In a decision that largely turned on detailed confidential witness statements, on June 7, 2011, Northern District of Alabama Judge Inge Prytz Johnson denied the motions to dismiss in the Regions Financial Corporation subprime-related securities lawsuit. This ruling is the latest of a series of decisions involving the company. The June7 ruling can be found here.
As detailed here, this case arose following the company's January 20, 2009 announcement that it was taking a goodwill impairment of nearly $6 billion related to the company's November 2006 purchase of AmSouth Bancorporation. As the plaintiffs later alleged, even though Regions acquired AmSouth, with a year former AmSouth executives were running the combined company. The AmSouth loan portfolio was heavily weighted toward Florida real estate.
The plaintiffs allege that the company and its senior officials were well aware of the deteriorating conditions in the Florida real estate market, but they failed to recognize the non-performing loans in the company's portfolio. As a result, the defendants "repeatedly, yet falsely, claimed that the $6 billion in goodwill associated with the AmSouth acquisition was unimpaired."
But by January 2009, "the collapsing real estate market proved more devastating than even defendants' fraud could conceal," and on January 20, 2009, "defendants were forced to finally announce a huge increase in loan loss reserves , and a colossal $6 billion writedown of goodwill." The company's share price declined and litigation ensured. The defendants moved to dismiss.
The June 7 Opinion
Judge Johnson's June 7 Opinion denying the defendants' motions to dismiss relied heavily on the statements of confidential witnesses cited in the amended complaint. Her opinion recites this testimony at length. Among other things, one confidential witness reports that senor bank officials changed the status of nonaccrual loans at month or quarter end, but that following the month or quarter end, the numbers would be switched back, the delay done with the purpose of "making the numbers." Another confidential witness stated that the company did not properly classify nonperforming loans as nonaccruing assets in a timely manner.
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