Karl Baker

The News Journal

Wilmington-based Navient Corp. is facing angry shareholders intent on retrieving millions of dollars in lost stock value.

Delaware's Sallie May spinoff company – tasked with collecting student loan debt for the United States Department of Education – has endured in recent years plummeting stock prices and sharp critiques from high-profile Democrats after it was accused of violating consumer protection rules.

Now, a class action lawsuit is emerging against the company in Delaware's federal court that puts at least $19 million on the line for the company, according to court documents. That figure will likely rise as more investors join the case. Navient employs about 800 Delawareans.

"As a result of (Navient's) wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, (shareholders) have suffered significant losses and damages," said the civil complaint from one of the multiple plaintiffs.

Navient officials declined to comment about the case, but a spokesperson pointed to a company document sent to the Securities and Exchange Commission, which stated Navient intends "to vigorously defend against the allegations."

"At this stage in the proceedings, we are unable to anticipate the timing of resolution or the ultimate impact, if any, that the legal proceedings may have on the consolidation financial position, liquidity, results of operations or cash-flows of Navient Corporation and its affiliates,” the document stated.

The News Journal spoke with multiple legal experts involved in the case, who noted that, if the suit progresses to trial, it will not likely be complete for two or three years from now.

Plaintiffs in the case include Chicago police officers, retired city employees in Providence, Rhode Island, and the Lord Abbett investment company.

They say the company officials misled investors in statements and on financial reports in the time since it was spun off from Newark-based Sallie Mae in 2014. Navient's stock price dropped 62 percent between February 2015 and February 2016 – which accounted for more than $5.6 billion in total market value.

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Navient officials said during past financial statements that the company's loan customers defaulted at a rate that was 30 percent lower than the national average, according to the civil complaint. Shareholders in the class allege that figure was false, and state the company's operations were not in compliance with federal regulations,

Navient officials "failed to disclose material adverse facts about the company's business, operational and compliance policies," the civil complaint states.

The stock hit an all-time low Feb. 11, just days after Democratic presidential candidate Hillary Clinton claimed that Navient was "misleading people" and "doing some really terrible things." In a August 2015 report, Sen. Elizabeth Warren, D-Massachusetts, said the company had engaged in “intentional and willful” violations of federal laws by overcharging U.S. service members receiving student loans.

In May 2015, the U.S Department of Justice announced that Navient would pay the federal government $60 million in response to those actions. The money is reportedly being distributed to those members of the military.

In a May letter to the United States Department of Education, Warren continued her criticism of Navient, claiming the company was spending an "extravagant" amount of money lobbying elected officials. That spending increased to $710,000 during the first quarter of 2016 from $410,000 the previous year.

"While the Education Department is paying Navient hundreds of millions of dollars to service student loans, the company continues to evade responsibility for past failures," Warren said in the letter.

Despite all of the turmoil, a stock analyst report published Wednesday by financial research firm Morningstar Inc, states Navient's share prices are undervalued.

Shares should currently be trading at more than $16 each, the company's analysts estimated. Shares closed at $11.70 at the end of the day Wednesday.

Plaintiffs in the the class action suit also claim that the company officials personally benefited from its alleged misstatements.

They "were personally motivated to make false statements and omit material informational," one plaintiff said in the civil complaint, "in order to personally benefit from the sale of Navient securities."

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.​