Fremont Workers Sue Over Stock Losses
Thursday April 26, 9:25 pm ET
Employee Lawsuit Blames Fremont Directors for Stock Losses
LOS ANGELES (AP) -- Employees of Fremont General Corp. are suing the struggling mortgage lender, claiming its directors should have acted to prevent the loss of millions of dollars from retirement and stock ownership plans.
The Santa Monica-based company is among the mortgage lenders reeling from the rise in defaults by borrowers with subprime loans -- a type primarily taken on by those with low credit scores.
The lawsuit, filed Tuesday in U.S. District Court in Los Angeles, names nine company directors as defendants. It seeks class-action status to represent some 3,300 participants in the company retirement plan and another 1,700 people who invested in the Employee Stock Ownership Plan.
A public relations firm hired by Fremont said the company does not comment on litigation.
According to the complaint, Fremont engaged in unsafe lending practices beginning in 2003 in a bid to boost the company's stock price. The strategy backfired when a large number of subprime borrowers began to default.
The company was forced to leave the subprime mortgage business last month after federal regulators alleged a subsidiary of the company was making loans without assessing borrowers' ability to repay, potentially increasing the likelihood of defaults.
The move cost employees millions of dollars in lost value from their holdings in the company's stock ownership and retirement plans, according to the lawsuit.
Company directors knew or should have known Fremont stock was not a good investment, the suit claims. It noted Chairman James A. McIntyre sold $11 million in company stock in August and four other directors sold $5.5 million worth of stock earlier this year.
Since last month, Fremont has sold most of its subprime mortgages and has taken steps to also sell the segment of the company that collects mortgage payments and handles foreclosures.
The company plans to continue operating its commercial real estate business.
Shares of Fremont General fell 3 cents to close at $8.10 Thursday on the New York Stock Exchange.
This is not good news. One of the reasons I back FMT is that the employees are owners of the company via the ESOP. Now some of these employees and panicking. For the genuises filing this suit, I must say " don't cut off your nose to spite your face." |
