Monday, May 19, 2008

Class Action Salad

by Tanta on 5/19/2008 05:30:00 PM

I fear that if the complaint in this case is written with anything like the care and clarity of this press release, Downey probably has little to worry about.

The Complaint charges that Downey and certain of its officers and directors violated federal securities laws by issuing materially false statements regarding the Company's financial results. Specifically, the Complaint alleges that defendants concealed the following: (i) Downey's portfolio of Option ARMs contained millions of dollars worth of impaired and risky securities, many of which were backed by subprime mortgage loans; (ii) prior to the Class Period, Downey had seen Countrywide's growth and had started to get more aggressive in acquiring loans from brokers such that the loans were extremely risky; (iii) defendants failed to properly account for highly leveraged loans; (iv) Downey had very little real underwriting, which led to large numbers of bad loans; and (v) Downey had not adequately reserved for Option ARM loans, which provided that during the initial term of the loan borrowers could pay only as much as they desired with any underpayment being added to the loan balance.
I can't wait to find out what the evidentiary standard is for (ii).