A federal judge has ruled that a shareholder lawsuit against Countrywide Financial Corp. executives and directors should go to trial, rejecting several arguments by the troubled mortgage lender to dismiss the case.
In a ruling issued Tuesday, U.S. District Judge Mariana R. Pfaelzer in Los Angeles sided with several public pension funds, finding that their witnesses' accounts of Countrywide's business practices were compelling.
"Plaintiffs' allegations create a cogent and compelling inference that (Countrywide directors) misled the public with regard to the rigor of Countrywide's loan origination process, the quality of its loans, and the company's financial situation _ even as they realized that Countrywide had virtually abandoned its own loan underwriting practices," Pfaelzer wrote in the 61-page ruling.
Pfaelzer noted that several witnesses ready to testify for the funds gave persuasive accounts of Countrywide's business, including allegations that the company rewarded employees for boosting loan volume rather than for generating quality loans.
The lead plaintiffs in the case are several pension funds, including the Arkansas Teacher Retirement System, the Fire & Police Pension Association of Colorado and the Public Employees Retirement System of Mississippi.
They claim Countrywide directors and officers failed to provide enough oversight of the lender and misled shareholders about the company's true financial state.
Countrywide Chairman and Chief Executive Angelo R. Mozilo and 13 other current and former top executives and board members are named as defendants in the complaint.
Blair Nicholas, an attorney for the pension funds, said his clients are looking forward to having their day in court.
"The Board's lack of oversight has tarnished Countrywide's reputation and exposed the company to significant liability," Nicholas said via e-mail Wednesday. "As shareholders, we believe it is our duty to step in and remedy this wrong."
A spokesman for Calabasas, Calif.-based Countrywide did not immediately reply to an e-mail request seeking comment.
Countrywide asked the court to dismiss the case, in part on the grounds that the pension funds did not have legal standing because they had not shown they consistently held stock in the company.
The lender, which in January agreed to sell itself to Charlotte, N.C.-based Bank of America Corp. for about $4 billion in stock, has been the target of shareholder and consumer lawsuits since last summer's housing crash.
The company has since struggled to stay afloat as loan defaults pile up and the housing slump drags on.
Countrywide shareholders have seen the value of the company's stock plunge by more than 80 percent from its five-year peak of $45.03 in February 2007.
Countrywide shares fell 13 cents, or about 2.6 percent, to $4.85 Wednesday.
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