Investor Actions Continue, But Settlements Retreat

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3 · 27 · 12

Plenty of shareholder and investor lawsuits continue to wind their way through the legal system. But the pace of settlements in securities class actions has slowed considerably, according to a university report.

The report, released this month from Stanford University and Cornerstone Research, indicated that there were 65 court-approved securities class action settlements last year involving $1.4 billion in total funds. Activity was down from around a hundred settlements for $3.2 billion in 2010 and the lowest volume in more than a decade.

In Securities and Exchange Commission v. BankAtlantic Bankcorp and Alan Levan, the defendants have filed a motion to dismiss for failure to state a claim on several grounds. In the 41-page document, they allege failure to report loan extensions and internal grade changes in the first and second quarters of 2007. They are also attacking the lawsuit claiming that the complaint does not state a claim for the alleged failure to transfer the loans being test marketed to “held-for-sale” status and have argued that the complaint fails to state a claim under the Securities Exchange Act of 1934.

The SEC alleged in its lawsuit filed on Jan. 18 in federal court in Florida that BankAtlantic and chairman and chief executive officer Alan Levan made misleading statements in the public filings and earnings calls in order to hide the deteriorating state of a large portion of the bank’s commercial residential real estate land acquisition and development portfolio in 2007.

In Louisiana Municipal Employees Retirement System v. Bank of NY Mellon, Oregon filed a motion on Feb.14, seeking to be named a co-lead plaintiff of a class of BNY Mellon investors (along with another co-lead plaintiff with Danish bank, Danske Investment Management A/S). One other public pension fund, a county pension fund, is filing a competing motion to be appointed lead plaintiff. The case will be re-titled after a lead plaintiff is selected.

The class seeks to recover the losses it suffered in its investments in BNY Mellon securities. Oregon and the class suffered damages when it was disclosed that BNY Mellon was allegedly fixing the prices for foreign exchange trades and inflating profits.

After the court appoints a lead plaintiff, the case will move forward.

A case management plan was entered on March 8 for In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act. The parties refused to consent to conducting further proceedings before a magistrate judge, including motions and trial. Each individual action is to be tried to a jury.

Shareholders say in suit papers Bank of America Corp. and some of its senior executives misled them about the 2008 takeover of Merrill Lynch. The shareholder suit was approved for class action status on Feb. 7.

The court in FDIC v. Van Dellen and others denied defendants’ Shellem and Koon’s motion for sanctions for spoliation of evidence and denied as moot the plaintiff’s motion to strike portions of defendants’ reply and declarations filed in support. Spoliation is the destruction or material alteration of evidence or the failure to otherwise preserve evidence for another’s use in litigation. However, the court declined to impose sanctions because the defendants had not shown that they were deprived of relevant evidence. As a result, the motion for dismissal and monetary sanctions was denied.

The Federal Deposit Insurance originally filed its complaint in July 2010 on behalf of IndyMac Bank, F.S.B.

More recently, on March 16, the FDIC filed a complaint in U.S. District Court for the Northern District of Georgia on behalf of Omni National Bank, which failed in March 2009 and was expected to cost the Deposit Insurance Fund $290 million. Former Omni vice president Karim Walthour Lawrence was sentenced to 21 months in prison on June 1, 2011, while former executive vice president Jeffrey L. Levine was sentenced to five years. Other defendants in the case who were previously sentenced include Delroy Oliver Davy, Christopher Bernard Loving and Brent Merriell.

The SEC filed a lawsuit in December alleging that former Fannie Mae and Freddie Mac executives understated their exposure to subprime and Alt-A loans. The Fannie suit covers the period from December 2006 until August 2008, while the Freddie Mac executives are alleged to have made misleading statements or aided and abetted others between March 2007 and August 2008. The two cases were filed in U.S. District Court for the Southern District of New York.

Because both cases are still in the early stage, the latest legal developments are several motions asking the court for permission to allow attorneys not licensed in that jurisdiction to participate in the case — routine requests for all forms of litigation — and notices of appearance by the attorneys.

An order granting preliminary approval of a $75 million dollar settlement was entered in January in the case In Re Wachovia Equity Securities Litigation. A settlement hearing will be held on June 1. The plaintiffs, which included several New York City pension funds, sued in 2008, claiming that the company made “false and misleading” statements to shareholders as it began to focus on Alt-A and subprime loans.

In Prudential Retirement Insurance and Annuity Co. v. State Street Bank and Trust Co., the latest legal developments include an order for summary judgment and a request for a postponement. The order, dealing with several evidentiary motions, terminates the motions on the basis that trial ended on Prudential’s breach of duty claims. However, the court said the motions can be re-filed if they are relevant to State Street’s contribution and defamation counterclaims. A motion conference has been moved to April 3.

A settlement was reached with one of the defendants on March 2 in National Credit Union v. Sivaro and others. No financial terms were released, and former Western Corporate Federal Credit Union executive Timothy Sidley reportedly signed an agreement forbidding him from working for a federally-insured credit union. The case against the other defendants continues. After hearing oral arguments, the court granted on March 12 NCUA’s motion to dismiss amended counterclaims for lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted.

In addition, Credit Union Times reported that an “agreement in principle” had been reached with former WesCorp executive Robert Burrell.

WesCorp was seized by the NCUA in March 2009.

Three law firms — Faruqi & Faruqi LLP, The Shuman Law Firm and B Harwood Feffer LLP — have all recently announced investigations into potential investor claims against Flagstar Bancorp Inc. The firms are responding to the Department of Justice, which filed a complaint on Feb. 24 in U.S. District Court for the Southern District of New York against the Troy, Mich.-based financial institution over allegations it improperly approved thousands of residential loans that were insured by the Federal Housing Administration. Flagstar settled the allegations with the Department of Housing and Urban Development for $133 million.

Former mortgage broker Randy G. Ridenour was charged with securities fraud on March 14, The Journal Gazette reported. The Fort Wayne, Ind., resident allegedly bilked Randall Striggle out of $34,342 in 2009 by promising a 23 percent annual return from the TMC Fund.

Mortgage Expert

Mortgage Daily Staff



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