On February 17, 2009, parties filed a Stipulation of Settlement with the court, outlining the $6,349,000 agreement. Coast Financial's insurer will pay a majority sum of the settlement. The judge granted preliminary approval on February 26, 2009.
On October 8, 2008 the judge summarily dismissed defendant Hacker Johnson & Smith, P.A, Coast Financial's external auditor. Plaintiffs responded by filing a Notice of Appeal on October 20.
Plaintiffs filed a Consolidated Class Action Complaint against two of the original individual defendants and the company but voluntarily dismissed the previously named interim CFO and COO without prejudice. Additionally named was the Board Chairman, several Outside Directors and two Underwriters. The remaining defendants filed a motion to dismiss on December 3, 2007. The judge granted the motion in part on March 13, 2008 and allowed plaintiffs to amend the deficiencies of the original complaint. An Amended complaint was filed on April 2. A second round of dismissal motions were filed April 24, which were subsequently denied on June 6, 2008. Defendants have filed answers to the complaint and discovery is scheduled to continue through December 2009.
On June 22, 2007, the Court entered the Order signed by U.S. District Judge Richard A. Lazzara granting the motion to consolidate, granting the motion to appoint lead plaintiffs, and granting the motion to approve selection of lead counsel.
According to a press release dated March 22, 2007, the complaint alleges violations of the Securities Exchange Act of 1934. During the class period, Coast issued a series of statements relating to Coast's residential loan portfolio. Coast claimed to have significantly increased its residential loan portfolio, but failed to disclose the build up and concentration of loans for residential construction projects that would be undertaken by Construction Compliance, Inc. ("CCI"). Coast lent millions to individuals to build residential homes, and much of this construction was undertaken by a single company, CCI. This increased the risk of loan default by borrowers and the devaluation of Coast's collateral. Coast failed to disclose that risk in any of its public filings and failed to properly reserve for loan losses on its financial statements. Coast and its officers were well aware of the build up of construction contracts with CCI, the complaint alleges. On January 19, 2007, Coast announced that it would likely suffer an impairment to its loan portfolio because CCI was going out of business and would not complete many of its construction projects. Coast's stock price fell approximately 50%. Later, Coast disclosed it would add $14 million in loan loss reserves to deal with the CCI problem.