Countrywide Financial Corporation (“CFC”) is one of the nation’s largest residential mortgage lender. In 2005 and 2006 alone, Countrywide originated in excess of $850 billion in home loans throughout the United States.
The original Complaint alleges that Defendants made false and misleading statements and material omissions regarding the Company's business and operations and that, as a result, the price of CFC's securities was inflated during the Class Period, thereby harming investors.
Specifically, according to the Complaint, during the Class Period, Defendants made false and misleading statements regarding the changing quality of the Company's mortgage loan portfolio. As late as April of 2007, CFC stated that credit rating agency Moody's upgraded the rating of the Company's banking segment and announced that its home loans segment was also under review for possible upgrade. Then, on June 12, 2007, CFC boasted of its position as the number one mortgage originator in the United States. These reassuring announcements served to conceal the alarming growth of loan delinquencies and the increasing likelihood of impairment charges, with resulting adverse impacts on the quality of the Company's collateralized debt obligations, earnings and profits.
The Complaint further alleges that on July 24, 2007, the Company finally announced the shocking news, of over $417 million in impairment charges and implementation of a $292.9 million loan loss provision. On the news, the price of CFC stock tumbled 10.4%, closing at $30.50 per share. Following this, on August 9, 2007, within four days of reassuring statements that purported the reliability and availability of liquidity to meet short-term needs, the Company adopted a new risk disclosure, warning of short-term liquidity issues. As a result, on that day, the price of CFC's stock fell again, losing $1.00 or 3.4%, to close at $27.86 per share, on heavy volume of over 48.6 million shares.
According to a press release dated December 3, 2007, New York State Comptroller Thomas DiNapoli and New York City Comptroller William Thompson were named the lead Plaintiffs in a class action lawsuit against CFC. The comptrollers have chosen the law firm Labaton Sucharow LLP to represent the Plaintiffs.
On April 11, 2008, lead Plaintiff filed a Consolidated Amended Class Action Complaint. Defendants filed numerous and separate motions for dismissal on June 10. The judge granted in part, denied in part the pending motions on December 1, providing Plaintiffs 20 days to file an amended Complaint.
A Second Consolidated Amended Complaint was filed January 7, 2009 addressing previous deficiencies in the Complaint. On April 6, 2009, an order was granted dismissing the insider trading allegations against certain individual Defendants whose trading plans were in order. However, the judge refused to dismiss the insider trading allegations against Countrywide Financial's CEO.
On August 29, 2009, the Plaintiff filed a motion to certify the class. On September 23, 2009, Judge Mariana R. Pfaelzer dismissed with prejudice all claims against Grant Thornton LLP.
On December 9, 2009, Judge Mariana R. Pfaelzer signed the Memorandum of Decision Resolving All Class Certification Issues and Related Objections. According to the Memorandum, the class certification motion 509 was granted in part. This Order certified three subclasses. It declined to include several debt securities and one hybrid security. This order also resolved some evidentiary objections related to the class certification proceedings. KPMG's evidentiary objections to the Marotto declaration was sustained 559. All KPMG's other evidentiary objections were overruled 577. All issues except damages and, to the extent necessary, '33 Act tracing, shall be determined on a class-wide basis. Labaton Sucharow LLP was appointed class Counsel. State Fund was appointed class representative for the common stock subclass. The City Funds group was appointed class representative for the debt subclass. Barry Bahn was appointed class representative for the Capital Securities subclass. The parties were instructed to jointly file a proposed class certification order and a proposed class notice on or before January 5, 2010.
On January 25, 2010, the Court entered the Order signed by Judge Mariana R. Pfaelzer granting in part and denying in part the Plaintiffs’ motion for class certification. Specifically, the Court appointed the State Fund as Class Representative for the Common Stock Subclass, appointed the City Funds as Class Representative for the Debt Securities Subclass, and appointed Brahn as Class Representative for the Capital Securities Subclass. The Court appointed the law firm of Labaton Sucharow LLP as class Counsel.
On March 26, 2010, the Defendants filed several motions for summary judgment. On March 31, 2010, mediation proceedings began before Judge A. Howard Matz. On April 1, 2010, a Stipulation for Order Dismissing with Prejudice Securities Act ClaimsaAgainst Defendant David Sambol was filed.
