April 9, 2018

Higher One to pay $7.5M to settle shareholder suit

The defunct New Haven company Higher One will pay $7.5 million to settle a shareholder lawsuit charging executives with mismanagement and insider trading.

A tentative settlement has been reached in a shareholder lawsuit charging executives of the defunct Higher One company with mismanagement and insider trading.

Under the agreement, the defendants' insurers will pay $7.5 million to compensate shareholders and cover legal and other fees related to the action, according to the court.

Investors who bought shares in the once-highflying New Haven company between Aug. 7, 2012 and Aug. 8, 2014 will receive notice in the coming weeks that they are eligible to apply for compensation, the claims administrator said.

U.S. District Court Judge Alvin W. Thompson tentatively approved the settlement last month.

How much investors will receive per share has yet to be determined and is subject to court approval, said Matthew L. Tuccillo of Pomerantz LLP in New York, the plaintiffs' attorney.

"This settlement is very fair to the class of investors and follows several years of hard-fought litigation," Tuccillo said. "The plaintiffs are grateful for the attention and consideration of Judge Thompson who really moved the case forward."

Attorneys for the defendants, who include two of company's founders, did not return calls requesting comment. In the settlement, the defendants continue to deny the allegations.

Once celebrated by elected officials and Yale University as a role model of entrepreneurship, Higher One was crippled by nearly $60 million in restitution orders and fines imposed by federal bank regulators for allegedly abusive and illegal business practices. Unable to pay, the company sold itself off in pieces in 2015 and 2016.

Founded in a dorm room in 2000 by three Yale undergraduates, Higher One's primary business was distributing college financial aid refunds – money left over after students pay their tuition and fees. The company, which at one time served 13 million students on more than 1,900 campuses, made most of its profits through bank fees that federal regulators later concluded were abusive and poorly disclosed.

The shareholder suit, filed in 2014 in U.S. District Court in Connecticut, alleged that Higher One executives doomed the company by failing to implement settlements they reached with federal regulators.

The action further charges executives with insider trading, alleging they sold at least $12.5 million worth of their Higher One stock, while falsely assuring potential investors the company was healthy. Among those alleged to have engaged in insider trading were two of the firm's founders, Miles Lasater and Mark Volchek, who netted $1.1 million and $1.9 million respectively in the stock sales, the suit charges.

Higher One's third founder, Sean Glass, left the company in 2008.

The lawsuit relied heavily on whistleblowers from inside the company. One former employee assigned to rewrite policies and procedures as required by a settlement called the company's compliance effort "a joke," according to the suit. Changes mandated by agreements with regulators were never fully implemented because employees were never retrained or even told about them, whistleblowers said.

Higher One was controversial almost from its inception, generating student revolts at various schools over the years, including Portland State University, University of Houston and University of Montana. Students complained that they were all but forced to open Higher One bank accounts, which the company offered through a banking partner, to get timely access to their refunds and then gouged with excessive, unfair and poorly disclosed fees.

Particularly resented and criticized was a requirement that students have merchants run their Higher One bank cards as credit instead of debit transactions or face a 50-cent fee.

After years of slow growth, the company's fortunes blossomed with the 2008 financial crisis. Facing severe budget cuts, public colleges and universities in particular flocked to Higher One to save money on distribution of refund checks. The company exploded in size, catching the attention of Wall Street and going public in 2010. At one time, the firm employed as many as 240 people.

Shortly after moving into a new headquarters funded in part by state assistance in 2012, federal banking regulators began cracking down on the company. Meanwhile, the firm was hit with multiple class action consumer lawsuits alleging abusive practices. Elected officials weighed in, with U.S. Sen. Sherrod Brown, D-Ohio, accusing the company of "abusing" students and advising them to be wary of its services.

Tuccillo said it's too soon to say how many shareholders will receive money from the settlement. Applications to receive funds must be postmarked no later than May 26, according to the court.

Thompson will hold another hearing on the settlement on July 10, according to the court.

Christopher Hoffman can be reached at news@newhavenbiz.com

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