DST Legal Case Samples

Please click on the company name below to view full case study.

Countrywide Financial - Click Here

Dietrich Siben Thorpe LLP represented a registered investment adviser with approximately $4 billion in assets under management, as well as several foundations, in an opt out action arising from the alleged securities fraud perpetrated by Countrywide Financial Corporation, certain of its former senior officers and directors, and Countrywide's former auditor, KPMG LLP.

As alleged in our Complaint, Countrywide and its executive management portrayed the Company as primarily a prime lender that was conservatively run. Defendants boasted Countrywide employed prudent underwriting guidelines and a robust underwriting process to ensure the origination of high credit quality loans to borrowers who could and would repay. This was not the case. Defendants knew, but concealed, substantial material information concerning Countrywide's true loan quality and loan production, that Countrywide had abandoned sound underwriting practices, and the risks associated with Countrywide's unsound lending practices.

The alleged fraud perpetrated by Angelo Mozilo, Countrywide's former Chief Executive Officer, David Sambol, Countrywide's former Chief Operating Officer, and Eric Sieracki, Countrywide's former Chief Financial Officer, has been the subject of significant public scrutiny and has been well-documented by the United States Securities and Exchange Commission.

According to the Securities and Exchange Commission's allegations, Mozilo, Sambol and Sieracki committed "securities fraud [by] deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company's market share." For example, according to the SEC, internal Countrywide documents show "both Mozilo and Sambol were aware as early as June 2006 that a significant percentage of borrowers who were taking out stated income loans were engaged in mortgage fraud ... [but these] material facts were never disclosed to investors."

Despite allegedly concealing material information from investors from 2004 through 2007, Countrywide's senior executives dumped hundreds of millions of dollars of their personal Countrywide stock during the same time frame. Mozilo, Sambol and Sieracki sold over $550 million of Countrywide shares in 2004-2007.

The risks associated with Countrywide's undisclosed reckless lending strategy ultimately materialized, and the Company experienced extremely high rates of loan delinquencies and defaults. Countrywide collapsed under the weight of its toxic loan portfolio. A securities class action ensued. As set forth in the Countrywide class action complaint, "as a consequence of the revelation of the truth concerning Countrywide during the Class Period, Countrywide common stock lost in excess of $25 billion in market capitalization, or more than 90% of its value." Our clients, like many investors, suffered substantial losses due to the Defendants' alleged fraud.

A settlement in the Countrywide securities class action was first announced in May 2010, and finally approved in March 2011. Our clients opted out of the settlement, and in March 2011, Dietrich Siben Thorpe LLP filed this action on behalf of its clients in Federal Court in Los Angeles.

Comverse Technology - Click Here

DST recently represented a prominent investment advisor with over $9 billion in assets under management in an opt out action against Comverse, and certain of its former officers and directors. The case was successfully resolved for a significant premium over the recovery in the securities class action.

The action, brought in New York federal court, alleged both federal securities law violations and state law negligent misrepresentation claims, unavailable to plaintiffs in the class action.

As alleged in our complaint, and revealed through a series of civil and criminal investigations and criminal guilty pleas, Comverse's former Chief Executive Officer, Jacob "Kobi" Alexander, and former Chief Financial Officer, purposefully manipulated the Company's reported financial statements by adjusting quarter-end reserve accounts to create desired earnings per share and moving expenses from one category to another as a way of ensuring that the Company's expenses would appear to grow in a measured and consistent manner. Further, Plaintiffs alleged Alexander directed the CFO to manipulate the sales backlog figure that the Company reported in its annual reports in order to report numbers consistent with what Alexander believed Wall Street investors would view favorably.

While Comverse's former CEO and CFO were allegedly cooking the books to report manipulated financial results to investors, Defendants were also deliberately backdating Comverse's stock options grants to lavishly reward Comverse's former senior officers with in-the-money stock options despite Comverse's repeated assurances to the market to the contrary. In April 2006, the Company disclosed that as a result of the irregularities relating to accounting for the Company's stock option grants, it would be required to restate financial results for fiscal years 2001 through 2005, as well as the first three quarters of fiscal year 2006. In July 2006, as a result of their role in this scheme, Comverse's CEO, CFO and General Counsel were indicted by a federal grand jury, and were also charged by the SEC with civil fraud. The Company's former CFO and General Counsel pleaded guilty to the criminal charges shortly thereafter. Alexander, the former CEO, fled the country to Namibia and continues to fight extradition back to the United States.

Plaintiffs’ opt out action was an overwhelming success. Plaintiffs obtained a significant premium over their potential recovery in the Comverse class action. Plaintiffs settled the opt out for cash; no portion of the settlement was made in stock, as was the case in the class action. And, Plaintiffs were able to resolve their opt out action contemporaneously with the payout in the class case. DST is proud of the achieved result, and of the representation it provided in this significant matter.

