In a resolution of one of the longest running subprime-related securities class action lawsuits, the parties to the Toll Brothers subprime securities suit have agreed to settle the case for $25 million. The parties’ stipulation of settlement filed on October 28, 2010 can be found here.
The Toll Brothers case was among the first of the subprime-related securities suits when it was first filed in April 2007. As reflected in greater detail here, the plaintiffs allege that between December 9, 2004 and November 8, 2005, the defendants made several misrepresentations relating to the company’s "ability to open new active selling communities at the rate necessary to support its financial projections, traffic in its existing communities, demand for Toll Brothers homes, and the ability to continue its historically strong earnings growth." The Amended Complaint further alleges that despite "adverse developments" the company raised its earning projections, which allegedly inflated the company’s share price, facilitating the defendants’ sale of 14 million of company shares for proceeds of over $617 million.
The Amended Complaint also alleges that "within days" of the completion of the insider sales, defendants "shocked investors" in a series of disclosures between August and November 2005 revealing that traffic and sales were declining, as a result of which the company’s share price declined 43% from its class period high.
As reflected in greater detail here, in August 2008, the district court denied the defendants’ motion to dismiss. After extensive additional procedural wrangling that included a trip to the Third Circuit, the parties agreed to settle the case during mediation.
A November 2, Reuters article discussing the settlement can be found here.
The interesting thing to me about this development is the simple fact that this case has settled. For whatever reason, there have been very few settlements of the subprime-related securities class action lawsuits, even though we are now will into the fourth year of the subprime litigation wave.
By my count, there have still only been 16 settlements of subprime and credit crisis related securities class action lawsuits, even though there have been over 220 subprime related securities class action lawsuits filed since the beginning of the subprime litigation wave in early 2007 and even though scores of cases have survived the initial dismissal motion. I would be very curious to know if any readers out there have any suggestions on why so few of these cases have settled.
It is probably worth noting that even though there have been only sixteen settlements of subprime and credit crisis-related securities class action lawsuits, those sixteen settlements total over $1.85 billion dollars (including the $624 million settlement in the Countrywide case).
It is also interesting to note that, because the Toll Brothers lawsuit was filed in early 2007, after the beginning of the subprime litigation wave, the lawsuit is counted among the subprime related cases, the class period for the case goes from December 9, 2004 and November 8, 2005 and relates to events and circumstances that allegedly took place well before the subprime meltdown really gained momentum. The lawsuit’s relation back to the earlier time period is reminder that the later problems were in many ways foreshadowed by earlier events.
In any event, I have added the Toll Brothers settlement to my running tally of subprime and credit crisis-related settlements and other case resolutions, which can be found here.
The Subprime and Credit Crisis-Related Cases Are Still Coming In: While the earliest cases are now finally being resolved, there are still subprime and credit crisis-related cases being filed. The latest case is the lawsuit filed on November 3, 2010 in the Northern District of Florida against The St. Joe Company and certain of its directors and officers.
(1) as the Florida real estate market was in decline, St. Joe was failing to take adequate and required impairments and accounting write-downs on many of its Florida based property developments; (2) as a result, St. Joe’s financial statements materially overvalued the Company’s Florida based property developments; (3) the Company’s financial statements were not prepared in accordance with Generally Accepted Accounting Principles; (4) the Company lacked adequate internal and financial controls; and (5) as a result of the foregoing, the Company’s financial statements were materially false and misleading at all relevant times.
The lawsuit follows on the heels of an October 13, 2010 report critical of the company written by hedge fund manager David Einhorn, the President of Greenlight Capital. Einhorn is perhaps best known for his very public bet against Lehman Brothers prior to the firm’s collapse. Einhorn’s report about St. Joe was the subject of a November 3, 2010 Wall Street Journal article (here).
My list of all 222 subprime and credit crisis related lawsuits that have been filed since February 2007 can be found here.
The Nuts and Bolts of D&O Insurance: I hope all readers have noticed that I have added a reference (with a hyperlink) in the right hand side bar to a single-page index for my multipart series on D&O insurance. Tell a friend.