According to the Company’s Form 10-K for the fiscal year ended December 31, 2007, in March and April 2006, several purported class actions were filed against us, our Chief Executive Officer and our former Chief Financial Officer in the U.S. District Court for the District of New Jersey. The plaintiffs sought to represent an alleged class consisting of all persons (other than our officers and Directors and their affiliates) who purchased our Common stock during certain time periods beginning March 15, 2005 in one case and May 12, 2005 in the other cases and ending March 1, 2006. The plaintiffs alleged, among other matters, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Each of these purported class actions has since been voluntarily dismissed by the plaintiffs. Additionally, two derivative actions were filed in the U.S. District Court for the District of New Jersey against us, our former Chief Financial Officer and each member of our Board of Directors. Both of these derivative actions have since been voluntarily dismissed by the plaintiffs.
The Complaint alleges that defendants, PHH Corporation, its CEO and President and its CFO, violated federal securities laws by issuing a series of materially false statements. Specifically, defendants failed to disclose the following facts: (i) that PHH materially overstated its deferred tax assets, by tens of millions of dollars; (ii) that the Company's reported net income was materially overstated; (iii) that the Company's internal controls over financial reporting had material weaknesses, were not effective and adversely affected the Company's ability to record, process, summarize and report financial data; and (iv) as a result of the foregoing, the Company's reported results were materially inflated.
The complaint further alleges that on or around March 1, 2006, PHH issued a press release revealing that the Company's reported results were materially overstated, for the reasons discussed above, and that an ongoing accounting review would prevent it from timely filing with the SEC its annual report on Form 10-K. The Company also announced that it had replaced its Chief Financial Officer. On this news, the price of PHH common stock dropped from $28.73 per share on March 1, 2006 to $26 per share on March 2, 2006.