Tyco International - Click Here

Prior to founding Dietrich Siben Thorpe LLP, Mr. Siben and Mr. Thorpe successfully litigated an opt out action on behalf of prominent mutual funds, hedge funds, and a public pension fund against Tyco International and its former CEO L. Dennis Kozlowski, CFO Mark H. Swartz, and Director Frank E. Walsh, Jr. Our clients settled with Tyco for $100 million, representing a significant multiple over what they would have received had they remained in the related securities class action.

We recognized Tyco to be a highly meritorious securities fraud action. The defendants' conduct had, as Fortune aptly put it, turned Tyco into "a notorious corporate rogue that in the public's mind ... rank[s] with Enron and WorldCom for murky accounting, corrupt leadership, and guile at conning investors."

Our involvement in the case began when, on May 15, 2007, Tyco and the plaintiffs in the class action against Tyco announced a settlement in which Tyco agreed to pay investors $2.975 billion. Mr. Siben and Mr. Thorpe estimated that investors collectively lost approximately $50 billion as a result of the Tyco accounting fraud. The class action settlement, even with a subsequent contribution by PricewaterhouseCoopers, represented a recovery of only about 6% of investors' losses - before deducting the class action attorneys' $493 million in fees and expenses.

Rather than accept the pennies-on-the-dollar recovery in the class action, our clients filed their own case in the District of New Jersey on November 29, 2007. On behalf of our clients, Mr. Siben and Mr. Thorpe alleged negligence-based claims and violations of New Jersey's RICO statute - legal theories unavailable to the class action plaintiffs but which provided substantial benefits to the opt out litigants.

Our clients reached a resolution with Tyco to settle for $100 million in May 2009. Our clients were not subjected to any formal discovery and did not sit for any depositions. We were able to obtain this recovery despite an unprecedented market meltdown that generally limited all corporate capital expenditures, and without the benefit of any insurance contribution to the recovery. Our clients received their settlement proceeds within weeks of finalizing the settlement, whereas members of the class action did not begin to receive distributions until after March 4, 2009, almost two years after the class action settlement was first announced.

Please click here to see a press release issued by the Office for the Attorney General for the State of New Jersey, which was represented by different lawyers, announcing its settlement with Tyco.

AOL Time Warner - Click Here

Before co-founding DST, Mr. Thorpe represented the University of California pension and endowment funds, Amalgamated Bank's LongView Collective Investment Fund, and several Ohio state pension funds in a series of individual securities actions against AOL Time Warner, its officers and directors, and the company's auditor, Ernst & Young LLP. Mr. Thorpe's clients collectively resolved their actions against AOL Time Warner for $435 million. The University of California alone recovered $246 million - the single largest reported opt out settlement to date.

The AOL Time Warner actions represented one of the first large-scale opt out efforts by institutional investors to recover losses caused by alleged securities fraud. In 2003, Mr. Thorpe's clients filed actions in both California and Ohio state courts, prior to any class action settlement. In this unique "early" opt out approach, Mr. Thorpe's clients took advantage of broad-based state securities laws and proceeded with their actions in local state courts.

The suits alleged that before and after AOL's merger with Time Warner in January 2001, top executives at AOL used falsified revenue transactions to inflate the value of AOL stock to help secure a merger with Time Warner while liquidating their shares to enrich themselves to the tune of $936 million. The scheme began in the period leading up to the merger when AOL executives allegedly falsified e-commerce advertising business that pumped up AOL stock prices. As alleged, the advertising deals included swaps with other internet companies that AOL misleadingly counted as revenues or transactions involving AOL's own funds that were provided to purported customers. Many of the deals were also made with companies that lacked the financial wherewithal to honor them.

The merger was called "a terrible deal" by Dow Jones, the "worst deal of the century" by Time and "one of the great train wrecks in corporate history" by Fortune. The New York Times noted that AOL executives "pulled off one of the sweetest deals in business history . . . by managing to acquire Time Warner with AOL's inflated stock." Richard Parsons, AOL Time Warner's former CEO called the merger "silly" and a "mistake" based on "overly ambitious" forecasts that were "not real." Due to overvalued assets, the merged company took a $100 billion loss in 2002.

In the subsequent five months after the merger, company executives sold off 10.7 million shares from personal portfolios. During the same period, however, the company spent $1.3 billion to repurchase 30.2 million shares on the open market - in effect, using corporate money to prop up the stock's value so they could benefit personally and shield themselves from a stock collapse. AOL Time Warner's stock price ultimately plummeted from a high of $58.51 per share to a low of $8.60 per share, resulting in the loss of more than $200 billion in shareholder value.

