10.Defendant Bernard A. Guy ("Guy"), is, and at all relevant times has been the President and a Director of the Company.
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
CHAIM SIEGER, On Behalf of Himself and All Others Similarly Situated,
Plaintiff,
vs.
ROBERT W. HOWARD; BERNARD A. GUY; PETER MAKOWIECKI; H. WAYNE SNAVELY; ALLAN VAN RUITER; JOHN P. DEWEY; FRANK P. WILLEY; AND STEPHEN J. SHUGERMAN,
Defendants. CLASS ACTION NO. CV 98-6190
CLASS ACTION
COMPLAINT
Plaintiffs, individually and on behalf of all others similarly situated, by their attorneys, allege the following, upon investigation by their counsel. The investigation included a review and analysis of public statements and corporate documents of defendants, including various public filings by the corporate defendant with the United States Securities and Exchange commission ("SEC"), and analysts' reports, and other review and analysis of materials concerning the defendants named herein and the allegations set forth below, including newspaper articles and articles in financial publications.
NATURE OF THE ACTION
AND SUMMARY OF THE COMPLAINT
1.Plaintiff brings this action as a class action on behalf of a class (the "Class") consisting of plaintiff and all other persons or entities who purchased securities of defendant Southern Pacific Funding Corporation ("SFC" or the "Company"), during the period from January 29, 1998, through September 16, 1998, inclusive (the "Class Period"), to recover damages caused to the Class by defendants' violations of the federal securities laws.
2.Plaintiff alleges that defendants engaged in a plan and scheme to tout the current and future business prospects of SFC by, inter alia, making baseless, false and misleading statements concerning the Company's ability to continue its historic growth pattern through an allegedly new "strategic plan" despite the problems plaguing the subprime lending market. As alleged in detail throughout the complaint, defendants systematically misrepresented that, because of the quality of its loans, and its continuing ability to effectively manage the Company through the industry's problems, the Company's earnings and growth would not be affected by decreases in interest rates, accelerated prepayment rates, and a flat yield curve.
3.Defendants' scheme was designed to, and did, artificially inflate, maintain and otherwise manipulate the value of SFC common stock. Specifically, defendants representations drove SFC's stock price from $12 ¼ at the beginning of the Class Period, to a Class Period high of $18. But, when the truth was ultimately revealed -- that SFC was in fact devastatingly impacted by the subprime lending industry's problems because of the Company's dependence on the loan securitization process, its excessive reliance on Adjustable Rate Mortgages, the poor quality of its loan portfolio, and its inability to secure alternative financing to continue the Company as a viable entity -- the price of SFC stock plummeted to a new low of $2 on the date defendants confirmed the Company's problems. Plaintiff and the Class has been devastated by defendants' fraudulent scheme as alleged herein.
JURISDICTION AND VENUE
4.The claims asserted herein arise under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder, including SEC Rule 10b-5, 17 C.F.R. 240.10. Jurisdiction is based upon Section 27 of the 1934 Act, as amended, 15 U.S.C. § 78aa and 28 U.S.C. §§ 1331, 1337 and 1367.
5.Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28 U.S.C. § 1391(b), (c) and (d) because plaintiff resides in this District, and because the acts and practices complained of herein occurred in this district.
6.In connection with the acts and conduct complained. of, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails, interstate telephone communications, and the facilities of the national securities exchanges.
THE PARTIES
7.Plaintiff Chaim Sieger purchased shares of SFC common stock during the Class Period and has been damaged thereby.
8.Southern Pacific Funding Corporation is incorporated under the laws of the State of California, with its principal executive offices located at 4949 Meadows Road, Suite 600, Lake Oswego, Oregon, 97035. SFC originates and purchases home equity loans from licensed independent mortgage brokers, strategic alliances with select mortgage lenders, and through its consumer loan division. Due to its recent bankruptcy filing, Southern Pacific Funding will not be named as a defendant in this action.
9.Defendant Robert W. Howard ("Howard"), at all relevant times during the Class Period, was the Chief Executive Officer and a Director of the Company. A mere twelve days following the end of the Class Period however, the Company announced that an E. James Hedemark replaced defendant Howard as Chief Executive Officer of the Company.
10.Defendant Bernard A. Guy ("Guy"), is, and at all relevant times has been the President and a Director of the Company.
11.Defendant Peter Makowiecki ("Makowiecki"), is, and at all relevant times has been the Chief Financial Officer of the Company.
12.Defendant H. Wayne Snavely ("Snavely"), is, and at all relevant times has been a director and the Chairman of the Board of the Company.
13.Defendant Allan Van Ruiter ("Ruiter"), is, and at all relevant times has been a director of the Company.
