Klarna Faces Securities Fraud Lawsuit

- The core allegation of the lawsuit is that Klarna's IPO registration statement in September 2025 failed to disclose the significant risk of a material increase in its loss reserves. This risk was allegedly known or should have been known due to the credit profile of many of its "buy now, pay later" (BNPL) customers. - Following its IPO, Klarna's stock, which was offered at $40.00 per share, fell to as low as $31.31. The lawsuit followed a November 2025 report that Klarna's provisions for loan losses were $235 million, exceeding analyst estimates, and that provisions as a percentage of gross merchandise volume had increased from 0.44% to 0.72% year-over-year. - The class period for the lawsuit covers investors who purchased Klarna securities from September 7, 2025, through December 22, 2025, with a lead plaintiff deadline of February 20, 2026. - Klarna's valuation has seen significant fluctuation, peaking at $45.6 billion in 2021 before dropping to $6.7 billion in 2022. The September 2025 IPO raised $1.37 billion, valuing the company at over $17 billion after the first day of trading. - The BNPL sector is facing increasing regulatory scrutiny globally. In the U.S., the Consumer Financial Protection Bureau (CFPB) has expressed concerns about potential consumer harm, including data harvesting and debt accumulation. In the UK, the Financial Conduct Authority (FCA) introduced new rules in February 2026 to enhance consumer protection and require affordability checks. - Despite the lawsuit and market volatility, Klarna reported strong growth in its fourth-quarter 2025 results, with revenue up 38% year-over-year to $1.08 billion and gross merchandise volume reaching $38.7 billion. The company is also expanding its banking services, with its most engaged consumers, who use services beyond payments, growing 101% year-over-year. - In response to market pressures, Klarna has focused on operational efficiency, partly through the adoption of AI. This has resulted in revenue per employee increasing 3.6 times since 2022, while headcount has been reduced by 49%. - The lawsuit comes as Klarna is transitioning its business model from a pure BNPL provider to a global digital bank, deepening its customer relationships through services like the Klarna Card and savings accounts. The company now has 4.2 million active card users and has seen its consumer deposits climb to $13 billion.