Investors Sue over Worthless Stock Options

February 24, 2005 ( - 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.

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.