Securities fraud class action cases tend to be rare courtroom trial experiences that have some "red flag" warnings for those who may not be on trial yet. It is even more so during a crisis.
A federal jury in Miami found BankAtlantic Bancorp Inc. of Fort Lauderdale and two senior officers guilty for lying about and failing to disclose the extent of risk in its troubled so-called land loan portfolio in 2007 causing investors millions of dollars in damages.
According to the verdict investors overpaid by $2.41 per share between April 26, 2007 and Oct. 26, 2007.
Andrew Zivitz, a partner with Barroway Topaz, who was one of the trial attorneys, called the verdict “a clear rebuke for the bank’s deceitful disclosure practices” that at the same time is a historic success for victimized investors.
The lawsuit is the 12th securities fraud class action to go to trial since passage of the Private Securities Litigation Reform Act in 1995—because most of such cases settle to avoid trial.
Insiders say it is the first securities class action case arising out of the financial crisis to go to a jury verdict.
The lead plaintiffs, State-Boston Retirement System and Erie County Employees’ Retirement System, were represented at trial law firms Labaton Sucharow LLP and Barroway Topaz Kessler Meltzer & Check LLP.
Institutional investor plaintiffs filed a lawsuit that accused the bank for making false statements and failing to disclose crucial information about their investments keeping stockholders in the dark about the extent of troubled real estate loans that were part of the bank’s portfolio.
(The law firms said they believe this is the second successful plaintiff verdict in a securities class action case led by a public pension fund.)
The four-week trial revealed that BankAtlantic committed a series of “misrepresentations and omissions regarding the extent of the high-risk loans” made for acquisition and development of residential buildings in Florida.
Mark Arisohn, a partner at Labaton Sucharow, the lead trial attorney for the plaintiffs, argues that its was a strong securities fraud case that should warn the banks and their management that they “cannot intentionally” mislead stockholders about the extent of lending risk, cause investors millions of dollars of losses and not get punished. For a year BankAtlantic knew about the high and growing loan risk but decided to lie to its stockholders about it.
Before the trial Southern District of Florida Judge Ursula Ungaro had ruled as false four statements made by BankAtlantic chairman and CEO Alan Levan during a July 2007 conference call with investors where he claimed the bank’s land loan portfolio was in good standing. The judge noted that Levan made those statements only four months after admitting in an internal email that the bank was in “for a long sustained problem.”
Part of the evidence shown to the jury was the content of an e-mail dated Nov. 30, 2007, where the lending manager wrote: “…being this dishonest and hiding the problems so long until you can’t any longer, is cause for termination and borderline criminal.”
A significant number of e-mail exchanges between a BankAtlantic lending manager and other staff described the bank’s major loan committee as “asleep at the wheel.” Among the comments included in the correspondence where the executive’s concern that the bank’s leadership was motivated by greed and focused only on interest rates and would “never analyze the risks up front,” unless the loans are not performing and the whole review process becomes “most expensive.”
Both firms have been involved in some of the largest investor lawsuits of 2010. Labaton Sucharow also represented investors in litigation alleging securities law violations by Countrywide Financial Corp. that lead to a $624 million proposed settlement, the second-largest securities settlement of 2010. While Barroway Topaz is currently representing a group of U.S. and European pension funds in a shareholder class action in Federal Court in New York against Bank of America related to its purchase of Merrill Lynch.