14.Defendant John P. Dewey ("Dewey"), is, and at all relevant times has been a director of the Company.
15.Defendant Frank P. Willey ("Willey"), is, and at all relevant times has been a director of the Company.
16.Defendant Stephen J. Shugerman ("Shugerman"), is, and at all relevant times has been a director of the Company.
17.Defendants Howard, Guy, Makowiecki, Snavely, Ruiter, Dewey, Willey, and Shugerman, are sometimes hereinafter referred to as the "Individual Defendants." Members of SFC's management, including the Individual Defendants were and are involved in the direct management and control of SFC.
18.By reason of their stock ownership, positions as officers and/or directors of SFC and/or their ability to make public statements in the name of the Company, the Individual Defendants were controlling persons within the meaning of Section 20(a) of the Exchange Act and had the power and influence and exercised their power and influence to cause the Company to engage in the unlawful conduct complained of herein. Because of their positions of control and authority as officers and/or directors of the Company, they were able to, and did, control the contents of the various quarterly and annual financial reports, SEC filings, press releases and presentations to securities analysts pertaining to the Company. The Individual Defendants were provided with copies of SFC's stockholder reports, press releases and SEC filings alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their Board membership and/or executive and managerial positions with SFC, the individual Defendants had access to the adverse non-public information about the Company's business, finances, products, markets and present and future business prospects particularized herein via access to internal corporate documents, conversations or connections with corporate officers and employees, attendance at SFC's management and Board of Directors meetings and committees thereof, and via reports and other information provided to them in connection therewith. As a result, the Individual Defendants were responsible for the accuracy of the various public reports and releases detailed herein and are therefore responsible and liable for the misrepresentations contained therein. Any acts attributed to SFC were caused and/or influenced by the Individual Defendants by virtue of their domination and control thereof.
19.The Individual Defendants participated in the drafting and preparation of the various public filings and shareholder reports and other communications complained of herein, and approved the issuance of such statements at or about the time of their issuance, and were aware of, or recklessly disregarded, the misstatements contained therein and omissions therefrom and their materially misleading nature.
CLASS ACTION ALLEGATIONS
20.Plaintiff brings this action as a class action under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class consisting of plaintiff and all other persons or entities who purchased the common stock of defendant SFC during the period from January 29, 1998 through September 16, 1998, inclusive. Excluded from the Class are the defendants herein, members of the individual defendants' immediate families, any entity in which any defendant has a controlling interest, all officers and directors of SFC, any subsidiary, affiliate, or controlled person of any such person or entity, and the legal representatives, heirs, successors or assigns of any such excluded person or entity.
21.The Class is so numerous that joinder of all members is impracticable. As of as of July 31, 1998, there were approximately 20,750,300 shares of the Company's common stock outstanding. SFC's common stock is currently listed and traded on the New York Stock Exchange ("NYSE"). There are believed to be thousands of persons who purchased SFC's common stock during the Class Period and the members of the class are geographically dispersed throughout the United States. The exact number of Class members is unknown to the plaintiff at this time and can be ascertained only through appropriate discovery.
22.SFC's shares are traded on efficient and developed securities markets. Thousands of brokers nationwide have immediate access to trading information about SFC through the NYSE. This system displays, within minutes of the transactions taking place, the most recent trades and practices.
23.Plaintiff's claims are typical of the claims of the other members of the Class, as plaintiff and all members of the Class sustained damages arising out of defendants conduct in violation of federal law complained of herein.
24.Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class action and securities litigation. Plaintiff has no interests that are contrary to or in conflict with those of the Class.
25.A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Since the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members individually to seek redress for the wrongful conduct alleged. Plaintiff knows of no difficulty which will be encountered in the management of this litigation which would preclude its maintenance as a class action.
26.Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants' acts as alleged herein;
(b) whether statements disseminated by defendants to the investing public and to the shareholders of SFC during the Class Period, including financial statements and SEC filings, omitted and/or misrepresented material facts about the business, operations, prospects, results of operations and financial condition of the Company;
(c) whether defendants participated in and pursued the concerted action or common course of conduct complained of herein;
(d) whether defendants acted willfully, knowingly, or recklessly in omitting and/or misrepresenting material facts;
(e) whether defendants non-disclosures and/or misrepresentations constituted a fraud on the market by artificially inflating the market prices of SFC's common stock during the Class Period;
(f) whether the market prices of the Company's common stock during the Class Period were artificially inflated due to the material nondisclosures and/or misrepresentations complained of herein; and
(g) whether the members of the Class have sustained damages and, if so, the proper measure of such damages.
Matthew J. Zevin
Douglas R Britton
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
(310) 208-2800
Jules Brody
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
Attorneys for Plaintiff
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