This is a securities fraud class action lawsuit against The PMI Group, Inc and certain of its officers and directors.
PMI, through its subsidiaries, provides credit enhancement products designed to promote homeownership and facilitate mortgage transactions in the capital markets in the United States, Australia, New Zealand and the European Union.
The securities class action complaint alleges that PMI issued materially false and misleading statements regarding PMI's business and financial results. As a result of PMI's false statements, PMI stock traded at artificially inflated prices during the Class Period, reaching its Class Period high of $50.21 per share in February 2007. Then, on March 3, 2008, after the market closed, PMI announced its preliminary fourth quarter 2007 financial results and that it would be delayed in filing its Form 10-K for year-end 2007 because it was awaiting financial information from an equity investee, FGIC Corporation ("FGIC"), that was necessary for PMI to complete its financial statements.
On this news, PMI's stock collapsed to $6.43 per share on March 4, 2008, a one-day decline of 5% and an 87% decline from its Class Period high in February 2007.
According to the class action complaint, the true facts, which were known by PMI but concealed from the investing public during the Class Period, were as follows:
(a) PMI's investment in FGIC was materially impaired as FGIC's bond insurance arm, Financial Guaranty, had significant exposure to defaults on bonds it insured due to the plunge in value of mortgage debt;
(b) PMI was materially overstating its financial results by failing to properly value its investment in FGIC and by failing to write down that investment in a timely fashion in violation of Generally Accepted Accounting Principles ("GAAP");
(c) PMI was not adequately accounting for its loss reserves in violation of GAAP, causing its financial results to be materially misstated;
(d) PMI failed to engage in proper underwriting practices for its book of business related to insurance written in 2005 through most of 2007;
(e) PMI had far greater exposure to anticipated losses and defaults related to its book of business related to insurance written in 2005 through most of 2007 than it had previously disclosed;
(f) given the deterioration and the increased volatility in the subprime market, PMI would be forced to tighten its standards and stop writing insurance policies to certain categories of borrowers which would have a direct material negative impact on its book of business going forward; and
(g) given the increased volatility in the subprime market, PMI had no reasonable basis to make projections about its incurred losses or about its new insurance written.
Name (Stock Symbol)
PMI Group, Inc., The (PMI)
The PMI Group, Inc., through its subsidiaries, provides residential mortgage insurance products that offer loss protection to mortgage lenders and investors in the event of borrower default in the United States.
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