Jury Finds BankAtlantic Lied To Stockholders Over
Risky Loans
Jury verdict in rare securities fraud case; law
firms Labaton Sucharow and Barroway Topaz represent institutional investor
plaintiffs; award cites bank’s failure to disclose extent of troubled real
estate loans and false statements
MIAMI/NEW YORK (November 18, 2010) – In a rare courtroom
trial of a securities fraud class action, a federal jury in Miami has awarded a
group of institutional investors a verdict finding securities fraud against
BankAtlantic Bancorp, Inc. and two senior officers for lying about and
failing to disclose the extent of risk in its troubled loan portfolio in
2007. This is the first securities class action case arising out of the
financial crisis to go to jury verdict. The jury found that investors overpaid
by $2.41 per share between April 26, 2007 and October 26, 2007 which resulted in
millions of dollars in damages for the class.
Investors were represented
jointly at trial by leading plaintiffs’ law firms Labaton Sucharow LLP and
Barroway Topaz Kessler Meltzer & Check
LLP. Labaton Sucharow represented State-Boston Retirement
System, lead plaintiff in the federal class action lawsuit. Barroway Topaz
represented Erie County Employees’ Retirement System as co-class
counsel.
This was only the 12th securities fraud class action to go to
trial since passage of the historic Private Securities Litigation Reform Act in
1995 – the vast majority of such cases settle before reaching a courtroom. The
PSLRA allowed institutional investors to serve as lead plaintiffs in federal
securities actions. It is believed that this is the second successful plaintiffs
verdict in a securities class action case led by a public pension
fund.
During the four-week trial, investors accused Ft. Lauderdale-based
BankAtlantic of serial misrepresentations and omissions regarding the extent of
the high risk loans in its so-called “land loan” portfolio – those made for
acquisition and development of residential buildings in Florida – between
October 2006 and October 2007. Prior to trial, Southern District
of
Florida Judge Ursula Ungaro ruled that four statements made by BankAtlantic
Chairman and CEO Alan Levan about the health of the bank’s land
loan portfolio were false. Levan made those statements on a July 2007
conference call with investors, four months after writing an internal email
admitting, “I believe we are in for a long sustained problem in this
sector.”
“We’re gratified the jury held BankAtlantic and its senior
management accountable for misleading investors and causing millions of dollars
of losses,” said Labaton Sucharow partner Mark Arisohn, plaintiffs’ lead trial
attorney. “BankAtlantic knew of the high risk that was growing in its loan
portfolio but for a year lied to its stockholders about the extent of that
risk. Florida citizens on the jury sent a message by finding the
defendants committed securities fraud. Banks and their management cannot
intentionally mislead their stockholders about the extent of lending risk,”
added Arisohn.
The jury also was shown extensive e-mails from a
BankAtlantic lending manager, who described the bank’s major loan committee as
“asleep at the wheel.” In one communication about a loan, the executive
wrote, “I hate these deals and think the MLC is blinded by GREED and focused
only on [interest] rates…We never analyze the risks up front, only on the
downside, when the learning curve is steep and most expensive.”
In an
email dated November 30, 2007, the lending manager wrote: “We all have
problems when we make loans … but being this dishonest and hiding the problems
so long until you can’t any longer, is cause for termination and borderline
criminal.”
“The trial opened a most revealing window into fundamentally
dishonest reports BankAtlantic made to its stockholders about the riskiness of
its land portfolio,” said Barroway Topaz partner Andrew Zivitz,
who along with partner Matthew Mustokoff shared trial duties with
the Labaton Sucharow firm. “The jury’s award represents a clear rebuke for the
bank’s deceitful disclosure practices. But it’s also an historic success
for investors who were victimized by the bank’s behavior.”
Labaton
Sucharow also represented investors in litigation alleging securities law
violations by Countrywide Financial Corporation, one of the largest providers of
consumer housing loans prior to the bursting of the housing bubble. The
$624 million proposed settlement in that litigation is the second-largest
securities settlement of 2010.
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, one of the most significant shareholder cases
currently before the Court.
The full case caption for the BankAtlantic case is, In re BankAtlantic Bancorp, Inc. Securities Litigation (No. 07-61542 S.D. Fla.).