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In the housing market boom, Countrywide Financial catapulted onto the scene, quickly becoming one of the nation’s largest mortgage lenders. To achieve its leading market position, the company shifted away from traditional, fixed-rate mortgages toward ever riskier loan products, overseen by increasingly slack underwriting practices. Countrywide, as a matter of course, made loans to borrowers with poor credit and required no verification of income or assets. The numbers looked great on paper. Countrywide’s scheme to artificially inflate earnings in the short-term initially resulted in remarkable growth. Business boomed, the lender locked in a dominant market position, the stock price was robust and the executives couldn’t count their earnings fast enough. But when the lender was forced to record hundreds of millions of dollars in impairment charges and increase reserves for loan losses, the full extent of the company’s wrongdoing came to light. Countrywide’s stock price plummeted, losing almost 90 percent of its value.
While the executives behind the scheme cashed out, the company’s shareholders hemorrhaged. In fact, the decline in market capitalization suffered by Countrywide’s investors exceeded $25 billion.
Representing the lead plaintiffs in a securities class action brought in 2007, Labaton Sucharow took the lender and its auditor head on. The need for the Firm’s advocacy was urgent, as Countrywide executives squirreled away ill-gotten gains, Labaton Sucharow’s public pension fund clients sought to protect the retirement security of thousands of individuals who committed their careers to public service. Three years after the case was filed, Labaton Sucharow secured a massive settlement for damaged investors, including $600 million from Countrywide and $24 million from its auditor KPMG.
The case against Countrywide underscores the necessity of securities laws which ensure an avenue of recovery for investors damaged by the pervasive fraud that has infected so much of our financial system. Through our advocacy, we secured one of the largest securities fraud settlements in history and the largest recovery to date from the sub-prime fallout. This result will not only level the playing field for injured Countrywide investors, but hopefully, on a broader scale, help to deter such egregious misconduct in the future.