Officials at luxury-home builder Toll Brothers Inc. have agreed to pay $16.2 million to settle claims that they misled shareholders about the company’s future prospects while reaping $615 million from sales of the company’s stock. The settlement, filed last month in Delaware Chancery Court, if approved will resolve claims that several Toll Brothers directors — including co-founders Robert and Bruce Toll — went to great lengths to convince investors that the company was uniquely positioned to weather a downturn in the housing market. The lawsuit was filed by Toll Brother shareholder Milton Pfeiffer in 2008.
The complaint accused the Defendants of profiting from their “rosy predictions.” They earned proceeds of more than $615 million from selling off millions of company shares between late 2004 and 2005. It was alleged that even as concerns were raised about a potential housing bubble, the Defendants went to great lengths to convince investors otherwise. From late 2004 until late 2005, Toll Brothers executives stuck by projections of 20 percent net income growth in 2006 and 2007. But in December 2005, management abruptly lowered its annual growth projections for 2006 to just 0.5 percent. This sudden change received a negative reaction from analysts and shareholders.
Toll Brothers’ insurers will pay $9.8 million of the settlement amount, while the executive Defendants will pay the remaining $6.45 million. The settlement, if approved, will resolve the 2008 Delaware lawsuit, as well as two other investor lawsuits filed in a Pennsylvania federal court. Lawyers for the Plaintiffs believe the settlement “is in the best interest of the parties and Toll Brothers’ current stockholders,” and stated their belief to the court. The case is Pfeiffer v. Toll et al., in the Delaware Chancery Court, no. 4140-VCL.
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