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Administration December 2, 2006
Investors Sue over Worthless Stock Options
February 24, 2005 (PLANSPONSOR.com) - A lawsuit has
been filed against Countrywide Financial Corp. over
allegations that the company diluted the value of investor
stock options related to a 2001 bank acquisition.
Reported by Kip McDaniel
Filed in a Manhattan federal court, the suit names Calabasas, California-based, Countrywide and its majority-owned Effinity Financial unit, according to Reuters. The investors who sued are seeking to revalue the stock options and restore their stake.
Effinity acquired Treasury Bank for $3.2 million in cash, plus 700,000 options to buy Effinity shares. Investors claim that the options gave them an 11% equity stake in Effinity but were instead rendered worthless. To do so, the suit contends that the companies named in the suit undertook a series of moves that rendered the options worthless without informing investors.
The group of plaintiffs includes investors and employees, as well as a law firm pension fund, according to Reuters.
“Effinity and Countrywide did not disclose their intent to dilute and impair the options by issuing to Countrywide … additional Effinity stock while publicly stating that Countrywide was making contributions to capital as required by the Federal Reserve Bank,” the complaint said, according to Reuters.