In December 2004, the company reached monetary settlements with the Securities and Exchange Commission (the "SEC") and the Department of Justice (the "DOJ") in connection with allegations of fraud and accounting manipulations before and at the time of the merger. AOL Time Warner agreed to pay a $60 million fine to the DOJ and establish a $150 million fund for securities settlements, as well as pay a $300 million fine to the SEC and retain an independent examiner to review certain historic revenue transactions between 1999 and 2002.

In September 2005, AOL Time Warner reached a $2.65 billion settlement with investors in the class action, which included the $150 million secured as part of its DOJ settlement, as well as an additional $100 million contributed by Ernst & Young. The class action settlement represented less than 1.5% of investors' total losses, and as of December 29, 2009, the claims administrator for the class action had just commenced the second distribution of net settlement funds.

In contrast, Mr. Thorpe's clients settled their actions in early 2007, and received settlement proceeds shortly thereafter. By opting out and pursuing an individual action, the University of California received between 16 and 24 times more than its estimated pro rata recovery in the class action.

Please click here to see a press release issued by the University of California Office of the President, announcing its settlement with AOL Time Warner.

Qwest - Click Here

Prior to founding DST, Mr. Siben and Mr. Thorpe represented several investment companies in an opt out action against the former CEO and CFO of Qwest Communications International, Inc., Joseph Nacchio and Robert Woodruff.

The case against Nacchio and Woodruff was particularly strong. According to the SEC's civil complaint filed on March 15, 2005, from at least April 1, 1999 through March 1, 2002, Qwest and its senior officers, including Nacchio and Woodruff, "engaged in a massive financial fraud that hid from the investing public the true source of the company's revenue and earnings growth." The SEC stated in a press release, the "disclosure fraud at Qwest was orchestrated at the highest level of the company to deceive investors" and defendants, including Nacchio and Woodruff, "projected revenue and earnings that they knew were overly aggressive, and then . . . used smoke and mirrors to meet those unrealistic projections." Furthermore, on April 19, 2007, after a 15 day trial, a federal jury found Nacchio guilty of 19 counts of illegal insider stock sales. According to federal prosecutors, Nacchio's financial shenanigans turned Qwest into a "house of cards" and Nacchio cashed out after "deciding not to tell investors [Qwest] was about to come crashing down."

In 2005, the class action plaintiffs settled with Qwest and certain of its senior officers and directors (not including Nacchio and Woodruff) for $400 million. Investors' losses in Qwest securities were massive by any measure. The Company's market capitalization dropped by over $90 billion, Qwest shares dropped from a high of $64 to only $1.11 per share in August 2002.

A number of investors opted out of the $400 million class action settlement with Qwest. According to the Company, the opt out plaintiffs settled their claims for an aggregate $411 million - more than the class action settlement. According to available data released by certain public funds, the opt out plaintiffs recovered far more than what they would have received by remaining as passive members of the class action:

Qwest Opt-Outs Recovery In Opt-Out Settlement (Millions) Estimated Class Recovery (Millions) Opt-Out Recovery Multiple
State of Alaska Funds $19.0 $0.4 44.5x
Teachers Retirement System of Texas $61.6 $1.4 44.0x
Colorado Public Employees' Ret. Assoc. $15.5 $0.4 38.8x
CalSTRS $46.5 $1.6 30x

In August 2008, the class action plaintiffs announced a $45 million settlement with Nacchio and Woodruff. This $45 million settlement amounted to an average recovery of only $0.0115 per damaged Qwest share - before deductions for requested attorneys' fees and expenses. Mr. Siben and Mr. Thorpe recognized that class members could opt out of the $45 million settlement to pursue a full recovery against Nacchio and Woodruff, without relinquishing their right to a recovery from the $400 million class action settlement or the $252 million settlement that Qwest reached with the SEC.

In January 2009, Mr. Siben and Mr. Thorpe, while with their former law firm, filed an opt out proceeding on behalf of several investment companies against Nacchio and Woodruff, seeking to hold these defendants jointly and severally liable for the entirety of the plaintiffs' damages. This case has been resolved on a confidential basis.

Please click here to see a press release issued by The Teacher Retirement System of Texas, which was not represented by DST, detailing Texas Teachers' successful opt out experience.

Washington Mutual - Click Here

DST successfully represented several mutual funds in an individual securities action against Washington Mutual’s former officers and directors, as well as several prominent Wall Street banks. Our clients alleged the defendants made materially false and misleading statements in connection with the offerings of unregistered, Rule 144A Washington Mutual Preferred Funding Trust securities issued on March 7, 2006 and October 25, 2007. According to the complaint, defendants misleadingly represented critical elements of Washington Mutual’s business practices and financial condition, which had a material impact upon Washington Mutual’s creditworthiness and the suitability of any investment in the Preferred Trust Securities. Among other things, Washington Mutual claimed to have adhered to prudent underwriting standards, utilized independent appraisals, encouraged proactive risk management, and maintained effective internal controls.

