Key Takeaways:
Wealthfront Corp. faces a securities fraud investigation after its stock dropped 14 percent on Q1 results showing a 69 percent decline in net deposits.
"We are investigating whether Wealthfront complied with federal securities laws," Corey D. Holzer, a partner at Holzer & Holzer, said.
On June 4, the company reported total net deposits of $554 million for the fiscal first quarter ended April 30, down 69 percent from a year earlier. Gross profit margin also declined, which Wealthfront attributed in part to startup expenses from Wealthfront Home Lending, higher money movement costs and higher data expenses. The stock fell $1.65, or 14.35 percent, to close at $9.85 on June 5.
The investigation adds to pressure on Wealthfront, which earlier this year disclosed net deposit outflows of $208 million in its fiscal third quarter — a sharp reversal from $874 million in inflows during the prior-year period. Chief Executive Officer David Fortunato, who owns 95.1 percent of the home-lending business, had flagged the unit's importance in offsetting the impact of declining interest rates.
The probe centers on whether Wealthfront misled investors about its financial condition and the impact of its home-lending expansion. Shareholders who suffered losses are being urged to contact the law firm. Wealthfront's next catalyst will be its second-quarter results, due in September.
This article is for informational purposes only and does not constitute investment advice.
