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Class Action Lawsuit Against NovaStar Financial Will Move Forward
Source: Business Wire
Published: May 23, 2005
A federal court has denied NovaStar Financial's motion to dismiss the class action lawsuit against the company.
The lawsuit alleges that between October 29, 2003 and April 8, 2004, NovaStar and certain of its senior executives violated the federal securities laws. Specifically, the complaint alleges that the company repeatedly emphasized the advantages and importance of its branch network as a "strategic cornerstone" in originating the sub-prime mortgages on which NovaStar's profitability depended. The complain further alleges that during the class period, NovaStar failed to disclose to the market that it was in violation of federal and state regulations as a result of its effort to expand its branch network at all costs.
"The Court's decision did not rule on the facts of the lawsuit, but only allowed the case to move forward," said Jeffery D. Ayers, Senior Vice President, General Counsel and Corporate Secretary for NovaStar. "The company continues to believe these claims are without merit and we intend to vigorously defend against them."
In its May 12, 2005 decision, the U.S. District Court for the Western District of Missouri determined that based upon Novastar's alleged failure to inform investors about government investigations and fines in two states resulting from its regulatory violations, combined with filings by the company stressing the importance of complying with state regulations and noting the possible effect such compliance may have on its operations and profitability, Novastar's omissions were not immaterial as a matter of law. The Court additionally held that "upon review of the allegedly false or misleading statements made by Defendants, the allegedly illegal behavior in which Defendants engaged, and the benefits allegedly reaped by Defendants, the Court finds that Plaintiffs have sufficiently plead scienter."
Plaintiffs (NovaStar Investors) are represented in this matter by Entwistle & Cappucci LLP and Milberg Weiss Bershad & Schulman LLP.
Read Full Story at Business Wire