According to an article dated June 6, 2008, a federal judge in the Western District of Missouri has dismissed a securities class - action lawsuit against the company. In a June 4 opinion, Judge Ortrie Smith found that the amended complaint against the Kansas City-based subprime lender missed several procedural filing requirements. … Smith's opinion didn't leave the door open for an amended complaint, saying "such an effort would be futile" because the lawsuit either couldn't do a better job of framing the complaint or didn't think Smith would figure that the complaint was inadequate.
On August 20, 2007, the Court approved Lerach Coughlin Stoia Geller Rudman & Robbins LLP as designating class counsel. On October 19, 2007, a Consolidated Complaint For Violation Of The Federal Securities Laws was filed. The defendants responded by filing a motion to dismiss the Consolidated Complaint.
In a press release dated August 15, 2007, on July 9, 2007, the district court consolidated the actions. The district court found that Dr. Kevin Lester, who purchased 73,750 net shares during the class period, had the largest financial interest because he held the most shares and suffered the greatest loss. The district court appointed Lester as the lead plaintiff.
The original Complaint alleges that NovaStar and certain of its officers and directors violated Federal Securities laws. Specifically, defendants concealed the following facts: (i) NovaStar lacked requisite internal controls, and, as a result, the projections and reported results were based upon defective assumptions about loan delinquencies; (ii) NovaStar's financial statements were materially misstated due to its failure to properly account for its allowance for loan losses; (iii) given the deterioration and the increased volatility in the subprime market, NovaStar would be forced to tighten its underwriting guidelines which would have a direct material negative impact on its loan production going forward; and (iv) given the increased volatility in the lending market, NovaStar had no reasonable basis to make projections about its ability to maintain its Real Estate Investment Trust ("REIT") taxable income, which drives dividends, and potentially even its very status as a REIT. As a result, NovaStar's projections issued during the Class Period about its REIT taxable income and dividends were at a minimum reckless.
The complaint further alleges that on or around February 20, 2007, after the markets closed, NovaStar announced disappointing fourth quarter and year-end 2006 results and further warned that it expected to earn little, if any, taxable income in the next five years. On this news, NovaStar's stock fell 42% to close at $10.10 per share on February 21, 2007.
On July 1, 2008, the plaintiff filed a Notice of Appeal from the order dismissing the case. The appeal is currently pending in the U.S. Court of Appeals for the Eighth Circuit, case number 08-2452.
On September 23, 2009, an appellate mandate and judgment was entered by the appellate court. This appeal from the United States District Court was submitted on the record of the district court, briefs of the parties and was argued by counsel. After consideration, it was ordered and adjudged that the judgment of the district court in this cause is affirmed in accordance with the opinion of this Court.