American Home Mortgage filed for Chapter 11 bankruptcy protection in August 2007. The complaint, which named several of American Home Mortgage’s directors and officers, Deloitte & Touche, and the underwriters of an offering of American Home Mortgage’s common stock, alleged that American Home Mortgage issued materially false and misleading statements and failed to disclose that: (1) the Company was experiencing an increasing level of loan delinquencies which was depressing its earnings; (2) the Company was experiencing increasing difficulties in selling its loans and, therefore, was required to decrease prices, which reduced margins and profits; and (3) the Company was overstating its financial results by failing to write-down the value of certain of the loans in its portfolio as these loans had declined substantially in value.
As reported, the $37.25 million settlement is comprised of the following component payments: (1) $24 million from the individual defendants, funded by D&O insurance; (2) $4.75 million from Deloitte & Touche; and (3) $8.5 million from the underwriter defendants.
