The original complaint was filed for breach of fiduciary duty and violations of the Securities Exchange Act of 1934. Specifically, the complaint alleges that during the Class Period defendant issued statements concerning Fremont General's business, operations and prospects which defendant knew or recklessly disregarded were materially false and misleading. As a result of defendant's' failure to disclose the Company's improper business practices, Fremont General stock traded at artificially inflated prices during the Class Period.
The complaint alleges that on February 27, 2007, investors were shocked when Fremont General issued a press release disclosing that the Company would postpone filing its Form 10-K annual report for 2006 with the SEC, and that the Company "intends to file a Form l2b-25 with the Securities and Exchange Commission explaining the reasons therefor." As a result of this news, the next day shares of the Company's stock declined $2.84 per share, or 24 percent, to close on February 28, 2007, at $8.81 per share, on unusually heavy trading volume.
The complaint further alleges that on March 2, 2007, the Company filed a Form 12b-25 with the SEC informing investors that the Company was unable to timely file its Form 10-K and - even more disturbing - that the Company intended to exit its subprime residential real estate lending business.
The action against Fremont General Corporation was first filed on June 15, 2007. On August 15, 2007, a Notice of Voluntary Dismissal was filed by the plaintiff. According to the Notice, notice is hereby given that pursuant to FRCP 41(a)(1), Plaintiff Susan D'Errico voluntarily dismisses the above-captioned Complaint without prejudice.
On September 4, 2007, securities class action was filed against Fremont General and certain individuals with similar allegations with class period May 9, 2006 to February 27, 2007. The action is continuing in Mohammed Al-Beitawi v. Rampino, case number 07-CV-05756. On December 6, 2007, the Court issued the Order granting the motion of New York State Teachers Retirement Systems to be appointed lead plaintiff and approved lead plaintiff’s selection of Bernstein Litowitz Berger & Grossmann LLP as lead counsel. On March 5, 2008, an Amended Consolidated Class Action Complaint was filed. Defendants successfully argued their June 16 motion for dismissal and the judge entered the order, without prejudice, on October 28, 2008. The court provided plaintiffs 45 days to file an amended complaint.
The Atencio Action was first filed on June 12, 2008. According to the complaint filed by plaintiff Felice Atencio in the Central District of California, case number 08-CV-03862, throughout the Class Period defendants issued public statements which they knew or recklessly disregarded were materially false and misleading and failed to fully disclose material adverse facts concerning Fremont General's business, operations and prospects. Specifically, throughout the Class Period defendants failed to fully disclose that the Company engaged in a variety of risky and improper mortgage lending practices, thereby causing Fremont General securities to trade at artificially inflated prices during the Class Period. On March 2, 2007, the Company announced that Fremont General, Fremont Investment & Loan, and Fremont General Credit Corporation would enter into a voluntary cease and desist order with the Federal Deposit Insurance Corporation (FDIC) related to allegations of unsafe or unsound banking practices in the Company's subprime mortgage lending business. On April 2, 2007, the Company announced that its auditor, Grant Thornton LLP, had resigned from its position as the Company’s independent accounting firm. Approximately two weeks later, on April 16, 2007, Fremont General announced an agreement to sell approximately $2.9 billion of its subprime residential real estate loans and that the Company was negotiating terms for the sale of most of its residential real estate business and assets. One month later, on May 22, 2007 Fremont General announced definitive agreements for the sale of its commercial real estate lending business, the sale of a minority interest in the Company and the appointment of new senior management. The true facts, the full extent of which were known by the defendants but concealed from the investing public during the Class Period, were that Fremont General and its wholly owned banking subsidiary Fremont Investment & Loan (FIL) engaged in widespread, unfair and/or deceptive banking practices, which enabled the Company to grant adjustable-rate mortgages to subprime borrowers who were highly unlikely to be able to repay the loans and thus were at great risk of default and foreclosure. Then, on August 10, 2007, Fremont General filed a Form NT 10-Q with the Securities and Exchange Commission (SEC), announcing a delay in the filing of the Company's Form 10-Q for the period ended June 30, 2007, and noting that "[t]he Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2006 or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007" and that the Company "expects to report a significant change in results of operations from the corresponding period for the last fiscal year." This news shocked the market, causing the price of Fremont General Preferred Shares to sharply decline, beginning on the next trading day, Monday, August 13, 2007, and continuing over the subsequent three days, to close on August 16, 2007 at 12.00 per share - a four-day drop of nearly 30%, or $4.45 per share. As a result of defendants' misleading statements and failures to fully disclose the Company's risky and improper mortgage lending practices and their effects on its business and prospects, Fremont General securities traded at artificially inflated prices during the Class Period, thereby damaging investors.
On December 10, 2008, the Court entered the Order consolidating the Al-Beitawi Action and the Atencio Action under one file, Case No. 2:07-cv-05756-FMC-FFMx, the case number currently assigned to the Al-Beitawi Action. According to the Order, the NYSTRS shall remain as sole Lead Plaintiff, and Bernstein Litowitz Berger & Grossmann LLP shall remain as sole Lead Counsel for all purchasers of Fremont General Corporation securities during the Class Period. The Lead Plaintiff will file a Second Amended Complaint in this continuing action.
The lead plaintiff filed a Second Amended Complaint on January 9, 2009. On March 25, 2009, the defendants responded by filing a motion to dismiss the Second Amended Consolidated Class Action Securities Complaint. On September 25, 2009, Judge Florence-Marie Cooper granted the defendants’ motion to dismiss the Second Amended Consolidated Class Action Securities Complaint with prejudice. Plaintiff may file an amended complaint within 30 days of the date of the Order.
On November 30, 2009, the plaintiffs filed a Third Amended Consolidated Class Action Securities Complaint. On December 14, 2009, the defendants filed a motion to dismiss the Third Amended Consolidated Class Action Securities Complaint. On March 29, 2010, Judge Jacqueline H. Nguyen granted the motion to dismiss the Third Amended Consolidated Class Action Complaint. According to the Order, in this case, the Court concludes that the TAC cannot be saved by any amendment, and for the same reasons set forth in Fremont I and Fremont II, and discussed in this Order, the Court dismisses this action with prejudice,
On April 26, 2010, the plaintiff filed a Notice of Appeal in the U.S. Court of Appeals for the Ninth Circuit. On May 10, 2010, the plaintiff filed an Amended Notice of Appeal. On December 21, 2011, the Court entered the Mandate from the U.S. Court of Appeals. According to the Mandate, the Order of the District Court is affirmed.