In a lawsuit filed against PHH Corp., shareholders allege financial misrepresentation. Plaintiffs' attorneys say the filing is a class action.
The complaint, filed Monday by Schiffrin & Barroway LLP on behalf of all securities purchasers of PHH from May 12, 2005, through March 1, 2006, charges PHH and certain of its officers and directors with violations of the Securities Exchange Act of 1934, according to an announcement.
The shareholders claim PHH made representations that were materially false and misleading because the company failed to disclose it had materially overstated it deferred tax assets, thereby materially inflating its reported net income. PHH also allegedly did not reveal it lacked adequate internal controls and that its financial results were in violation of Generally Accepted Accounting Principles, thus financial results were materially inflated at all relevant times.
PHH was not immediately available for comment.
On March 1, PHH, the Mount Laurel, N.J.-based spin-off from Cendant Corp., said it would file late its 2005 annual report with the SEC and that Clair M. Raubenstein had assumed the role of chief financial officer from Neil J. Cashen, reportedly a defendant in the lawsuit.
On news of that reported results were materially overstated and the replacement of the CFO, PHH shares fell to $2.73 per share on March 1 to close the next day at $26.00 per share, the law firm reported.
PHH explained the filing would be late for reasons primarily related to the documentation and analysis of certain spin-off, including the allocation and valuation of certain tax assets, the valuation of goodwill and intangibles, the consolidation of PHH Home Loans LLC, and the assessment of other tax items.
An impairment against deferred tax assets could result in a charge to its 2005 net income of as much as $50 million, and that a reclassification to goodwill reallocation taken at the time of spin-off could reflect up to a $21 million charge, PHH said in an 8-K filing.
The suit reportedly seeks to recover damages on behalf of class members.