Green Dot 2011 Annual Report Download - page 30

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Litigation or investigations could result in significant settlements, fines or penalties.
We are subject to litigation and regulatory oversight in the normal course of our business, and may be subject to
regulatory or judicial proceedings or investigations from time to time. In May 2011, the office of the Attorney General
of Florida announced that it is investigating five prepaid debit card providers, including us, relating to the allegation of
possible hidden fees on their cards and false claims of credit building. We have conducted a thorough review of this
allegation as it relates to our cards and have held meetings with the Attorney General's office to provide requested
information in connection with this ongoing investigation. In addition, in October 2011, Integrated Technological
Systems, Inc. filed a lawsuit against us, and in February 2012, TQP Development, LLC filed a lawsuit against us, in
each case alleging that we infringe on one of its patents and is seeking a permanent injunction against the alleged
infringement, compensatory damages, costs, and attorney's fees. While we believe we have meritorious defenses
against these patent lawsuits, we have not established reserves or possible ranges of losses related to these
proceedings because, at this time in the proceedings, the matters do not relate to a probable loss and/or the amounts
are not reasonably estimable. The outcome of litigation and regulatory or judicial proceedings or investigations is
difficult to predict. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of very large or
indeterminate amounts or seek to have aspects of our business suspended or modified. The monetary and other
impact of these actions may remain unknown for substantial periods of time. The cost to defend, settle or otherwise
resolve these matters may be significant. Further, an unfavorable resolution of litigation, investigations or proceedings
could have a material adverse effect on our business, operating results, or financial condition.
If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental
entities, adverse publicity that may be associated with these proceedings or investigations could negatively impact
our relationships with retail distributors, network acceptance members and card processors and decrease acceptance
and use of, and loyalty to, our products and related services, and could impact the price of our Class A common stock.
In addition, such proceedings or investigations could increase the risk that we will be involved in litigation. For example,
after the Florida Attorney General's office announced its investigation, several law firms announced that they were
investigating us for potential consumer class action lawsuits or derivative lawsuits for breach of fiduciary duties by our
board of directors. While we would defend ourselves vigorously against such lawsuits to the extent that any are
ultimately initiated against us, the outcome of litigation is difficult to predict and the cost to defend, settle or otherwise
resolve these matters may be significant. For the foregoing reasons, if regulatory or judicial proceedings or investigations
were to be initiated against us by private or governmental entities, our business, results of operations and financial
condition could be adversely affected or our stock price could decline.
We must adequately protect our brand and the intellectual property rights related to our products and
services and avoid infringing on the proprietary rights of others.
The Green Dot brand is important to our business, and we utilize trademark registrations and other means to
protect it. Our business would be harmed if we were unable to protect our brand against infringement and its value
was to decrease as a result.
We rely on a combination of trademark and copyright laws, trade secret protection and confidentiality and license
agreements to protect the intellectual property rights related to our products and services. We may unknowingly violate
the intellectual property or other proprietary rights of others and, thus, may be subject to claims by third parties. If so,
we may be required to devote significant time and resources to defending against these claims or to protecting and
enforcing our own rights. Some of our intellectual property rights may not be protected by intellectual property laws,
particularly in foreign jurisdictions. The loss of our intellectual property or the inability to secure or enforce our intellectual
property rights or to defend successfully against an infringement action could harm our business, results of operations,
financial condition and prospects.
We are exposed to losses from cardholder account overdrafts.
Our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable
for these overdrafts. While we decline authorization attempts for amounts that exceed the available balance in a
cardholder’s account, the application of card association rules, the timing of the settlement of transactions and the
assessment of the card’s monthly maintenance fee, among other things, can result in overdrawn accounts.
Maintenance fee assessments accounted for approximately 91% of aggregate overdrawn account balances in the
year ended December 31, 2011, as compared to approximately 95% in the year ended December 31, 2010.
Maintenance fee assessment overdrafts occur as a result of our charging a cardholder, pursuant to the card’s terms
and conditions, the monthly maintenance fee at a time when he or she does not have sufficient funds in his or her
account.