Shareholder Action Against Failed Mortgage Lender Tossed

Shareholder Action Against Failed Mortgage Lender Tossed - 8-27-2009

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2009 News and Press Releases

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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

DISMISSAL NEWS:

Shareholder Action Against Failed Mortgage Lender Tossed
Amanda Bronstad

The National Law Journal. August 27, 2009
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EXCERPT: A federal judge in Los Angeles has dismissed a shareholder class action against the former officers and directors of Downey Financial Corp., a mortgage lender that filed for Chapter 7 liquidation in November. "It's the first instance where a court has dismissed with prejudice a complaint filed against the former management of a financial institution that's been taken over by the FDIC," said Dan Marmalefsky, a partner in the Los Angeles office of Morrison & Foerster, referring to the Federal Deposit Insurance Corp.'s takeover of ailing financial institutions during the ongoing mortgage crisis. Marmalefsky represents the three individual defendants in the case: Downey's former chief executive officer, Daniel D. Rosenthal; its former chairman, Maurice L. McAlister; and its former chief financial officer, Brian E. Côté. The lead plaintiffs attorneys, Willow E. Radcliffe and Darren Robbins, both partners at San Diego's Coughlin Stoia Geller Rudman & Robbins, did not return calls for comment. Downey Financial, based in Newport Beach, Calif., specialized in "option" adjustable-rate mortgages, which allowed borrowers to choose how much to pay on their loans each month. Option ARMS, among the riskiest loans offered in recent years, have led numerous borrowers to default on their mortgages. The FDIC took over Downey, which remains in bankruptcy court. U.S. Bancorp owns Downey's banking operations, which totaled $9.7 billion in deposits at the time of its collapse. In May 2008, a class action was filed against Downey and its officers and directors on behalf of shareholders who purchased stock between Oct. 16, 2006, and March 14, 2008. In a consolidated second amended complaint filed earlier this year, shareholders contended that the former officers and directors defrauded investors by hiding Downey's "unsafe and unsound" lending practices.

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