Seven law firms have filed suits seeking class-action status against Sterling Financial Corp. in Lancaster, Pa., which disclosed May 24 that a loan scheme at its equipment-financing unit would force it to take a charge of $145 million to $165 million against last year's fourth-quarter results.
The law firms seek to represent a class of investors who bought stock in the $3.3 billion-asset company between April 27, 2004, and May 24, 2007.
During that period, Sterling's shares had traded as high as $30.39, but about two-thirds of that value — or $20.42 — had eroded by May 25. The stock has continued to hover around the $10 mark since then.
The suits contend that executives at the company and its Equipment Finance LLC unit defrauded investors by issuing false financial information that artificially inflated Sterling's stock price.
The law firms of Chimicles & Tikellis LLP in Haverford, Pa., Brian M. Felgoise PC in Philadelphia, and Schatz Nobel Izard PC in Hartford, Conn., filed suit in U.S. District Court for the Eastern District of Pennsylvania.
Brower Piven PC in Baltimore, Kahn Gauthier Swick LLC in New Orleans, Rosen Law Firm PA in New York, and Howard G. Smith in Bensalem, Pa., filed in U.S. District Court for the Southern District of New York.
The initial indication of trouble at Sterling came April 19, when the company said it had discovered possible contract irregularities at Equipment Finance, a specialty lender that focuses on the logging industry. On April 30, Sterling said it would have to restate earnings from at least 2004 through 2006.
Then it said on May 24 that the preliminary results of its investigation indicated that five of the unit's officers and employees had colluded during an extended period to conceal credit delinquencies, falsify financing contracts and related documents, and subvert Sterling's internal controls. It also said that it would begin evaluating its strategic options, including the possibility of selling itself.
The charge depletes much of its capital and wipes out more than three years of earnings. But Sterling has yet to determine the scheme's full financial impact.
