According to a press release dated June 9, 2005, in a ruling that strictly enforces the "particularity" requirements of the Private Securities Litigation Reform Act, a federal judge has dismissed a class action suit against top executives at American Business Financial Services Inc. after finding that the plaintiffs lacked detailed evidence to back up their claim that false and misleading statements were made to investors. In the suit, investors allege that ABFS - a now-bankrupt financial services company that specialized in home equity loans - used improper accounting practices to hide its high rate of delinquent loans.
The Complaint alleges that defendants ABFI violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. More
specifically, the Complaint alleges that, during the Class Period, defendants
failed to disclose and indicate (1) the Company used a deception to take homes
from delinquent borrowers in order keep its delinquency rate low; (2) that the
deception allowed the Company to skip the normal foreclosure process more
frequently; (3) that the deception helped the Company to reduce its delinquency
rate in its $3.6 billion loan portfolio; (4) as result of reducing its
delinquency rate in its $3.6 billion loan portfolio, the Company was able to
securitize more loans; and (5) were thus able to collect interest income from
its securitized loans and inflate its financial results.
Further, the press release said that, on June 13, 2003, the Company disclosed that it had received a civil subpoena
from the U.S. Department of Justice requesting that ABFI provide documents
relating to mortgage loan transactions and securitization agreements. On news
of this, shares of ABFI fell 20% to close at $8.27 per share. On June 26, 2003,
ABFI disclosed that it anticipated incurring a loss for the quarter and year
ended June 30, 2003 due to its inability to complete its quarterly
securitization of loans. On news of this, shares of ABFI fell 12% to close at
$7.40 per share.