exchange Act, and 28 U.S.C. § 1331.
8. Venue is proper in this Court, under Section 27 of the Exchange Act, because AmeriCredit maintains its principal place of business within the Northern District of Texas.
9. The Commission is the United States governmental agency responsible for enforcing the federal securities laws for the protection of investors.
10. Defendant AmeriCredit, a Texas corporation with its headquarters in Fort Worth, is in the business of purchasing finance contracts from automobile dealers (typically involving consumers who cannot obtain traditional financing from banks because of past credit problems or low income) and servicing those contracts. AmeriCredit's common stock is listed on the New York Stock Exchange.
STATEMENT OF FACTS
Background: AmeriCredit Collections
11. At least initially, the finance contracts AmeriCredit purchases constitute receivables on AmeriCredit's books.
12. AmeriCredit securitizes a portion of its receivables, in order to diversify funding, improve liquidity, and obtain funds to buy more consumer contracts, but AmeriCredit earns a "spread" on the securitized receivables, which is the difference between the interest rate AmeriCredit pays the investors and the rate it receives from borrowers.
13. AmeriCredit is responsible for collecting payments from the borrowers, including on the securitized receivables.
14. AmeriCredit has five collection centers, across the United States and in Canada, that service and manage all of its receivables.
15. According to AmeriCredit, its results of operations, financial condition and liquidity depend on the performance of the finance contracts, which generate all of AmeriCredit's revenue.
Loan Portfolio Performance Data
16. AmeriCredit maintains an internal data system that contains and reflects delinquency rates, charge off rates, the number of borrowers in bankruptcy, repossession rates, and the number of accounts deferred in its loan portfolio.
17. AmeriCredit produces daily reports from the system, which show AmeriCredit's loan portfolio's performance on each day, along with historical data comparing that day's collection statistics with prior months and quarters and the prior year, for each individual collection center and collectively for the entire company.
18. AmeriCredit makes the collection statistics available to employees who need it in the ordinary course of their duties, by giving them access to the information on AmeriCredit's computer system, or by giving them access to reports generated from the system, or both.
19. Because AmeriCredit controls and regulates employees' access to the collection statistics, AmeriCredit knows which employees have access to the information.
January 2, 2002 Report
20. On January 2, 2002, AmeriCredit generated an internal report ("the Report") that reflected unfavorable collection data for the quarter ending December 31, 2001.
21. The Report showed that 3.8% of the company's total managed auto receivables were more than 60 days delinquent, compared to 2.7% in the same quarter a year earlier, and compared to 3.1% in the quarter ending September 30, 2001.
22. The Report also showed that AmeriCredit charged off 4.3% of its average managed auto receivables, compared to 3.6% in the same quarter a year earlier.
23. The information in the Report was nonpublic until it appeared in an earnings release on January 10, 2002.
24. Each page of the Report bears the following warning: "PROPRIETARY INFORMATION: The information presented is proprietary in nature and must not be communicated outside the company."
25. AmeriCredit made the Report available to approximately 200 AmeriCredit managers and collection employees who accessed the Report in the ordinary course of performing their duties. For instance, employees such as Cyr, who worked in collection departments, needed to know the information in the Report in order to tailor the company's collection efforts to maintain acceptable delinquency, charge off, and deferment rates.
26. AmeriCredit made the Report available to those employees on the company's internal data system, and in a paper copy of the Report that automatically printed at each AmeriCredit collection center.
27. On January 2, 2002, Cyr, an assistant vice president of collections in the Arlington, Texas collection center, in the ordinary course of his duties, obtained the Report from a company printer, summarized the Report in a single page, and e-mailed that page to several managers and other employees in AmeriCredit's collection centers, via the AmeriCredit computer system. Cyr's e-mail message showed delinquency and charge off rates for each collection center, and collectively for the company.
28. AmeriCredit knew or recklessly disregarded that Cyr had access to the Report in January 2002: the company made the Report available to Cyr because he needed access to the Report in the ordinary course of his duties.
29. AmeriCredit also knew or recklessly disregarded that Cyr actually saw the Report on January 2, 2002, because Cyr circulated a summary of the Report via the company's e-mail system, as part of his assigned duties.
AmeriCredit's Employee Stock Option Program
30. Pursuant to their employment agreement with AmeriCredit, some employees received from the company, through the employee stock option program ("ESOP"), options to purchase shares of AmeriCredit stock from the company at a pre-determined price.
31. AmeriCredit contracted with E*trade to administer its ESOP. AmeriCredit created brokerage accounts for its employees with E*trade, and provided E*trade with all pertinent information necessary to administer the ESOP.
32. AmeriCredit employees could access their E*trade accounts - to exercise AmeriCredit stock options and sell AmeriCredit shares - via the Internet.
33. When employees exercised stock options, they could simultaneously sell the shares on the open market.
34. At the end of each day, E*trade e-mailed confirmations to AmeriCredit for all ESOP trades that AmeriCredit employees had conducted that day. The trade confirmations reflected the names of the employees, the numbers of shares they sold, the sale price, the strike price, and the amount of taxes withheld.
