Legal News

Judge dismisses shareholder action against Downey

By Richard Binder

U.S. District Judge John Walter of the Central District of California has dismissed a shareholder class action against the former officers and directors of Downey Financial Corp., a mortgage lender that filed for Chapter 7 liquidation in November.

Downey Financial, based in Newport Beach, Calif., specialized in "option" adjustable-rate mortgages, which allowed borrowers to choose how much to pay on their loans each month. Option ARMS, among the riskiest loans offered in recent years, have led numerous borrowers to default on their mortgages.

In May 2008, a class action was filed against Downey and its officers and directors on behalf of shareholders who purchased stock between Oct. 16, 2006, and March 14, 2008. In a consolidated second amended complaint filed earlier this year, shareholders contended that the former officers and directors defrauded investors by hiding Downey's "unsafe and unsound" lending practices.  But Judge Walter ruled that the plaintiffs hadn't shown that any of the statements at issue were actually false.

Full story at NLJ.com.

Full post as published by Legal Pad | LA on August 27, 2009 (boomark / email).