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Tuesday, August 20, 2019

J.G. Wentworth Company sued over alleged misrepresentations related to stock purchase deal

By Jessica Karmasek | Jan 6, 2017

NEW YORK (Legal Newsline) - The owner of a privately-held residential mortgage company is suing The J.G. Wentworth Company -- known for its popular television commercials and the tagline, “It’s your money, use it when you need it!” -- arguing J.G. Wentworth misrepresented the health of its business in connection with a stock purchase agreement.

Plaintiff Walter F. Jones filed his lawsuit against J.G. Wentworth and CEO Stewart Stockdale in the U.S. District Court for the Southern District of New York Dec. 29.

According to Jones’ 17-page complaint, J.G. Wentworth - a diversified financial services company that provides mortgage lending and refinancing, structured settlements, annuities and lottery payment purchasing, among other things - and Stockdale violated sections of the Securities Exchange Act and committed fraud, negligent misrepresentation and breach of the duty of good faith and fair dealing.

Jones says his claims stem from the defendants’ sale of JGW securities to Jones.

Jones contends JGW was in possession of “material non-public information” and made “misrepresentations and omissions of material fact” regarding JGW’s business in connection with the stock purchase agreement executed March 6, 2015 by JGW, Jones, WestStar Mortgage Inc., Kathleen Murphy-Zimpel and Roger W. Jones.

Jones founded WestStar, a privately-held residential mortgage company, in 2000.

“Defendants possessed material non-public information regarding JGW’s business, unknown to Jones, when they sold JGW stock to Jones, and misrepresented, concealed and omitted material facts regarding JGW’s business in order to induce Jones to agree to close the Transaction five days before JGW’s quarterly earnings announcement on August 5, 2015,” Jones wrote in his complaint.

According to Jones’ complaint, under the March 6, 2015 stock purchase agreement, JGW agreed to acquire all of the stock of WestStar, agreeing to pay the sellers of the stock, including Jones, a total of $54 million.

But from the day the agreement was signed through late-July, JGW made “no effort” to target a specific closing date, Jones noted.

“Then, in late-July, JGW became adamant that the Parties target a Closing Date of Friday, July 31, 2015,” he wrote. “JGW provided no reason for its abrupt posture that this specific date be targeted, just before its second quarter earnings announcement.

“From that point until the Closing Date, JGW applied tremendous pressure to close the deal as quickly as possible, prior to its second quarter earnings announcement.”

Soon after the closing, JGW’s stock experienced a decline of 24 percent -- closing at $6.08 on Aug. 6, 2015, Jones pointed out.

“JGW’s stock failed to close above $6.20 per share from that point forward, and ultimately fell to $0.45 per share on June 17, 2016 -- a 94 percent drop from the date of the closing of the Transaction -- after which the New York Stock Exchange suspended trading in the stock due to JGW’s failure to maintain an average global market capitalization over a consecutive 30-day trading period of at least $15 million,” he wrote in his complaint.

Then, on Dec. 27, 2016, JGW’s stock, trading on the OTCQX Market -- a U.S. financial market providing price and liquidity information for almost 10,000 over-the-counter securities -- closed at just $0.40 per share.

“This decline in JGW’s stock price following its earnings announcement was caused in full or in part by the disclosures in that announcement of previously undisclosed material non-public information that was known to JGW and Stockdale at the time of the Transaction,” Jones alleges.

Jones argues that while JGW and Stockdale conveyed to him that JGW’s business was solid, the business was actually suffering -- due to its inability to counteract rapid increases in interest rates and cost of funds.

He contends the defendants knew it would have a “materially negative impact” on its business and the financial results it would disclose on Aug. 5 and 6, 2015.

“These matters were not attributable to changes in the economy or financial, capital or securities markets, as they arose from defendants’ affirmative business decisions prior, and in response, to a rise in cost of funds,” Jones wrote, adding that the defendants had a duty to disclose such information prior to the July 31, 2015 closing date.

“Defendants’ misrepresentations and omissions were misleading to Jones. Had he known of the true facts at the time of the closing, he would have been able to take steps to avoid or mitigate some or all of the impact and losses suffered by the precipitous and continued drop in the value of JGW stock almost immediately after the closing of the Transaction.”

Jones seeks an order granting damages no less than $7 million plus interest; costs, disbursements, punitive damages, reasonable attorneys’ fees; and any other relief the New York federal court deems “just and proper.”

J.G. Wentworth could not immediately be reached for comment on the lawsuit.

Jones is represented by Sheppard Mullin Richter & Hampton LLP in New York.

The case has been assigned to Judge Jed S. Rakoff.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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J.G. Wentworth Company U.S. District Court for the Southern District of New York New York Division

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