LOS ANGELES - A federal judge in California on Monday, August
9, preliminarily approved a $125 million settlement agreement between
shareholders, former officers and directors of subprime mortgagor New Century
Financial Corp., the company's outside auditor and the underwriters of New
Century's preferred stock (In re New Century Financial Corp. Securities
Litigation, No. 07-0931, C.D. Calif.).
U.S. Judge Dean D. Pregerson of the Central District of
California granted lead plaintiff New York State Teachers' Retirement System's
(NYSTRS) motion for approval of the settlement after Monday's hearing on the
matter. The motion was filed July
30. It followed NYSTRS's July 20
stipulation of settlement, which called for cash payments to shareholders by
New Century's former officers and directors, outside auditor KPMG LLP and the
underwriter defendants.
Under the terms of the settlement, which is still subject
to final approval, KPMG will pay $44.75 million in cash, while the underwriters
will pay $15 million and the former officers and directors will pay
$65,077,088, which is part of a larger settlement the shareholders reached with
the officers and directors that totaled more than $91 million.
Moreover, the parties agreed to a class of all purchasers
of New Century common stock, New Century Series A Preferred stock, New Century
Series B Preferred stock and/or all options and/or who sold New Century put
options from May 5, 2005, to March 13, 2007.
New Century issued Series A and Series B preferred stock
in June 2005 and August 2006. In
February 2007, New Century indicated that it would restate its financials
because it misstated its financial reserves for loan delinquencies. After the disclosures, New Century's stock
experienced a 97 percent decline in value.
The investors sued New Century, its officers and
directors, including Brad Morrice, who had served as vice chairman of the
company's board, chief operating officer and CEO, auditor KPMG and the
underwriters of the preferred stock, Bear, Stearns & Co. Inc., Deutsche
Bank Securities Inc., Jefferies & Co. Inc., JMP Securities, Morgan Stanley &
Co. Inc., Piper Jaffray & Co., Roth Capital Partners and Stifel, Nicolaus
& Co. Inc. The investors alleged
that the defendants made false or misleading statements in violation of
Sections 11 and 12(a) of the Securities Act of 1933 and securities fraud under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
Judge Pregerson granted the defendants' motion to dismiss
with leave to amend, ruling that the complaint "lack[ed] clarity in
articulating the grounds for its claims."
The investors filed a second amended complaint, and the defendants again
moved to dismiss. Judge Pregerson, in a
Dec. 8, 2008, opinion, denied the motions, ruling that the shareholders had
properly pleaded their claims.
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