| Mortgage Co. at Center of High Profile Lawsuit
Sarbanes-Oxley Act at issue in federal appeal December 10, 2004 By PATRICK CROWLEY |
| A dispute involving a mortgage company is at the heart of what could be a major legal decision involving a relatively new federal law designed to crack down on corporate fraud.The Second U.S. Circuit Court of Appeals in New York has ruled that the 2002 Sarbanes-Oxley Act cannot be applied to actions before it was enacted into law.
The ruling impacts a long-running legal battle involving Enterprise Mortgage Acceptance Co. In June of 2002, Enterprise was sued by a litany of investors who purchased interests in pools of loans made to gas stations, car washes, oil change businesses and convenience loans for alleged securities fraud, according to a report made by the law firm of Hubbard & Reed of New York, which has been following the case. Among those that sued Enterprise were a number of insurance companies and pension funds, including Aetna Life Insurance Co. and the Teachers Insurance and Annuity Association. They accused Enterprise of indicating that the securities were safe investments, when they were actually risky because the underlying loans quickly defaulted, according to lawyers representing the plaintiffs. “The action seeks damages caused by (Enterprise) alleged material misrepresentations and omissions in connection with the sales of certain shares of securitized loans by (Enterprise),” the firm of Bernstein, Litowitz, Berger & Grossmann said in a written statement on the case. “In three separate loan placement offerings between 1998 and 2000, (Enterprise) made extensive representations and warranties designed to portray the investments as conservative,” the lawyers said, “and to portray (Enterprise) as a particularly sensitive selective lender with stringent guidelines for evaluating borrowers.” The companies suing Enterprise allege “that these representations were materially false and misleading and omitted material information,” the lawyers claim. In May of 2003 the Sarbanes-Oxley Act was enacted in the wake of major corporate scandals such as Enron and Worldcom. Before the law was passed by Congress, investors had a year to file suits after discovering corporate fraud and three years after the fraud occurred. Sarbanes-Oxley extended those time frames to two years and five years. The companies suing Enterprise admitted shortly after filing their suit that the statute of limitations had run out on their claims of securities fraud. But after Sarbanes-Oxley became law the investors amended their amended their original complaints, arguing in federal court that the new statute of limitations revived their original claims, Hubbard & Reed said in its report. In November of last year, a federal judge in New York denied that claim, saying the new law could not apply. The judge allowed the lawsuit to move forward, but not with the charge of securities fraud. The federal court of appeals upheld that ruling, saying the act should not be applied retroactively. |
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Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com |
