The original complaint charges RAIT and certain of its officers and trustees with violations of the Federal Securities Laws. RAIT is a real estate investment trust, providing comprehensive debt financing options to the real estate industry including bridge and mezzanine loans, preferred equity investments, trust preferred securities ("TruPS") and subordinated debt for private and corporate owners of commercial real estate, REITs and real estate operating companies and their intermediaries throughout the United States and Europe.
According to the complaint, during the Class Period, defendants issued materially false and misleading statements that misrepresented and failed to disclose (i) RAIT's financial relationship with American Home Mortgage ("AHM"); that (ii) the payment to RAIT by American Home Mortgage of the TruPS was in jeopardy, which could result in at least a net exposure of $95 million, or $1.56 per share of book value; and that (iii) RAIT had failed to adequately reserve for the risk of nonpayment of American Home Mortgage and the loss in value of the associated securities in an amount of approximately $95 million.
On July 31, 2007, RAIT surprised the market by announcing that it did not receive payment from AHM of trust preferred securities due on July 30, 2007 from AHM, resulting in at least a net equity exposure of $95 million. The price of RAIT's common stock declined in reaction to this news from a close on July 30, 2007 of $16.06 to a close on July 31, 2007 of $10.36.
On October 25, 2007, the judge entered an order consolidated related cases and appointing Brahman Capital, an employee-owned investment management firm, as lead plaintiff. The first Consolidated Class Action Complaint, adding several additional individuals, underwriters and the company's independent auditor, was filed January 4, 2008. Defendants filed motions for dismissal on March 10, 2008.
On December 22, 2008 the judge entered an order granting in part and denying in part defendants' motions for dismissal. Specifically, Counts Four, Five and Six of the complaint were dismissed without prejudice. With respect to Plaintiffs’ claim
alleging a duty to update or a duty to correct under Count One, defendants' motions were granted without prejudice. Motions to dismiss Counts Two, Three, Seven and Eight were denied.
On February 26, 2009, and March 4, 2009, defendants Grant Thornton LLP and Piper Jaffray & Co., respectively, filed motions for entry of judgment. On April 24, 2009, Judge Legrome D. Davis granted the lead plaintiff’s motion to substitute their counsel. On June 29, 2009, Judge Davis denied without prejudice the motions for entry of judgment. On July 15, 2009, the lead plaintiff filed a motion for preliminary approval of settlement, certification of the class and approval of notice to the class. The proposed settlement is in the amount of $32 million in cash.
On September 4, 2009, the Honorable Legrome D. Davis preliminarily approved the Settlement on the terms set forth in the Stipulation, subject to further consideration at the Settlement Hearing to be held before this Court on Thursday, December 10, 2009. On December 14, 2009, the Honorable Legrome D. Davis approved the settlement and awarded the attorneys’ fees and litigation expenses. The action is now dismissed with prejudice.