The original complaint alleges that the Defendants issued a series of materially false and misleading statements and omitted material facts concerning the Company's lending practices and internal controls. In this regard, Countrywide allegedly misrepresented its position in the mortgage market by stating that the current downcycle in the housing market would actually place the Company in a "superior competitive position" based on the strength of its "capital liquidity positions, superior business model, and best in class workforce." The complaint further alleges that the Defendants falsely assured investors that Countrywide employed exacting loan underwriting and origination practices to ensure creditworthiness of loan applicants; implemented internal controls to anticipate appropriate loan loss reserves for any negative changes in the credit and housing markets; and maintained actual reserves to adequately meet such market downturns. Moreover, the complaint alleges that the Company's statements were materially false and misleading because Defendants, in fact: (i) did not follow Countrywide's reportedly strict underwriting and loan-origination practices; (ii) made a material portion of the Company's loans with little, if any, supporting documentation, such that Countrywide had no way of confirming the creditworthiness of many loan applicants; (iii) mischaracterized "low documentation" and "no documentation" loans as "prime loans;" (iv) failed to maintain adequate loan loss reserves; and (v) improperly attributed the Company's growth to sound risk management programs, rather than the Company's aggressive and risky loan origination practices. Thus, Countrywide's actual lending practices and internal controls differed materially from the description of those practices in the Company's Securities and Exchange Commission ("SEC") filings, press releases and other public statements. The Defendants' fraudulent statements and omissions concealed the Company's deteriorating financial condition as a result of increased delinquencies and defaults on subprime loans, and allowed the Defendants to artificially inflate the price of its Debentures. Accordingly, the complaint alleges that the Defendants violated Sections 10(b) and 20(a) of the Exchange Act as well as California state law.
Beginning on July 24, 2007, investors began to learn the truth about Countrywide's actual financial condition through a series of partial disclosures. Specifically, on July 24, 2007, Countrywide reported that as a result of "softening home prices . . . and [rising] delinquencies and defaults," the Company was taking a $417 million impairment on its investments in "credit-sensitive retained interest. . . . attributable to accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans." In addition, Countrywide reported that the Company took a $181 million charge to its loan loss reserves in its "held-for-investment" portfolio as a result of increased loan defaults in the prime market, setting aside in total $292.9 million for loan losses for the quarter, compared to $61.9 million a year earlier. As a result of these disclosures, the Series A Debentures fell $1.06 per debenture, or 1.10%, to close at $95.31 per debenture on July 24, 2007. The Series B Debentures fell $1.07 per debenture, or 1.11%, to close at $95.31 per debenture on July 24, 2007.
On August 9, 2007, Countrywide issued an additional press release disclosing the Company's potential-short-term liquidity issues, directly contradicting the Company's earlier assurances. Specifically, the Company warned of disruptions in the debt and secondary mortgage market that would likely affect the Company's short-term financial condition and earnings. Upon this disclosure, the Series A Debentures fell another $1.37 per debenture, or 1.48%, to close at $91.00 per debenture on August 10, 2007. The Series A Debentures continued to decline steadily to close at $84.81 per debenture on August 15, 2007, just one week after the August 9, 2007 disclosure, representing a total drop that week of $7.56 per debenture, or 8.18%. The Series B Debentures fell another $0.98 per debenture, or 1.08%, to close at $90.02 per debenture on August 10, 2007. The Series B Debentures continued to decline steadily to close at $81.94 per debenture on August 16, 2007, just one week after the August 9, 2007 disclosure, representing a total drop that week of $9.06 per debenture, or 9.96%.
In connection with the Company's recent corrective disclosures, on October 17, 2007, The Wall Street Journal reported that the SEC has commenced an inquiry into millions of dollars in stock sales by Defendant Mozilo, the Company's Chief Executive Officer. In particular, the SEC is investigating the timing of such sales by Mozilo and changes Mozilo made to his arranged stock selling program.
NOTE: The lawsuit is brought on behalf of all persons or entities who purchased Countrywide Financial Corporation Series A Floating Rate Convertible Senior Debentures Due 2037 and/or Countrywide Financial Corporation Series B Floating Rate Convertible Senior Debentures Due 2037 during the class period.
On December 28, 2007, the Court entered the Order by Judge Mariana R. Pfaelzer approving Argent Classic Convertible Arbitrage Fund LP as Lead Plaintiff and appointing Entwistle and Cappucci LLP and Susman Godfrey LLP as Co-Lead Counsel for the Lead Plaintiff. On April 2, 2008, the Court entered the Order consolidating all actions under master file number 2:07-cv-07097-MRP-MAN. On April 11, 2008, the plaintiffs filed an Amended Class Action Complaint.
On May 7, 2008, the lead plaintiffs amended their complaint and filed a Second Amended Class Action Complaint. The defendants responded by filing motions to dismiss the Second Amended Complaint On November 13, 2008, Judge Mariana R. Pfaelzer granted the defendants’ motion to dismiss without prejudice. The plaintiffs were given twenty days to replead and on December 3, 2008, the lead plaintiffs filed a Third Amended Class Action Complaint adding Bank Of America Corporation as defendant in the action.
On January 6, 2009, the defendants responded by filing various motions to dismiss the Third Amended Class Action Complaint. On March 19, 2009, Judge Mariana R. Pfaelzer issued the Omnibus Order granting certain motions to dismiss and denying other motions to dismiss. The action is now in the discovery phase. On August 3, 2009, the plaintiffs filed a motion to certify the class. On December 9, 2009, the motion for class certification was denied. On January 8, 2010, an individual defendant was dismissed with prejudice from the action. In January and February 2010, the parties filed stipulations staying the case pending settlement negotiations.
According to the Stipulation of Dismissal with Prejudice filed on May 4, 2010, Plaintiff Argent Classic Convertible Arbitrage Fund L.P. (“Argent”) and Defendants Countrywide Financial Corporation, Angelo R. Mozilo, David Sambol, and Eric P. Sieracki (collectively, “Defendants”), have agreed to resolve this matter amicably and dismiss it with prejudice and without the need for further litigation and expenditure of the parties’ or the Court’s resources; Whereas, by order dated December 9, 2009, this Court denied Argent’s motion to certify the above-captioned action as a class action, and the case has thereafter proceeded as an individual action solely on behalf of Argent; Now, Therefore, The Parties Hereby Stipulate And Agree as follows: Pursuant to Rule 41(a)(1)(A)(ii) of the Federal Rules of Civil Procedure, plaintiff Argent, solely in its individual capacity and on its own behalf, hereby dismisses the above-captioned action with prejudice. Plaintiff Argent further expressly waives any and all rights of appeal in the above-captioned action, and the parties further agree that each party shall bear its own costs and attorneys’ fees.
On May 6, 2010, Judge Mariana R. Pfaelzer signed both the Order granting the Stipulation and the Final Judgment.