Saturday, April 28, 2007

Counting the Subprime Lender Lawsuits

Last Updated June 25, 2008 PLEASE NOTE THAT THIS WEBPAGE WILL NO LONGER BE UPDATED!!! Please refer to the corresponding page on my new site, as described in the next paragraph.

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As shown in the lists below, the lawsuits against subprime lenders are starting to mount up. This is hardly a surprising development; as the WSJ.com Law blog noted (here), law firms are already announcing their formation of subprime lending task forces and teams, just as a year ago law firms were announcing their formation of “options backdating teams.” Along the same lines, on April 25, 2007, Law.com ran an article entitled "Subprime Crash May be a Boon to Attorneys" (here).

The latest subprime lending lawsuit to arrive is a bit unusual. According to news reports (here and here), employees of Fremont General Corp. claim they have lost millions in company stock in their retirement plans when the company was forced out of the subprime lending business in March 2007. The lawsuit, filed this week in federal court in Los Angeles, under the Employee Retirement Income Security Act (ERISA), named nine Fremont General directors as defendants and alleges that executives sold $16.5 million of their own stock shares from January 1, 2003 to April 24, 2007, while causing the company’s retirement plan to buy between $150 million and $210 million of the stock. The lawsuit contends that the defendants knew or should have known that the stock was not a prudent investment for Fremont’s ESOP, which held the stock exclusively, or for a 401(k) retirement plan where employees had invested about two-thirds of their savings in Fremont shares.

The Fremont suit joins a growing list of lawsuits against subprime lenders arising from the deteriorating environment these companies face. The list is now sufficiently long that it seems to be time to create a running tally of the subprime lending lawsuits, as a complement to The D & O Diary’s popular running tally (here) of the options backdating related lawsuits. I have set out below the list of subprime lending lawsuits of which I am aware. This list may be incomplete, and I entreat readers to please let me know of any omission of which they are aware. I will endeavor to keep this list updated and will indicate any additions to the list in red. The legend "2008" indicates that the lawsuit was filed in 2008; items without a legend were filed in 2007.

Securities Class Action Lawsuits (not counting cases against the credit rating agencies and residential home builders, with respect to which refer below):

1. ACA Capital Holdings
2. Accredited Home Lenders
3. Ambac Financial Group [2008]
4. American Home Mortgage Investment Corporation
5. American International Group [2008]
6. BankAtlantic Bancorp.
7. Bank of American (Auction Rate Securities) [2008]
8. Bear Stearns [2008]
9. Calamos Global Dynamic Fund (Auction Rate Preferred Securities) [2008]
10. Care Investment Trust
11. CBRE Realty Finance
12. Centerline Holding Company [2008]
13. Citigroup
14. Citigroup (Auction Rate Securities) [2008]
15. Citigroup/Falcon Strategies Two LLC [2008]
16. Citigroup Mortgage Loan Trust [2008]
17. Coast Financial Holdings
18. Countrywide Financial Corp.
19. Countrywide Home Loans Servicing (refer here about this case)
20. Credit Suisse Group [2008]
21. Deutsche Bank [2008]
22. Downey Financial Corp. [2008]
23. E*Trade Financial Corp.
24. E*Trade Financial Corp. (Auction Rate Securities) [2008]
25. Evergreen Ultra Short Opportunities Fund [2008]
26. Federal Home Loan Mortgage Corporation
27. Fifth Third Bancorp. [2008]
28. Fremont General Corporation
29. Fidelity Ultra Short Bond Fund [2008]
30, First American Corporation [2008]
31. First Home Builders of Florida
32. First Marblehead Corp. [2008]
33. Franklin Bank Corp. [2008]
34. HarborView Mortgage Loan Trust/Royal Bank of Scotland [2008]
35. HomeBanc Corp.
36. Huntington Bancshares Incorporated
37. Huntington/Sky Financial [2008]
38. IMPAC Mortgage Holdings, Inc.
39. IndyMac Financial, Inc.
40. IndyMac Financial/Option ARMs [2008]
41. J.P. Morgan Chase (Auction Rate Securities) [2008]
42. Lehman Brothers [2008]
43. Luminent Mortgage Capital
44. MAT Five LLC/Citigroup Global Markets [2008]
45. MBIA [2008]
46. Merrill Lynch
47. Merrill Lynch/First Republic
48. Merrill Lynch (Auction Rate Securities) [2008]
49. MGIC Investment Corp. [2008]
50. MoneyGram International [2008]
51. Morgan Keegan Funds/Regions Financial Corporation
52. Morgan Stanley [2008]
53. Morgan Stanley (Auction Rate Securities) [2008]
54. Municipal Mortgage & Equity ("Muni Mae") [2008]
55. National City Corporation [2008]
56. National City/Harbor Bank [2008]
57. NetBank, Inc.
58 New Century Financial
59. Nomura Asset Acceptance Corporation [2008] (refer here about this case)
60. Nova Star Financial
61. Oppenheimer Holdings (Auction Rate Securities) [2008]
62. Opteum, Inc.
63. Radian Group, Inc.
64. RAIT Financial Trust
65. Raymond James Financial (Auction Rate Securities) [2008]
66. RBC Dain Rauscher (Auction Rate Securities) [2008]
67. Sallie Mae [2008]
68. Schwab Yield PLUS Funds [2008]
69. Security Capital Assurance, Ltd.
70. Societe Generale [2008]
71. SunTrust Banks (Auction Rate Securities) [2008]
72. Swiss Re [2008]
73. TD Ameritrade [2008]
74. The Blackstone Group, L.P. [2008]
75. The Goldman Sachs Group (Auction Rate Securities) [2008]
76. The PMI Group [2008]
77. Thornburg Mortgage
78. UBS AG
79. UBS (Auction Rate Securities) [2008]
80. Wachovia Corporation [2008]
81. Wachovia (Auction Rate Securities) [2008]
82. Wachovia/Golden West [2008]
83. Washington Mutual
84. Wells Fargo & Co. (Auction Rate Securities) [2008]
85. WSB Financial Group

