In a development that attracted little notice at the time, on December 10, 2008, the parties to the subprime-related securities lawsuit pending in the Northern District of California against Luminent Mortgage Capital and certain of its directors and officers filed a Stipulation of Settlement (here), in which the defendants agreed to pay $8 million to settle the case.
As far as I am aware, the Luminent settlement is only the second of the subprime-related securities lawsuits in which the parties have reached a settlement.
As discussed at greater length here, the plaintiffs had alleged that in certain public statements in July 2007, the defendants has misrepresented Luminent’s liquidity, the quality of its mortgage backed securities (MBS) portfolio, and the safety of its dividend for the second quarter of 2007, payable August 8, 2007.
The plaintiffs’ Amended Complaint (here) alleged that the defendants failed to disclose margin calls on the company’s MBS portfolio, a write-down on its portfolio and significant exposure to subprime debt that negatively impacted the company’s liquidity. The company’s share price dropped over 75% after the company announced on August 6, 2007 that it was cancelling payment of the second quarter dividend.
As reflected in the Stipulation of Settlement, the parties reached an agreement to settle the case while the defendants’ motion to dismiss was pending. The settlement followed the parties’ agreement to attempt to resolve the case through court-appointed mediation. The settlement is subject to court approval. The settlement also includes defendants’ agreement to pay $100,000 administrative costs. The parties agree that plaintiffs’ counsel may apply for and receive a fee award of up to 25% of the settlement amount.
Though the Stipulation of Settlement was not filed with the court until December 10, it is dated September 10, 2008. On September 5, 2008, Luminent and its subsidiaries had filed for bankruptcy protection in the District of Maryland Bankruptcy Court. On October 3, 2008, Luminent filed a motion in the bankruptcy court to lift the automatic stay to permit the securities lawsuits settlement to be consummated and to approve the settlement as in the best interests of the debtor. On December 2, 2008, the bankruptcy court approved Luminent’s application and authorized the parties to proceed with the settlement.
The Luminent settlement follows the only other subprime-related securities lawsuit settlement of which I am aware, the $4.85 million WSB Financial Group settlement (about which refer here). I have added the Luminent settlement to my running table of subprime and credit crisis-related securities lawsuit settlements, dismissals and dismissal denials, which can be accessed here.
Special thanks to Adam Savett of the Securities Litigation Watch blog (here) for providing a copy of the Stipulation of Settlement.