Pagaya Sues Klarna: Trade Secret Misappropriation Alleged
Fintech executives reviewing complex data in a server room, highlighting a trade secret dispute.
Key Highlights
AI underwriting firm Pagaya Technologies sues former partner Klarna for alleged trade secret misappropriation in point-of-sale loan underwriting. Klarna denies claims.
Pagaya Sues Klarna Over Alleged Trade Secret Misappropriation
AI underwriting firm Pagaya Technologies has initiated legal action against its former partner, Klarna, alleging the misappropriation of trade secrets. The dispute centers on point-of-sale (POS) loan underwriting technology. Filed on May 14, the lawsuit claims the Sweden-based buy now, pay later firm sought to absorb Pagaya’s core AI underwriting technology.
Pagaya alleges that Klarna’s aim was to develop its own competing capabilities. This move, according to the lawsuit, was designed to ultimately exclude Pagaya from the business Klarna had helped establish. The partnership between the two companies originally commenced in 2022. Under this agreement, Pagaya was responsible for assessing subprime customers for Klarna at the checkout stage.
Klarna’s ‘Gotcha’ Game and Partnership Misrepresentation
The New York-based AI underwriting fintech characterizes Klarna’s actions as a strategic ‘game of gotcha’. This alleged scheme unfolded between March and April of this year, as detailed in the lawsuit. Pagaya further alleges that Klarna misrepresented its intention to expand their partnership. This misrepresentation, Pagaya claims, led it to invest significantly in a venture that, unbeknownst to them, had no future.
Klarna Denies All Allegations
Klarna has vehemently denied all allegations brought forth by Pagaya. A spokesperson for the company stated that Klarna had notified Pagaya of the termination of their commercial relationship on March 25, 2026. This termination, Klarna asserted, was carried out in strict accordance with their existing contractual rights.
Klarna maintains that the lawsuit is entirely without merit. The firm has publicly declared its intention to defend itself vigorously against the claims. Klarna’s position emphasizes that the dissolution of the partnership was a legitimate exercise of its contractual agreements.
CEO’s Statements Under Scrutiny
The lawsuit also casts a critical light on statements made by Klarna’s CEO, Sebastian Siemiatkowski. Pagaya claims that Siemiatkowski downplayed Pagaya’s crucial contribution to Klarna’s success during a public offering that took place last September. Furthermore, Pagaya alleges Siemiatkowski falsely stated in an interview that Klarna did not outsource its risk underwriting.
Pagaya contends that Siemiatkowski subtly hinted at utilizing Pagaya’s trade secrets to enhance Klarna’s own underwriting model. This alleged hint occurred during a February earnings call. During the call, Siemiatkowski notably emphasized Klarna’s proprietary systems and highlighted its 20 years of accumulated risk management knowledge. Pagaya asserts these specific claims were demonstrably false, given their active partnership.
Strategic Intent to Cut Out Pagaya
Further supporting Pagaya’s claims of strategic exclusion, the lawsuit points to a statement by Klarna CFO Niclas Neglén. During the same February earnings call, Neglén spoke about driving more transactions within Klarna’s