The Total Securities lawsuit Count including the cases on the preceding list and the cases described below relating to the credit rating agencies and the residential home builders is 93.

In addition to these securities class act7on lawsuits against subprime lenders, on July 19, 2007, a shareholders of Moody's filed a purported securities class action lawsuit (here) against Moody's, alleging that Moody's "misrepresented or failed to disclose that the Company assigned excessively high ratings to bonds backed by risky subrprime mortgages." UPDATE: In addition, on August 28, 2007, shareholders of McGraw-Hill filed a lawsuit (refer here) alleging that the company's Standard & Poor's subsidiary assigned excessively higher ratings to certain mortgage-backed securities.

NOTE ABOUT THE LIST OF CASES: As time has gone by, it has become increasingly difficult to maintain absolute categorical precision regarding what is a subprime related lawsuit. For example, the Care Investment Trust case noted above involved a mortgage trust that holds healthcare related assets. The allegation is that the company's prospectus failed to disclose the impairment of the value of certain of its assets and that the company was having difficulty obtaining warehousing financing for its investment activities. The company's woes are undoubtedly due to contagion in the credit market deriving from the subprime meltdown, but the company itself has no ties to the subprime industry. Owing to the connection of the contagion effect in the credit markets, I have included the case in the list. Reasonable minds might omit the case.

ERISA/401(k) Lawsuits:

1. Fremont General
2. Beazer Homes
3. Citigroup
4. Countrywide Financial Corp.
5. Merrill Lynch
6. UBS AG
7. Morgan Stanley
8. State Street
9. MBIA [2008]
10. Bear Stearns [2008]
11. Regions Financial Corporation [2008]
12. National City Corp. [2008]
13. Huntington Bankshares [2008]
14. Impac Mortgage Corp.
15. Sovereign Bancorp. [2008]
16. Wachovia [2008]
17. First Horizon [2008]

Subprime lenders have also been sued in various lawsuits alleging that they engaged in deceptive or unfair trade practices. Recent examples involve the lawsuit pending against First Franklin Financial Corp. (here) and the lawsuit that Wells Fargo recently settled (here). While I will provide occasional updates on this post of these kinds of deceptive trade practices lawsuit, I do not propose to comprehensively catalog them here.

In at least one instance, an investment bank has been sued in connection with the bond securitization of subprime loans. According to news reports (here), Credit Suisse was sued by Bankers Life Insurance Co. in a lawsuit in which the insurer claims it lost money on the investment grade bonds backed by subprime mortgages the Credit Suisse had sold. The lawsuit generally pertains to the quality (or lack thereof) of the mortgages that backed the bonds.

In addition to these subprime lending companies, home builders have also been suffering from the current deteriorating residential real estate conditions, as well as from the reduction in easier financing for potential buyers. The home construction companies whose woes have led to lawsuits are listed below:

Home Builder Securities Class Action Lawsuits:

1. Beazer Homes USA
2. Hovnanian Enterprises
3. Standard Pacific
4. Tarragon Corporation
5. Toll Brothers
6. Levitt Corp. [2008]


There may well be other companies or kinds of companies adversely affected by the declining residential real estate market who find themselves facing securities class action or other lawsuits, as if so, I will update this post accordingly. UPDATE: I have a separate post here reviewing in greater detail the range of subprime lawsuits and litigants, generally outside the shareholder lawsuit context.

Readers are encouraged to suggest additional listings or references that should be added to this post.

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