According to a press release dated February 9, 2007, the complaint charges New Century and certain of its officers and directors with violations of the Securities Exchange Act of 1934. New Century is a real estate investment trust that through its subsidiaries operates mortgage finance companies.
Specifically, the complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results and concealed the following material adverse facts from the investing public: (a) the Company lacked requisite internal controls, and, as a result, the Company’s projections and reported results issued during the Class Period were based upon defective assumptions and/or manipulated facts; (b) the Company’s financial statements were materially misstated due to its failure to properly account for its allowance for loan repurchase losses; (c) the Company’s financial statements were materially misstated due to its failure to properly account for its residual interests in securitizations by failing to timely write down the impaired asset; (d) given the deterioration and the increased volatility in the subprime market, the Company would be forced to tighten its underwriting guidelines which would have a direct material negative impact on its loan productions going forward; and (e) given the increased volatility in the subprime market, the Company had no reasonable basis to make projections about its ability to maintain its current mortgage loan production levels for 2007. As a result of these false statements, New Century stock traded at artificially inflated prices during the Class Period, reaching a high of $51.22 per share on April 28, 2006. Defendants took advantage of this inflation, selling 665,334 shares of their New Century stock for proceeds of over $26.6 million.
The complaint further alleges that on or around February 7, 2007, after the market closed, New Century announced that it will have to restate its consolidated financial results for the first three quarters of 2006 to correct errors the Company discovered in its application of generally accepted accounting principles regarding the Company’s allowance for loan repurchase losses. On this news, New Century’s stock collapsed $10.92 per share to close at $19.24 per share on February 8, 2007, a one-day decline of 36%, on volume of 25 million shares, 17 times the average three month volume.
On April 6, 2007 defendant New Century filed a notice of bankruptcy.
On June 26, 2007 the judge submitted his order consolidating the related cases, appointing New York State Teachers Retirement System as lead plaintiff and approving their choice of Bernstein Litowitz as lead counsel. Plaintiffs have been given until September 14, 2007 to file their consolidated complaint.
On September 14, 2007, the plaintiffs filed a Consolidated Class Action Complaint. The defendants responded by filing various motions to dismiss the Consolidated Class Action Complaint. On January 31, 2008, the Court entered the Order granting the motions to dismiss with leave to amend. According to the Order, Plaintiffs shall file an amended class action complaint by February 25, 2008.
On March 24, 2008, the plaintiffs filed an Amended Consolidated Class Action Complaint dropping claims against New Century due to its bankruptcy status and removing all claims of Section 12(a)2 violations. A Second Amended Consolidated complaint was filed on April 30, 2008. Defendants filed motions for dismissal on June 2, 2008. Oral arguments on the pending motions were heard September 22, 2008 and now await the judge's ruling.
A December 3, 2008 order denied substantially all of the defendants' motions for dismissal with the exception of "allegations of false and misleading statements that rely on the group pleading doctrine." The same order denied defendant KPMG's motion to strike. The parties are currently in the discovery phase.
On January 13, 2010, Defendant KPMG LLP filed motions for summary judgment as to Plaintiffs' Second Amended Consolidated Complaint.
Before any ruling on the motion for summary judgment, the parties reached an agreement. On July 30, 2010, the plaintiff filed a motion for preliminary approval of the settlement. According to the motion, the three Settlement Stipulations are as follows: (a) Stipulation Of Global Settlement With New Century Officers And Director, which provides a sum to the Class of $65,077,088 to settle the claims against the New Century director and officer Defendants; (b) Stipulation Of Settlement Between Plaintiffs And KPMG, which provides a sum of $44,750,000 to settle the claims against auditor Defendant KPMG; and (c) Stipulation Of Settlement Between Plaintiffs And The Underwriter Defendants (attached as Exhibit 4 hereto), which provides a sum of $15,000,000 to settle the claims against the Underwriter Defendants. The three Settlement Stipulations provide for a total recovery for the Class of approximately $125,000,000 in cash before deduction of Court-approved fees, expenses, and costs.
On August 19, 2010, the settlements were preliminarily approved. The Settlement Hearing is set for November 8, 2010, at which time the Court shall address the fairness, reasonableness and adequacy of the Settlements.
According to a news article dated November 9, 2010, a federal judge in California approved more than $14.4 million in attorney fees for Bernstein Litowitz Berger & Grossman as lead plaintiffs' counsel in a $125 million shareholder settlement involving bankrupt New Century Financial Corp., one of the largest lenders to collapse during the subprime mortgage meltdown. During a final settlement hearing, U.S. District Judge Dean Pregerson in Los Angeles told Salvatore Graziano, a partner at the New York firm, that the award "might have set a record for the lowest" in attorney fees in a case such as this. … The settlement included three stipulations: Auditor KPMG LLP will pay $44.75 million; the underwriter defendants will pay $15 million; and New Century's former officers and directors collectively will pay more than $65 million.