Magazine article American Banker

Latest Capstead Suit Cites Transactions by Company and Officers

Magazine article American Banker

Latest Capstead Suit Cites Transactions by Company and Officers

Article excerpt

In the latest of a slew of class actions, Capstead Mortgage Corp. of Dallas was again accused this week of issuing false statements that inflated its stock price.

Doing so, the action says, permitted officers and directors of the mortgage investment company to raise about $192.2 million to fund operations by selling new stock. Also, the action says, the false statements permitted officers to exchange their dividend-equivalent rights for $23.25 per share, realizing personal profits of more than $10.6 million.

The new suit was filed in Dallas by the law offices of Steven E. Cauley, Little Rock, and of Al Yates, Jr., Pittsburgh.

Capstead has been hit with at least a dozen class actions in recent months. The latest alleges that between April 17, 1997, and June 25 of this year, people who bought shares paid too high a price, and that Capstead's top executives caused the stock to trade at artificially high levels by misrepresenting the company's financial results, the outlook for the business, and the success of its investment strategy.

Capstead issued a statement on Tuesday saying it "intends to defend itself vigorously" against the class actions. It added that the "resolution of these suits will not have a material adverse effect on the financial position of the company."

On June 26, the day Capstead announced a loss of $255 million, its stock fell $3.626, to $9.312. Class actions started to mount after the decline-a typical result, according to lawyers.

Data from CDA/Investnet show the most significant selling by insiders in January and February of 1997-before the class actions.

But trades from January to March 1998 showed "a positive picture by the insiders," said Stacey Griffin, senior research analyst with CDA/Investnet in Baltimore. "We show them purchasing shares on the open market and exercising nonqualified options, and in fact increasing their holdings during this period. …

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