The original complaint charges American Home Mortgage and certain of its officers and directors with violations of the Exchange Act. American Home Mortgage is a real estate investment trust (REIT), which engages in the investment and origination of residential mortgage loans in the United States. The Company primarily originates and sells securitized adjustable-rate mortgage loans, as well as engages in the sale of mortgage loans to institutional investors and servicing mortgage loans owned by others.
According to the complaint, during the Class Period, defendants issued materially false and misleading statements that misrepresented and failed to disclose that: (i) the Company was experiencing an increasing level of loan delinquencies which was depressing its earnings; (ii) that the Company was experiencing increasing difficulties in selling its loans and, therefore, was required to decrease prices, thereby reducing margins and profits; and (iii) as a result of the foregoing, the Company was overstating its financial results by failing to write-down the value of certain of the loans in its portfolio as these loans had declined substantially in value.
Then, on June 28, 2007, American Home Mortgage issued a press release announcing that it will take "substantial charges for credit-related expenses in the second quarter." The Company reported that the increase in losses was related to its practice of extending a three month timely payment warranty that the Company granted to loan buyers who purchased stated income loans. In response to this announcement, the price of American Home Mortgage stock declined from $20.91 per share to $18.38 per share on extremely heavy trading volume. Then, on July 27, 2007, after the close of the market, American Home Mortgage issued a press release announcing that its Board of Directors had determined to delay paying its dividend. In response to this announcement, on July 30, 2007, the NYSE halted trading in American Home Mortgage stock before the market opened.
NOTE: On August 6, 2007, American Home filed a voluntary petition under Chapter 1 I of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. Pursuant to Section 362(a) of the Bankruptcy Code, all actions are automatically stayed against a debtor who files a voluntary petition under the Bankruptcy Code. Accordingly, Lead Plaintiffs have not named American Home as a defendant.
On March 19, 2008 the judge ordered related cases to be consolidated under In Re: American Home Mortgage Securities Litigation, docket number is 07-MD-1898 (TCP). The judge appointed the Teachers’ Retirement System of Oklahoma and the Oklahoma Police Pension & Retirement System as Co-Lead Plaintiffs and approved their selection of Bernstein Litowitz Berger & Grossmann LLP and Berman DeValerio Pease Tabacco Burt & Pucilllo as Co-Lead Counsel. On June 3, 2008 the plaintiffs filed the First Consolidated Complaint adding to the original name defendants several outside directors, underwriters and the company's external auditor. Plaintiffs also added alleged violations under the 1933 Act.
On October 3, 2008 a related case pending in the United States District Court for the Eastern District of Virginia was transferred into the master docket's court and consolidated thereunder.
On September 12, 2008, Defendants filed seven separate motions to dismiss the
Complaint. Lead Plaintiffs served their oppositions to Defendants' motions on November 14, 2008 and reply papers were served on December 5, 2008. The motions were pending before the Court when the agreements to settle with Defendants were reached.
On July 7, 2009, the plaintiffs filed a Notice of Lead Plaintiffs' Motion for Preliminary Approval of Settlements, Certification of the Class for Settlement Puroses and Approval of Notice to the Class. According to the Notice, the Court-appointed Lead Plaintiffs, Teachers' Retirement System of Oklahoma and the Oklahoma Police Pension & Retirement System, on behalf of the Class and the Offerings Subclass have reached proposed all-cash settlements of the Action, as follows: a settlement with the Michael Strauss, Stephen A. Hozie, Robert Bernstein, John A. Johnston, Michael A. McManus, Jr., C. Cathleen Raffaeli, Nicholas R. Marfino, Kenneth P. Slosser, Irving J. Thau, and Kristian R. Salovaara (the "Individual Defendants”), in the amount of $24 million on behalf of all Class Members; a settlement with Deloitte & Touche LLP (“Deloitte”) in the amount of $4.75 million on behalf of the Offerings Subclass; and a settlement with the defendants Citigroup Global Markets Inc., Citigroup Inc., J.P. Morgan Chase & Co., Deutsche Bank Securities Inc., Deutsche Bank A.G., Stifel, Nicolaus & Company, Incorporated, and Ryan Beck & Co., Inc. (the "Underwriter Defendants") in the amount of $8.5 million on behalf of the Offerings Subclass. The total amount of the Settlements equals $37.25 million. Pursuant to the respective Settlements, the Individual Defendants' Insurers have agreed to pay the Settlement Amount of $24 million; Deloitte has agreed to pay the Settlement Amount of $4.75 million; and the Underwriter Defendants have agreed to pay the Settlement Amount of $8.5 million to resolve the claims asserted against them.
On July 30, 2009, Senior Judge Thomas C. Platt signed the order preliminarily approving the settlements. Judge Platt certified the action to proceed as a class action for purposes of the settlements only. On January 14, 2010, Judge Platt approved the settlement, the plan of allocation and the motion for attorneys’ fees and expenses. Lead Counsel are awarded attorneys' fees in the amount of 20% of the $37.25 million Total Settlement Amount and $572,043.33 in reimbursement of litigation expenses. The action is dismissed with prejudice.