This is a securities fraud class action lawsuit against ACA Capital Holdings, Inc and certain officers and directors on behalf of all persons who purchased the common stock of ACA Capital Holdings, Inc. pursuant and/or traceable to the ACA Capital Holdings' initial public offering.
ACA Capital is a holding company that provides financial guaranty insurance products to participants in the global credit derivative, structured finance capital, and municipal finance capital markets. On November 9, 2006, ACA Capital priced its IPO of 6,875,000 shares of newly issued common stock and 23,541 shares of existing common stock at $13 per share, generating gross proceeds of $89.4 million. The Registration Statement for the IPO described positively ACA Capital's business and its collateralized debt obligation ("CDO") asset management business.
The complaint alleges that the Registration Statement for the IPO contained inaccurate statements of material fact because it failed to disclose that the Company's CDO assets were materially impaired and overvalued. Unbeknownst to investors, at the time of the IPO, ACA Capital Holdings had materially increased its exposure to highly risky sub-prime CDOs and was planning to complete several more sub-prime CDO deals in early 2007 that would greatly increase ACA Capital Holdings' exposure. Furthermore, given the rising default rates on sub-prime mortgages, it was highly likely that ACA Capital Holdings would experience losses on the policies it had written to insure numerous CDOs and it would experience losses on its CDS positions.