According to an article dated April 23, 2010, CFC has reached an agreement to pay $600 million to settle the securities class action pending against the Company and certain of its directors and officers… The settlement reportedly is still confidential and is also subject to the approval of several pension boards. The settlement agreement would include the release several top Countrywide executives, including [Countrywide Financial’s] former CEO. The settlement is also subject to court approval; however, the agreement reportedly was the product of mediation before U.S. District Judge Harold Matz, and accordingly it seems unlikely that it would be set aside by the court, assuming it ultimately is approved by all parties.
According to a press release dated May 7, 2010, the New York State Common Retirement Fund and the five New York City public pension funds have announced today a proposed settlement of the Countrywide Financial Corporation Securities Class Action for $624 million. Under the proposed settlement, CFC would separately pay Plaintiffs $600 million and the accounting firm, KPMG would pay $24 million, making the combined recovery one of the largest securities fraud settlements in U.S. history. Labaton Sucharow LLP is lead Counsel for the funds. … The proposed settlement is expected to go before U.S. District Judge Mariana R. Pfaelzer of the U.S. District Court for the Central District of California for preliminary approval, after which notice will be sent to all class members and then a final approval hearing will be scheduled, most likely in September, 2010.
On June 29, 2010, an Amended Stipulation of Settlement was filed. That day, a motion for preliminary approval of the proposed settlement was filed.
On August 2, 2010, Judge Mariana R. Pfaelzer granted the motion for preliminary approval of the settlement. A Fairness Hearing will be held on Monday, November 15, 2010 at 1:00 p.m. before the Honorable Mariana R. Pfaelzer in the United States District Court for the Central District of California, to determine, among other things, (a) whether the proposed Settlement of the Action on the terms and conditions provided in the Settlement Agreement is fair, reasonable, and adequate and should be approved by the Court; (b) whether the proposed Plan of Allocation of the Net Settlement Fund is fair and reasonable and should be approved by the Court; (c) whether a Final Judgment and Order of Dismissal with Prejudice substantially in the form of Exhibit B to the Settlement Agreement should be entered in this Action; and (d) to consider Plaintiffs' lead Counsel's application for a Fee and Expense Award.
According to an article dated October 22, 2010, the lead Plaintiffs firm that obtained a $624 million shareholder settlement against CFC. and KPMG LLP -- the largest recovery to date in a securities class action filed over the housing crisis -- is seeking more than $55 million in attorney fees and expenses. Labaton Sucharow, the New York firm hired by several New York pension funds on a contingency basis to pursue securities fraud claims against CFC and its senior managers, will argue for the fees during a Nov. 15 hearing. U.S. District Judge Mariana Pfaelzer in Los Angeles was expected to decide at that time whether to approve the settlement. Pfaelzer gave the settlement preliminary approval on Aug. 2, but questioned the hours billed and the number of associates and contract attorneys used by Labaton Sucharow.
On January 4, 2011, an Amended Stipulation of Settlement was filed. The settlement was preliminarily approved on January 7, 2011. The Fairness Hearing was set for February 25, 2011 before Judge Mariana R. Pfaelzer.
On March 10, 2011, the Court entered the orders approving the plan of allocation and awarding attorneys' fees and expenses. According to the Order, the Court hereby awards lead Counsel attorneys' fees of $46,472,000, or approximately 7.73% of the anticipated Gross Settlement Fund, plus interest earned at the same rates earned by the Gross Settlement Fund. Such attorney's fees shall be paid to lead Counsel from the Gross Settlement Fund. Additionally, the Court hereby awards lead Counsel reimbursement of expenses in the amount of $8,080,517.87, plus interest on the amount of expenses actually paid by Plaintiffs' Counsel as of September 15,2010, i.e., $4,102,291.91, earned at the same rates earned by the Gross Settlement Fund. Such expenses shall be paid to lead Counsel from the Gross Settlement Fund.
The Court also entered the Final Judgment and Order of Dismissal with Prejudice. According to the Order, this Court finds that the terms and provisions of the Settlement Agreement were entered into by the Parties at arm's-length and in good faith, and are fully and finally approved as fair, reasonable, and adequate as to, and in the best interests of, each of the Parties and the Class Members. The Parties and their Counsel are hereby directed to implement and consummate the Settlement in accordance with its terms and conditions. The Action and all Settled Claims are dismissed with prejudice.
A Notice of Appeal was filed on March 4, 2011, in objection to the settlement.