LANSING, Mich. (Legal Newsline) - Michigan Attorney General Bill Schuette announced on Friday that he filed a lawsuit against Countrywide Financial Corporation for allegedly engaging in a corporate fraud scheme.
That alleged scheme defrauded the Michigan pension fund out of $65 million. Schuette's suit alleges that the company, its underwriters, its auditor and some of its former executives and directors, through their actions, had effectively made Countrywide a subprime lender.
Schuette also alleges that despite its actions, the company continued to misinform investors that it maintained stringent mortgage loan underwriting standards that differentiated it from its competitors and other subprime lenders.
"Protecting the hard-earned dollars of Michigan taxpayers from fraud is one of my top priorities," Schuette said.
Between March 12, 2004 and March 7, 2008, Countrywide allegedly assured investors that a downturn in the housing market would probably not affect them. In those few short years, however, the company's stock price dropped almost 90 percent, falling from over $35 per share to about $5 per share, Schuette said.
The substantial drop was attributed to disclosures revealing Countrywide's lax mortgage underwriting guidelines, which included cascading mortgage defaults, an increased use of "pay option" adjustable rate mortgages, no documentation mortgages and other risky loan types, Schuette claims.
The suit alleges that Countrywide's stock was artificially inflated because of its false and misleading statements, which concealed a fundamental shift in the company's core mortgage-related business strategy
Countrywide experienced a loss of market capitalization of approximately $17 billion, with the state of Michigan Retirement Systems losing more than $65 million as a result.
The company also allegedly misstated its financial statements because reserves for loan losses, representation and warranty liability were materially understated.
The State of Michigan Retirement Systems invests on behalf of Michigan public school employees, state employees, state police and Michigan judges, holding combined assets of approximately $47.5 billion.
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