Another Significant Subprime-Related Securities Lawsuit Settlement

Another Significant Subprime-Related Securities Lawsuit Settlement - 8/18/2009

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News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Another Significant Subprime-Related Securities Lawsuit Settlement
Kevin LaCroix

The D & O Diary. August 18, 2009
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EXCERPT: On July 30, 2009, Eastern District of New York Judge Thomas C. Platt entered an order preliminarily approving the settlement of the securities class action lawsuit that had been filed certain directors and officers of American Home Mortgage Investment Corporation. The total value of the settlement is $37.25 million, which alone makes the settlement significant. However, the settlement is also significant because it appears to be the first subprime-related securities lawsuit settlement to which the target company’s auditors and offering underwriters contributed toward settlement. As reflected in greater detail here, plaintiffs first initiated the lawsuits in July 2007. Because American Home itself had filed a voluntary petition for bankruptcy under Chapter 11, the company itself was not named as a defendant. In addition to the individual directors and officers, the defendants named in the case included the company’s outside auditor, Deloitte & Touche LLP, as well the investment banks that had acted as offering underwriters in connection with the company’s August 9, 2005 and April 30, 2007 public offering of its securities. Deloitte issued reports as to the company’s financial statements that were incorporated into the offering documents. American Home had been a real estate investment trust that engaged in the investment in and origination of residential mortgage loans. The complaint essentially alleged that the company was experiencing an increasing level of loan delinquencies. The complaint alleged that this was due to the company’s shift from higher quality loans to higher risk subprime loans, though the company allegedly continued to represent that it was not a subprime lender. As a result of the decline in loan quality, the company allegedly was experiencing increasing difficulties selling its loans, which compelled the company to reduce prices, reducing profits and margins.

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