In re Countrywide Securities Litigation

Settled: March 10, 2011

As lead counsel, we obtained a monumental win for investors against one of the biggest offenders of the mortgage crisis with $624 million in recoveries.

On November 28, 2007, U.S. District Judge Mariana R. Pfaelzer appointed Thomas P. DiNapoli, Comptroller of the State of New York, and the New York City Pension Funds (collectively, the New York Funds) as lead plaintiffs and approved their selection of Labaton Sucharow to serve as lead counsel in In re Countrywide Financial Corporation Securities Litigation, No. CV 07-05295 MRP (MANx) (C.D. Cal.), a consolidated class action asserting claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 against Countrywide Financial Corporation (Countrywide), certain of its current and former directors and officers, its outside auditor KPMG LLP (KPMG), and underwriters of public offerings of Countrywide securities.

The plaintiffs generally alleged, among other matters, that defendants violated the federal securities laws by making false and misleading statements concerning Countrywide's business as an issuer of residential mortgages, and regarding the creditworthiness of borrowers, underwriting and loan origination practices, loan loss and other accounting provisions, and by misrepresenting high risk low documentation loans as being "prime," violating Generally Accepted Accounting Principles (GAAP) and engaging in other false and misleading statements.

On December 1, 2008, Judge Pfaelzer issued a 112-page opinion denying in significant part defendants' six motions to dismiss the first Consolidated Amended Complaint (CAC). The court stated that the CAC was the "result of the careful research and investigation encouraged by the PSLRA," and upheld most of plaintiffs' claims including the Section 10(b) claims for securities fraud asserted against the company, former CEO Mozilo, and other members of senior management.

The court granted plaintiffs leave to re-plead most of the claims that were dismissed, and the plaintiffs filed a Second Amended Complaint (SAC) on January 6, 2009. On April 6, 2009, Judge Pfaelzer issued another favorable decision denying defendants' motions to dismiss the SAC in significant part and with respect to the most important amended allegations. Judge Pfaelzer upheld several sets of allegations and claims that she had previously dismissed, and upheld all allegations of GAAP violations by Countrywide as well as allegations of scienter against KPMG for each year of the class period. Additionally, the court held that the SAC overcame the underwriter defendants' due diligence defense with regard to Countrywide's 2006 financial statements.

On December 9, 2009, the court issued an 80-page Memorandum of Decision granting plaintiffs' motion for class certification in significant part. The court certified a class of persons and entities that, between March 12, 2004 and March 7, 2008, inclusive, either in the open market or pursuant or traceable to a registration statement, purchased or acquired Countrywide publicly traded common stock or call options, sold Countrywide publicly traded put options, or purchased or acquired certain Countrywide debt securities or Countrywide Capital V seven percent Capital Securities, with the defendants and other defined affiliated persons and entities excluded. The court appointed the New York State Common Retirement Fund, the New York City Pension Funds, and Barry Brahn as representatives of the common stock subclass, debt subclass, and capital securities subclasses, respectively. The court appointed Labaton Sucharow to serve as class counsel.

On May 7, 2010, Labaton Sucharow, on behalf of the New York Funds, announced a proposed settlement of the action for $624 million in cash. An Amended Settlement Agreement was filed on June 29, 2010, and the court granted preliminary approval to the settlement on August 2, 2010. On January 4, 2011, the parties filed a First Amendment to the Amended Settlement Agreement whereby, in exchange for Countrywide's and KPMG's agreement to waive certain of their rights to terminate the settlement, up to $22.5 million of the $624 million settlement amount will be set aside for a two-year period for Countrywide's use in settling litigation brought or threatened to be brought by the persons and entities that submitted valid requests for exclusion from the class. On March 10, 2011, the settlement was granted final approval by the court.