A class action lawsuit has been filed against Triad Guaranty Inc. and its current and former top executive by stockholders claiming that the officials violated federal securities laws. The lawsuit was filed on behalf of an individual plaintiff, James Phillips, in the U.S. District Court for the Middle District of North Carolina. Stockholders affected are those who bought the common stock of Triad from October 26, 2006, when the share price was $53.27, through November 10, 2008, when the share price was 88 cents. The company, Mark Tonnesen, its former chief executive and president, and Ken Jones, its current chief executive and president, also were named as defendants in the lawsuit. The lawsuit alleges:
• that Triad issued “materially false statements concerning the company’s business and financial results” in quarterly earnings reports and other statements
• that those comments led stockholders to buy the company’s common stock “at prices that were artificially inflated”
• that the defendants failed to disclose that Triad was not adequately accounting for loss reserves in violation of generally accepted accounting principles, causing its financial results to be materially misstated
• that Triad failed to use proper underwriting practices for its insurance written in 2006 and 2007, including the insurance related to its Alt-A and pay-option adjustable-rate mortgage products
• that Triad had “far greater exposure to anticipated losses and defaults related to insurance written in 2006 and 2007 than it had disclosed”
Triad Guaranty, which has been hit hard by the sharp rise in delinquencies and foreclosures, has cut at least 40% of its work force, or 100 jobs. It should be noted that the company discontinued writing new mortgage-insurance business in July. It will be interesting to see how this lawsuit develops.
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