BankAtlantic Is Found Liable for Stock Fraud in Real-Estate Lending Trial
BankAtlantic Bancorp Inc. executives misled shareholders about the riskiness of the bank’s real- estate-loan portfolio during 2007’s economic decline, a Miami jury ruled in a stock-fraud case filed by investors.
Jurors in federal court deliberated about three days before finding today that BankAtlantic officials ignored lending guidelines in approving land-development loans and then misrepresented problems with those deals in press conferences and conference calls. The panel ordered BankAtlantic to pay $2.41 a share in damages to investors, who had sought as much as $3.52 a share.
“The jurors did not hesitate to hold the defendants accountable for having made false and misleading statements about the risky loans,” said Mark Arisohn, an attorney for the plaintiffs. “It was important for shareholders to be vindicated.”
BankAtlantic, which last reported a profit in the second quarter of 2007, traded at more than $44 in January 2005. The Fort Lauderdale, Florida-based bank suffered a series of losses in the wake of an economic decline triggered by the collapse of the U.S. subprime-mortgage market in 2007.
Lawyers for BankAtlantic argued in the five-week case that executives didn’t foresee the slump in Florida’s real-estate market in the fallout over subprime mortgages and clearly disclosed problems within the bank’s loan portfolio.
19 Statements
Jurors were asked to evaluate 19 separate statements over a year from Oct. 19, 2006, to Oct. 25, 2007. They ruled that bank officials knowingly made eight statements between April 26, 2007, and Oct. 25, 2007, that violated securities laws and damaged investors.
Eugene Stearns, an attorney for BankAtlantic, said the company would appeal on a variety of issues, including U.S. District Judge Ursula Ungaro’s ruling before the trial that four of the 19 statements were false.
“We are obviously disappointed with the outcome, but in light of the court’s ruling on the four statements, we’re not particularly surprised,” Stearns said. “The probability that they will ever collect a penny on this is infinitesimally small.”
Juror Leticia Bacallao, a third-grade public school teacher, said the panel of seven women and two men painstakingly evaluated each of the 19 statements.
“We really wanted to make sure that the plaintiffs had proved that each statement was false,” Bacallao said.
Stock Drop
Jurors arrived at the damages figure by deducting 52 cents a share from the $2.93 a share the stock fell after BankAtlantic disclosed the extent of its loan losses in October 2007, Bacallao said. Jurors concluded the 52-cent drop was caused by the economic downturn and not directly attributable to any wrongdoing by the bank, she said.
Of the five company officials named as defendants, including Chief Executive Officer Alan Levan and Chief Financial Officer Valerie Toalson, the jury found that all but one made false statements. The jury absolved Vice Chairman John Abdo of any wrongdoing. Abdo, the only bank officer present for the verdict, declined to comment.
Investors originally sought damages of as much as $3.52 a share on their claims that they were duped into buying BankAtlantic stock by reassurances from officials that the institution’s real-estate loans were solid.
Ungaro ruled that testimony during the trial indicated investors’ damages should be limited to no more than $3.30 a share if jurors found for shareholders.
BankAtlantic fell less than 1 cent to 81 cents at 1:42 p.m. in New York Stock Exchange composite trading. The shares have fallen 38 percent this year.
The case is In re BankAtlantic Bancorp Inc. Securities Litigation, 07-cv-61542, U.S. District Court, Southern District of Florida (Miami).
To contact the reporters on this story: Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net; Susannah Nesmith in Miami at susannahnesmith@yahoo.com.
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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