First American Corporation (NYSE: FAF) Investor Securities Class Action Lawsuit 06/23/2008

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Company Name(s): 
First American Corporation
Case Name: 
First American Corporation Shareholder Class Action Lawsuit 06/23/2008
Case Status: 
Case Dismissed
Affected Securities
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
Class Period Begin: 
Class Period End: 
Court of Filing: 
U.S. District Court for the Southern District of New York
Deadline To File for Lead: 
Case Dismissed: 

September 21, 2009 - It is stipulated and agreed that the case is dismissed with prejudice.

April 22, 2009 - The court denied defendants motion to dismiss the amended complaint.

January 28, 2009 - The court denied defendants motion to dismiss the original filing as moot.

January 23, 2009 - Defendant filed a motion to dismiss.

December 5, 2008 - The lead plaintiff filed an amended complaint.

October 17, 2008 - Defendant filed a motion to dismiss.

September 19, 2008 - Lead plaintiff and lead counsel were appointed.

August 25, 2008 - Lead plaintiff motion was filed.

June 23, 2008 - An investor in shares of First American Corporation (NYSE: FAF) filed a lawsuit in the U.S. District Court for the Southern District of New York on behalf of shareholders who purchased the common stock of the company, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78j(b), 78n(a) and 78t(a). Named as defendants are First American Corporation, the company’s Chief Executive Office and Chairman of the Board, as well as the company’s Vice Chairman and Chief Financial Officer.

The complaint alleges that, during the period between April 26, 2006 and November 6, 2007, First American Corporation and certain of the company’s officers and directors engaged in an illegal scheme with Washington Mutual, Inc. (”WaMu”), whereby the defendants, through First American Corporation’s real estate subsidiary, eAppraiseIT LLC, prepared artificially inflated appraisals of homes for use in connection with mortgages issued by WaMu. During the period between April 26, 2006 and November 6, 2007, in quarterly earnings reports, the company’s management reported increased earnings from appraisal fees and reassured investors that internal controls were adequate. The complaint alleges that First American Corporation’s fees from the improper appraisals resulted in the company overstating its gross profit margins and net income during the class period and that throughout the class period the defendants made false and misleading statements regarding the Company’s internal controls and financial performance.

According to the complaint Senior executives at First American Corporation were aware of and willing to accommodate the request to falsify appraisals. Washington Mutual’s competitive place in the market, and company, profit was driven in large part by the number of mortgages it issued based upon appraisal issued by eAppraiseIT. Throughout the class period, defendants failed to disclose the undue and improper pressure placed on First American Corporation by Washington Mutual executives in attempt to obtain higher appraisal values. As stated in the NYAG complaint, such inflated appraisals create an enhanced risk of “loss of value in a foreclosure proceeding.” Defendants’ improper appraisal practices during the class period:

(1) rendered the company’s statements about its compliance with ethical and legal guidelines materially false and misleading;

(2) rendered defendants’ statements about the adequacy of the company’s internal controls materially false and misleading;

(3) were not disclosed and thus constitute an ongoing omission of material fact related to the company’s core home appraisal business;

(4) caused certain of the company’s reported financial information, including revenues associated with home appraisal, to be materially overstated throughout the class period;

(5) caused the company’s loan loss reserves, provisions for doubtful account and contingent liabilities to be materially understated during the class period; and

(6) caused defendants to report financial results that were in violation of GAAP.

As a result of the disclosure of First American Corporation’s wrongdoing, First American Corporation’s stock price has declined significantly, culminating with a drop to a 52-week low. On November 1, 2007, following the announcement of the NYAG Complaint (on November 1, 2007, the New York Attorney General filed a complaint (”NYAG Complaint”) alleging that beginning in “Summer 2006″ WaMu put pressure on eAppraiseIT to increase the appraised value of homes), First American Corporation’s stock price dropped intra-day to a new 52-week low of $28.69 per share from its previous close of $30.10 per share on October 31, 2007. As the market became aware of defendant’s wrongful acts, First American Corporation’s stock price declined from a class period high of $55.11 per share on June 1, 2007, to a low of $30.07 per share on November 7, 2007, a decline of 45 percent, wiping out over $2 billion in market capitalization.