DALLAS (CN) - A U.S. subsidiary of Spanish banking giant Banco Santander failed to disclose in its initial public offering improper practices in its subprime car lending business that caused a drop in its stock price, shareholders claim in a class action.
Lead plaintiff Karan Kumar sued Santander Consumer USA Holdings, its officers and directors and several investment banks that participated in the company's January IPO, including Citigroup Global Markets, J.P. Morgan Securities, Goldman Sachs and Morgan Stanley, on Monday in Dallas County Court.
Kumar claims the offering documents were "materially deficient."
"The true facts, which were known by the defendants but were not disclosed to the investing public, were that: (i) Santander engaged in improper practices related to the company's subprime auto lending business; (ii) Santander misrepresented the quality of loans the company had underwritten; (iii) Santander misrepresented the company's underwriting standards; and (iv) Santander lacked a reasonable basis for its statements about its lucrative prospects in the subprime lending market," the 23-page complaint states.
Kumar claims the public learned the truth when Santander disclosed on Aug. 7 that it received a civil subpoena from the U.S. Department of Justice.
Federal prosecutors sought documents about underwriting and securitization of subprime car loans since 2007, according to the lawsuit.
Shares dropped $17.95 the next day, a decline of more than 25 percent from the IPO price of $24.
Based in Dallas, Santander is a consumer finance company that engages in unsecured consumer lending, including credit cards, personal loans and private student loans. It is also focuses on vehicle finance, with more than 14,000 franchised car dealers, according to the lawsuit.
Santander spokeswoman Laurie W. Kight declined to comment on the lawsuit Tuesday.
Kumar seeks class certification and damages for violations of the Texas Securities Act.
He is represented by Joe Kendall in Dallas and Brian Robbins with Robbins Arroyo in San Diego, Calif.
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