Flagstar Bancorp, Inc. (NYSE:FBC) Under Investor Investigation Over Potential Breaches Of Fiduciary Duties By Certain Directors
March 23, 2012 (Update) -- On March 20, 2012, Flagstar Bancorp, Inc. issued a press release announcing updated results of operations and financial condition for the three months and year ended December 31, 2011. Flagstar Bancorp Inc. (FBC) said it will restate its fourth-quarter loss. The revision will widen its fourth-quarter loss by an additional $4.2 million, leaving its loss at $78.2 million, so Flagstar Bancorp.
San Diego, March 21, 2012 (Shareholders Foundation) -- An investigation on behalf of investors in shares of Flagstar Bancorp, Inc. (NYSE:FBC) was announced concerning potential breaches of fiduciary duties by certain officers and directors at Flagstar Bancorp, Inc. in connection with allegations that its Flagstar Bank, FSB violated the False Claims Act when it allegedly improperly endorsed federally-insured mortgage loans that eventually defaulted and allegedly falsely certified its loan underwriting practices to federal housing authorities.
The investigation by a law firm focuses on possible claims on behalf of purchasers of the securities of Flagstar Bancorp, Inc. (NYSE:FBC) concerning whether certain statements of Flagstar Bancorp’s business, its prospects and its operations were materially false and misleading at the time they were made. Specifically, the investigation concerns whether certain directors and officers at Flagstar Bancorp, Inc. (NYSE:FBC) breached their fiduciary duties.
On February 24, 2012, Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, announced that Flagstar Bank, FSB has entered into an agreement with the United States Department of Justice (“DOJ”) relating to certain underwriting practices associated with loans insured by the Federal Housing Administration (“FHA”) of the Department of Housing and Urban Development (“HUD”). Flagstar Bancorp, Inc. said as a result of the Agreement, Flagstar Bancorp, Inc will be revising its fourth quarter and full year 2011 financial results . However, Flagstar Bancorp, Inc said it is reaffirming the 2012 guidance it provided on its fourth quarter 2011 earnings call.
The DOJ said that that the United States has filed, and simultaneously settled, a civil fraud lawsuit against Flagstar Bank, FSB for improperly approving residential home mortgage loans for government insurance. The DOJ said that in the settlement, Flagstar Bank, FSB admitted, acknowledged, and accepted responsibility for submitting false certifications to HUD. The false certifications induced the Federal Housing Administration (“FHA”) to accept loans for government insurance that were not eligible and that resulted in losses to HUD when the loans defaulted. The DOJ said that Flagstar Bank, FSB agreed to pay $132.8 million to the United States in damages and penalties under the False Claims Act and to reform its business practices. The settlement was approved by United States District Judge Katherine.
The investigation by a law firm focuses on whether Flagstar Bancorp, Inc. and its executives violated federal securities laws by failing to disclose that, since January 2002 Flagstar Bancorp, Inc. routinely delegated key underwriting functions to staff employees who were not experienced underwriters, Flagstar Bancorp's underwriters falsely certified that they had themselves reviewed all of the loan documents and had exercised due diligence, Flagstar Bancorp's underwriters repeatedly endorsed ineligible loans for FHA insurance but falsely certified to the Department of Housing and Urban Development that the loans were eligible for such insurance; and Flagstar Bancorp, Inc. set daily quotas for its underwriters and paid these employees substantial incentive awards for exceeding their daily quotas.
Shares of Flagstar Bancorp, Inc. (NYSE:FBC) fell from over $1.50 in April 2011 to as low as $0.47 in September 2011. NYSE:FBC shares closed on Wednesday, March 21, 2012 at $0.99 per share.