NovaStar Settles Stock Drop Suit for $925K
April 27, 2010 (PLANSPONSOR.com) – The U.S. District Court for the
Western District of Missouri has approved a $925,000 settlement of a lawsuit
claiming NovaStar Financial continued to offer company stock in its 401(k) plan
when it was no longer prudent.
In
the suit, Jennifer Jones, on behalf of a class of participants in NovaStar's
401(k) plan, alleges that fiduciaries of the plan allowed the imprudent investment
of the plan's assets in NovaStar common stock when they knew or should have
known the investment was unduly risky and imprudent due to the company's
"serious mismanagement and improper business practices." (See NovaStar Faces 401(k) Company Stock Suit over Lending Practices)
Those
improper business practices include, among other things:
-
relying
on originating, purchasing, securitizing, selling, investing in and servicing
subprime residential mortgages for revenue;
-
manipulation
of its mortgage origination process; and
-
failing
to abide by its stated mortgage underwriting process and criteria.
Jones
alleged NovaStar also failed to abide by proper risk management processes, used
improper financial accounting for its portfolio of mortgages, and engaged in
practices that endangered, and ultimately eliminated, its ability to elect to
be taxed as a real estate investment trust (REIT).
Attorneys
for the class were awarded more than $330,000 of the settlement amount.
The case is Jones v.
NovaStar Financial Inc., W.D. Mo., No. 4:08-cv-490-NKL.
Rebecca Moore
editors@plansponsor.com