35. AmeriCredit's assistant vice president of benefits and compensation reviewed the confirmations daily, but neither he nor others attempted to determine whether the employees who made the trades had material nonpublic information.
Cyr's Illegal Trades
36. In January 2002, Cyr had a brokerage account with E*trade, which AmeriCredit had set up under the ESOP.
37. On January 2, 2002, after Cyr sent out his e-mail message summarizing the Report, and while in possession of material non-public information, Cyr exercised options to purchase 540 shares of AmeriCredit stock, and simultaneously sold them at $29.75 per share, through his ESOP account.
38. On January 4, 2002, Cyr again traded while in possession of material nonpublic information. Cyr exercised options to purchase 540 shares of AmeriCredit stock, and sold them at $31.55 per share, through his ESOP account.
AmeriCredit's Knowledge of Cyr's ESOP Trade on January 2
39. Late in the afternoon on January 2, 2002, E*trade e-mailed a confirmation to AmeriCredit detailing the ESOP trade that Cyr made that day.
40. On January 2, 2002, AmeriCredit knew or recklessly disregarded that Cyr had access to material nonpublic information in the Report, including delinquency rates, charge off rates, and the number of accounts deferred, because the company made the Report available to Cyr for use in the ordinary course of his duties.
41. AmeriCredit also knew or recklessly disregarded that Cyr had actually accessed the Report, because Cyr used the AmeriCredit computer system, on January 2, 2002, to e-mail a summary of the Report to a number of AmeriCredit managers and collection employees in different collection centers.
42. Therefore, from January 2, 2002 forward, AmeriCredit knew or recklessly disregarded that Cyr had traded in the company's stock while he was in possession of material nonpublic information.
43. By virtue of that knowledge, AmeriCredit knew or recklessly disregarded the fact that Cyr was likely to trade in the company's stock while he was in possession of material nonpublic information.
AmeriCredit Failed to Take Appropriate Steps to Prevent the Illegal Trade that Cyr Effected on January 4, 2002
44. While knowing or recklessly disregarding the ESOP trade that Cyr made on January 2, AmeriCredit did not take any appropriate steps to prevent Cyr from again trading in AmeriCredit stock while he was in possession of material nonpublic information.
45. On January 4, Cyr again used his ESOP account to trade in AmeriCredit stock while he was in possession of material nonpublic information.
46. AmeriCredit is subject to a civil money penalty because, with knowledge of or reckless disregard for the fact that Cyr was likely to trade in the company's stock with awareness of material nonpublic information, AmeriCredit failed to take appropriate steps to prevent the illegal trade that Cyr effected on January 4, 2002.
January 10, 2002 Earnings Release and Market Reaction
47. On January 10, 2002 at 4:18 p.m. CST, after trading on the New York Stock Exchange closed for the day, AmeriCredit publicly announced its earnings for the quarter ending December 31, 2001 ("the Release") via Business Wire.
48. In addition to a variety of favorable earnings data, the Release included the increase in delinquency and charge off rates that appeared in the Report.
49. On January 11, 2002, analysts began publishing research reports discussing the Release. The analysts acknowledged AmeriCredit's favorable earnings results for the quarter, but they also uniformly cited the rise in delinquencies as cause for doubt about the quality of AmeriCredit's loan portfolio, and loan recovery rates. Research reports also included charge off and deferment rates as contributing to these concerns. An analyst at Bear Stearns downgraded AmeriCredit stock "primarily [because] delinquencies and losses are rising faster than we had originally anticipated and the margin isn't providing enough of an offset."
50. On January 10, 2002, the last trading day before the Release, AmeriCredit stock closed at $28.01, on volume of 2,403,600 shares.
51. After AmeriCredit disseminated the Release, and after the analysts' reports began to appear, the volume of trading in AmeriCredit shares increased sharply, and AmeriCredit's stock price dropped. It closed at $25.04 on January 11, 2002, on volume of 10,539,000 shares. On the next trading day, January 14, 2002, it closed at $22.60 on volume of 5,494,200 shares.
CLAIM FOR CIVIL PENALTY
52. Paragraphs 1 through 51 above are hereby re-alleged, and incorporated herein by reference.
53. On January 4, 2002, Cyr violated the federal securities laws by selling AmeriCredit shares while he was in possession of material nonpublic information about AmeriCredit.
54. On and after January 2, 2002, AmeriCredit knew or recklessly disregarded the fact that Cyr, whom the company directly or indirectly controlled, was likely to purchase or sell a security while in possession of material, nonpublic information, in a transaction on or through the facilities of a national securities exchange, or from or through a broker or dealer.
55. AmeriCredit failed to take appropriate steps to prevent the illegal acts that Cyr committed on January 4, 2002.
56. By reason of the foregoing, AmeriCredit is subject to a civil penalty pursuant to Section 21A of the Exchange Act.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
Impose a civil penalty to be paid by AmeriCredit, the amount of which shall not exceed the greater of $1,000,000, or three times the profit gained or loss avoided as a result of Cyr's violation; and
Grant such other relief as this Court may deem just and appropriate.
Stephen J. Korotash
Dated: November 3, 2003