R&G Financial Corporation Case 2/27/2007
According to a press release dated March 3, 2008, R&G Financial Corporation announced that it has reached an agreement in principle to settle all claims with the lead plaintiffs in a shareholder class action originally filed in 2005. Under the terms of the settlement, which is subject to notice being provided to the class and final approval by the United States District Court for the Southern District of New York, the Company and the other settling defendants will pay the plaintiffs an aggregate of $39 million. The Company also announced today that it has reached an agreement in principle to settle all claims in the shareholder derivative litigation filed against the Company in 2005. The derivative settlement is also subject to notice and approval from the United States District Court for the Southern District of New York. In connection with these settlements, the Company agreed to certain corporate governance enhancements which will, among other things, impose additional director independence requirements. As part of the global settlement, the Company will pay approximately $29 million and the Company’s insurers and certain individual defendants will pay an aggregate of approximately $11 million.
On July 28, 2005, the Court entered the Order consolidating the action under Master File 05 cv 4186, under In re R&G Financial Corporation Securities Litigation. On February 27, 2007, a Consolidated Amended Class Action Complaint was filed, and on May 4, 2007, the Defendants responded by filing various motions to dismiss the Consolidated Amended Class Action Complaint. On September 10, 2007, the Court issued the Order denying several of the Defendants’ motions to dismiss the Consolidated Amended Class Action Complaint and reserving the decision on defendant PricewaterhouseCoopers’ motion. On October 19, 2007, the Court issued the Order denying defendant PriceWaterhouseCoopers’ motion to dismiss.
The original complaint charges R&G Financial and certain of its officers with violations of the Securities Exchange Act of 1934. Specifically, the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that R&G Financial’s earnings quality had been significantly weakened by the Company’s use of more aggressive assumptions to generate gain on sale income, as well as to the value it retained in its interest only (”IO”) residuals in securitization transactions; (2) that R&G Financial’s methodology used to calculate the fair value of its IO residual interests retained in securitization transactions was incorrect and caused the Company to overstate its financial results by at least $50 million; (3) that the Company’s financial statements were not prepared in accordance with Generally Accepted Accounting Principles (”GAAP”);(4) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (5) that as a result, the value of the Company’s net income and financial results were materially overstated at all relevant times.
The complaint further alleges that on or around March 25, 2005, after the market had closed, R&G Financial announced that it would restate its financial results for fiscal years 2003 and 2004. News of this shocked the market. Shares of R&G Financial, on April 26, 2005, fell $8.14 per share, or 35.12 percent, to close at $15.04, on unusually heavy trading volume. After the market closed on April 26, 2005, R&G Financial issued a press release wherein it announced that it was subject to an informal SEC probe relating to its restatement announcement.
R&G Financial is a Puerto Rico-chartered, financial holding company that operates R-G Premier Bank of Puerto Rico (Premier Bank) a Puerto Rico commercial bank, and R-G Crown Bank (Crown Bank), a Florida domiciled federal savings bank. The Company also operates R&G Mortgage Corp (R&G Mortgage) in Puerto Rico, The Mortgage Store of Puerto Rico, Inc. (Mortgage Store), a subsidiary of R&G Mortgage and Continental Capital Corp. (Continental), a mortgage-banking subsidiary of Crown Bank, which does business in the continental United States.