,z) §t2), UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ) JOHN BAYDALE, Individually and on Behalf of ) Civil Action No. all Others Similarly Situated, ) ) Plaintiff, ) ) CLASS ACTION COMPLAINT FOR ) VIOLATIONS VS. ) OF FEDERAL SECURITIES LAWS ) AMERICAN EXPRESS COMPANY, KENNETH ) I. CHENAULT, and DANIEL T. HENRY, ) ) JURY TRIAL DEMANDED Defendants. ) ) Plaintiff, John Baydale, has alleged the following based upon the investigation of Plaintiffs counsel, which included a review of United States Securities and Exchange Commission ("SEC") filings by American Express Company ("American Express" or the "Company"), as well as regulatory filings and reports, securities analysts' reports and advisories about the Company, press releases and other public statements issued by the Company, and media reports about the Company, and Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS 1. This is a federal securities class action on behalf of all purchasers of the securities of American Express (the "Class") between March 1, 2007 and November 12, 2008, inclusive (the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). 2. American Express is currently the world's largest issuer of charge cards and credit cards as measured by purchase volume. American Express is headquartered in New York City and its securities are traded on the New York Stock Exchange ("NYSE") under the ticker symbol "AXP." American Express is known for choosing its cardholders based on quality credit ratings, which lends itself to a well-heeled consumer base. The Company's focus has traditionally been on "the premium market sector" with "average spending per card [that] is substantially higher [ ] versus [ ] competitors." 3. Having an American Express card was, in the past, exclusive and difficult to get because the standards by which American Express issued cards were, traditionally, high. These were the tenets of American Express' "spend-centric" business model—spend-centric, as opposed to peers' lend-centric economics. 4. In its quest for growth, American Express deviated from its spend-centric model. American Express undertook this risky strategy knowing that it is an "independent issuer," which means that the Company incurs all losses associated with its cards (unlike MasterCard and Visa, for example). The public was aware that American Express independently issued revolving credit cards, but the Company reassured investors and analysts that it did not engage in such riskier transactions. Notwithstanding its reassurances to the public, since at least the start of the Class Period, the Company has deviated from its historical strategy and engaged in riskier lending. 5. On November 10, 2008, the Company won Federal Reserve System approval to convert to a bank holding company, making it eligible for government help under the Troubled Assets Relief Program ("TARP"). The new American Express bank could qualify for up to $3.5 billion of the Treasury Department's money—a capital infusion required to save the Company from its riskier endeavors. As a result of the Company's shift to risky card issuances, the American Express brand has been cheapened and the stock has plunged approximately 65% since March 2007. 6. This action alleges that the defendants misled investors by falsely representing American Express's exposure to the riskiest credit card holders. Such reassurances were repeated by defendants throughout the Class Period in order to artificially support American -2- Express' stock price as the building credit crisis in the market punished most companies that dealt with risky customers. 7. The representations contained in American Express's press releases, SEC filings, conference calls, and presentations during the Class Period, as set out below, were materially false and misleading when made because they failed to disclose the Company's increasing reliance on riskier credit card programs. 8. On July 21, 2008, after American Express missed analysts' estimates for Q2'07 and the Company withdrew its 2008 guidance, an analyst from Friedman Billings Ramsey & Co. ("Friedman Billings") opined that the greater-than-expected shortfall resulted from "rapid growth in lending balances over recent years." American Express shares dropped 7.11% the next day to close at $37.99 per share on this news. Profit in American Express's U.S. card business plunged 96% as the provision for losses more than doubled to $1.5 billion from $640 million. Uncollectible debt rose to 5.3% of loans from 2.9% a year earlier. 9. Additional corrective disclosures through the end of the Class Period, described herein, revealed the full extent of American Express's exposure to risky credit card holders, causing the Company's stock to fall to $20.05 per share on November 12, 2008 after the final curative disclosure was digested by the market. JURISDICTION AND VENUE 10. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC") [17 C.F.R. § 240.10b-5]. 11. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1337 and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. 12. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28 U.S.C. § 1391(b), as many of the acts and practices complained of herein occurred in substantial part in this District. American Express maintains its headquarters in this District and -3- the public securities of American Express are traded on a national securities exchange located in this District. 13. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. PARTIES 14. Plaintiff, John Baydale, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of American Express at artificially inflated prices during the Class Period. 15. Defendant American Express is a New York corporation, headquartered in New York City, New York. 16. Defendant Kenneth I. Chenault ("Chenault") is, and was during the Class Period, the Chairman and Chief Executive Officer ("CEO") of American Express. 17. Defendant Daniel T. Henry ("Henry") is, and was during the Class Period, Executive Vice President and Chief Financial Officer ("CFO"). Henry has been Executive Vice President and Chief Financial Officer of the Company since October 2007. Since February 2007, Henry had been serving as Executive Vice President and Acting Chief Financial Officer of the Company. 18. Defendants Chenault and Henry are collectively referred to as the "Individual Defendants" and, along with American Express, as the "Defendants." 19. Because of the Individual Defendants' positions with the Company, they had access to the adverse undisclosed information about the Company's business, operations, operational trends, financial statements and markets via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, -4- attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to them in connection therewith. 20. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false, misleading and incomplete information conveyed in the Company's public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers of American Express, by virtue of their high-level positions with the Company, directly participated in the management of the Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws. 21. As officers and controlling persons of a publicly-held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded on the New York Stock Exchange ("NYSE"), and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate prompt, accurate and truthful information with respect to the Company's financial condition and performance, growth, operations, financial statements, business, markets, management and earnings, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company's