In truth, as alleged in the complaint, Washington Mutual had secretly abandoned its purportedly prudent underwriting standards and was fraudulently inflating appraisals in order to artificially inflate loan volumes and publicly reported earnings. According to the accounts of numerous witnesses, summarized in The New York Times: "At WaMu, getting the job done meant lending money to nearly anyone who asked for it . . . ." As one former appraiser for Washington Mutual recounted: "If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan."

Washington Mutual's true financial condition and business practices began to come to light only days after the 2007 offering. On November 1, New York Attorney General Andrew Cuomo revealed Washington Mutual orchestrated a systemic fraud to illegally inflate appraisals used in its loan origination process.

By December 2007, the SEC launched an inquiry into Washington Mutual's public disclosures concerning its lending practices and its accounting for loans. The SEC investigation was followed up by a criminal investigation, in which a grand jury has been convened.

By April 2008, Goldman, Sachs & Co.'s analyst recommended investors short Washington Mutual stock as the bank had as much as $23 billion in bad loans that it had not yet accounted for. In effect, Washington Mutual was insolvent.

On September 25, 2008, the Federal Deposit Insurance Corporation took control of Washington Mutual. According to Lawrence J. White, professor of economics at the NYU Stern School of Business: "As had been feared, WaMu really did hold a slew of poorly performing mortgages whose nominal value greatly exceeded their market value." Confirming that Washington Mutual had extended loans to borrowers with no ability to repay, upon purchasing Washington Mutual Bank from the FDIC the same day of its seizure, JP Morgan immediately marked down the value of Washington Mutual's loans by $31 billion.

The action was pending in Washington federal court, and alleged both federal and state securities law claims. Prior to settlement, the Court upheld our core allegations of fraud and negligent misrepresentation against all defendants.

Freddie Mac - Click Here

DST represented an investor in an opt out action against the Federal Home Loan Mortgage Company, certain of its former officers and directors, as well as several prominent Wall Street banks, arising out of the issuance of Preferred Stock less than ten months prior to the financial collapse of Freddie Mac. As one financial expert testified before Congress upon Freddie Mac's failure, "market observers, including myself, had no idea of the extent of [Freddie Mac's] exposure until recently. ... [Freddie Mac] did not disclose the extent of [its] subprime and Alt-A exposures to the market."

The action alleged that defendants issued false and misleading statements in connection with the offering of $6 billion of Freddie Mac 8.375% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series Z, issued on November 29, 2007. The action was pending in California federal court. In addition to federal claims, the suit alleged unique California common and state securities law claims against all defendants, as well as punitive damages, none of which could be prosecuted by plaintiffs in federal class actions proceeding in New York federal court.

As alleged in our complaint, statements made in connection with the offering were materially false and misleading because Freddie Mac lacked appropriate underwriting standards and risk management procedures, failed to disclose its exposure to mortgage-related losses, and failed to maintain sufficient capital to protect it from insolvency.

On September 7, 2008, less than ten months after the offering, federal regulators abruptly seized control of Freddie Mac in order to avert its financial failure. Upon this news, the value of the Preferred Stock collapsed.

Fannie Mae - Click Here

DST currently represents an investor in an opt out action against the Federal National Mortgage Association, certain of its former officers and directors, as well as several prominent Wall Street banks, arising out of a $7 billion issuance of Preferred Stock less than ten months prior to the financial collapse of Fannie Mae.

The action is pending in New York federal court. In addition to alleging federal securities claims, the action also alleges unique California common and state securities law claims unavailable to plaintiffs in the federal class action.

As alleged in our complaint, Fannie Mae risk managers raised internal warnings in 2005 and 2006 indicating that the Company's underwriting standards and risk management procedures were extremely inadequate, resulting in the purchase of hundreds of billions of dollars of low-quality, risky mortgages and mortgage-backed securities that left the Company exposed to massive losses. Fannie Mae executives disregarded these warnings and failed to modify the Company's public disclosures accordingly to inform investors of the risks associated with investing in Fannie Mae.

In June 2008, the U.S. Treasury Department and the Federal Reserve reviewed Fannie Mae's internal finances and discovered, among other things, that Fannie Mae was seriously undercapitalized and faced insolvency.

On September 7, 2008, less than ten months after the offering, and less than two months after providing Fannie Mae with an unlimited line of credit, federal regulators abruptly seized control of Fannie Mae in order to avert its financial collapse and forestall a potentially catastrophic disruption of the mortgage and financial markets.

Upon this news, the value of the Preferred Stock collapsed. Initially offered at $25 per share, the Preferred Stock presently trades at approximately $1.00 per share.