Troubled subprime mortgage lender Aames Financial Corp. was dealt another blow last week when two former employees sued executives, charging them with insider trading.
The class action, filed Sept. 2 in Los Angeles Superior Court, alleges that Aames executives omitted facts and misrepresented company information in reports to employees and stockholders.
The lawsuit centers around Aames' decision, announced April 30, to scale down significantly its "bulk business"-purchases of closed loan pools from smaller lenders. After the announcement, the company's stock price fell as much as 24%, to as little as $13 per share.
After the decision but before it was announced, top Aames executives sold more than $24 million worth of their own shares, the complaint alleged. President Neil B. Kornsweit, chief executive Cary Thompson, chief financial officer Gregory Witherspoon, and former chairman Gary Judis are all named as defendants.
Plaintiffs Allan B. Polin and Peter Winterfeld were both employees of the company until this year. Mr. Polin owns 1,000 shares of Aames stock; Mr. Winterfeld, 600 shares, according to their attorney, Kirk Hulett of Milberg, Weiss, Bershad, Hynes & Lereach. The San Diego firm has handled several shareholder class actions.
The defendants "repeatedly assured investors that all was well at Aames and never disclosed, prior to April 30, the material change in business strategy," the complaint said.
Both Mr. Polin and Mr. Winterfeld lost a significant amount of money because they believed management's story and failed to sell their Aames holdings, Mr. Hulett said.
Since the suit was filed, Milberg, Weiss has been contacted by a "host of additional shareholders," Mr. Hulett said. He declined to specify the number of plaintiffs the suit could attract.
An Aames spokesman said the "suit has no merit and will be vigorously defended."
The class action came after the announcement that Aames had retained Donaldson, Lufkin & Jenrette Securities Corp. to help it "explore options." Aames has been the target of takeover rumors since late spring. A pending class action may "make Aames a tougher sell," said one analyst, but he doubted the case would have any impact on the company's bottom line.