According to a law firm press release, plaintiffs filed suit against Franklin Bank and the Company's CEO and CFO during the Class Period. The complaint alleges that defendants violated the Securities Exchange Act of 1934. Specifically, the complaint alleges that, during the Class Period, the defendants engaged in a variety of accounting improprieties, including their admitted failure to charge off uncollectible loans and to mark Franklin's loans to market. As a result of the misconduct alleged, defendants understated the Company's delinquent, nonperforming, and uncollectible loans and thereby misrepresented Franklin's financial condition and results, including its overall and per-share profits and the fair market value of its residential mortgage loan portfolio.
On July 31 and November 10, 2008, Judge Samuel B. Kent granted the motion to consolidate several actions under Lead Case No. 4:08cv1810. On November 19, 2008, Judge Kent ordered that the Franklin Investor Group is appointed Lead Plaintiff. The Law Firm of Cauley Bowman Carney & Williams, PLLC is appointed Lead Counsel, and the Law Firm of Hagans Burdine Montgomery Rustay & Winchester, P.C. is appointed Liaison Counsel. On March 6, 2009, a Consolidated Amended Complaint.
On May 4, 2009, a complaint was filed titled in the U.S. District Court for the Southern District of Texas, titled The Harold Roucher Trust U/A DTD, et al. v. RBC Capital Markets Corp., et al., case number 09-CV-01348. This action is related to a pending case in the same Court against the parent company. The lead plaintiff in that case has not asserted any claims on behalf of Franklin's preferred stock purchasers. The claims asserted within the complaint are not all of the claims that can or should be asserted on behalf of preferred stock purchasers, but they are asserted herein out of an abundance caution because of the impending expiration of the repose period under the Securities Act." On August 6, 2008, Franklin disclosed that it needed to restate its previously disclosed financial results not merely for the third quarter of 2007, but for all of fiscal year 2007 and fiscal year 2006. These shocking disclosures revealed not only that the Bank's financial results for the past several years were unreliable but also that the Bank's accounting procedures and internal controls, as well as its lending practices, were severely deficient and as a result the Bank's financial position was imperiled. As a result of these disclosures, several disclosures in the Registration Statement and Prospectus filed by Franklin with the Securities and Exchange Commission in connection with its Preferred IPO which commenced on or about May 6, 2006, have proved to be materially false and/or misleading, to the injury of investors who purchased preferred shares in or traceable to that May 2006 offering. On July 17, 2009, this action was transferred and consolidated into the action already pending the same court.
On December 22, 2009, the plaintiffs filed a Second Consolidated Amended Complaint, and an Amended Consolidated Preferred Stock Purchaser Complaint. On March 5, 2010, the defendants filed several motions to dismiss the Amended Complaint and motions to dismiss the Second Consolidated Amended Complaint.
On March 21, 2011, Judge Keith P. Ellison granted the various motions to dismiss. That same day, Final Judgment was entered and the case was terminated.
On April 19, 2011, Lead Plaintiff filed a Notice of Appeal regarding the final judgment entered as to all Defendants on March 21, 2011 and the orders upon which that judgment was based.