The BankAtlantic subprime-related securities lawsuit by its shareholders and against its officers and directors is going to trial with jury selection starting this week in Miami. It is very rare that trials in securities class action cases proceed to trial.
Interestingly, the case is proceeding to trial after a partial granting of the shareholders’ summary judgment motion, finding that the statements of the bank executives regarding certain loans were false. Plaintiffs allege that the bank executives made misleading statements about the credit quality of certain land loans in the bank’s portfolio and failed to follow conservative lending practices, exposing it to higher level of risk than represented to investors, while telling investors that loss reserves were adequate. When the falsity of the statements was revealed between April and October 2007, the bank’s stock price fell.
The plaintiffs will still have to prove that these false statements were materially misleading, were made with scienter, and that they caused damages.
As typical of similar claims, the D&O cases only go so far. After that, the bank executives (including the FDIC who has taken over many of the failing banks ad made similar claims) begin blaming the loan brokers (most of whom are out of business) for not following the bank’s underwriting procedures, as well as the appraisers for over-valuing the secured properties. Yet, blaming the lenders is always a good defense for the loan brokers and appraisers, so it will be interesting to see how the jury penalizes the bank executives for not following their own practices and procedures.