NEW YORK, April 22, 2005 (PRIMEZONE) -- Wechsler Harwood LLP today announced that it has filed a Federal Securities fraud class action suit on behalf of all purchasers of the common stock of Doral Financial Corp. (NYSE:DRL) between March 15, 2004 and April 18, 2005, both dates inclusive (the "Class Period").
The action, titled `Haverman v. Doral Financial Corp.,' Case No. 05 CV 4026 (JSR), is pending in the United States District Court for the Southern District of New York, and names as defendants, the Company, its Chief Executive Officer and Chairman of the Board of Directors, Salomon Levis, its Chief Operating Officer and President, Zolla Levis, its President of the HF Mortgage Bankers division, David Levis, and its Chief Operating Officer and Executive President, Ricardo Melendez. A copy of the Complaint can be obtained from the Court or can be viewed on Wechsler Harwood web site at: www.whesq.com
The Complaint charges defendants with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Specifically, the Complaint alleges that defendants issued a series of materially false and misleading statements contained in press releases and filings with the Securities and Exchange Commission during the Class Period. It is alleged, among other things, that during the restatement period Doral improperly valued its I/Os by using flawed loss assumption, artificially high prepayment assumptions and artificially low discount rates. As a result of such conduct, Doral's stock price traded at artificially inflated levels. It is further alleged that during the restatement period Doral falsely reported its results through its failure to accurately account for its I/O assets, thereby overstating its net income and revenue and understating the Company's net liabilities in violation U.S. GAAP. This enabled certain insiders to reap more than $10,000,000 dollars in insider trading profits, as well as cash incentive bonuses.
The Complaint further alleges that in the fourth quarter '04, the impact of the flattening yield curve caught up to the defendants. In their quarterly filing, Doral recorded a $97.5 million pretax impairment charge on the I/O strips as the result of an increase in interest rates, specifically a rise in LIBOR -- the London interbank offered rate. Rather than come clean and disclose that they had been misleading investors, it is alleged that Doral attempted to further this false story. In its quarterly filing for fourth quarter '04, the Company noted its bottom line had been increased, with a $77 million tax benefit stemming from a temporary 50% reduction in Puerto Rico's long-term capital gains rate. This tax benefit applied to transactions between July 1, 2004, and June 30, 2005. Doral claimed that the tax reduction offset a $95 million trading loss it incurred on some of its I/O strips that were used to hedge against interest rate fluctuations. The Company stated that the new law prompted it to "accelerate" the time frame for recording an impairment charge on the value of its I/O strips.
Salomon Levis (Doral's CEO), in an email response to a journalist's question about the bank's earnings, tried to further mislead the public about the true nature of Doral's finances. It is alleged that these statements were false and misleading when made since Solomon Levis knew that the temporary tax benefit simply "masked" the Company's derivative shortfall and indicated that Doral's hedging strategy against interest rate changes was inadequate to safeguard the value of its I/O portfolio from interest rate swings. In April of 2005, the Company finally disclosed the magnitude of the problems at Doral.
On April 19, 2005, the Company announced that it was restating its financial results for 2000 through 2004. According to the Company, the restatements were made to correct the accounting treatment for the value of its I/O Strip portfolio. As a result, Doral acknowledged that the restatement may result in a decrease in the fair value of the securities by $400 to $600 million and that the Company will eventually be required to take between a $290 and $435 million charge as it writes down the value of some floating-rate, interest-only strips. In a press release, the Company stated that "management concluded that the previously filed interim and audited financial statements for the periods from January 1, 2000, through December 31, 2004, could be materially affected and, therefore, should no longer be relied on and that the financial statements for some or all of the periods included therein should be restated. Since January of this year, Doral stock has continued to plummet -- going from a high of nearly $50 per share to just above its two and a half year low of $15.
If you are a member of the class described above, you may, not later than June 20, 2005 move the Court to serve as lead plaintiff of the class, if you so choose. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member's claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as "lead plaintiff." Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Wechsler Harwood, or other counsel of your choice, to serve as your counsel in this action.
Wechsler Harwood has taken a leading role in many important actions on behalf of defrauded shareholders. The Wechsler Harwood website (www.whesq.com) has more information about the firm and detailed information regarding this matter. If you wish to discuss this action with us, or have any questions concerning this notice or your rights and interests with regard to the case, please contact the following:
Wechsler Harwood LLP 488 Madison Avenue, 8th Floor New York, New York 10022 Toll Free Telephone: (877) 935-7400 Craig Lowther, Wechsler Harwood Shareholder Relations Department: clowther@whesq.com
More information on this and other class actions can be found on the Class Action Newsline at www.primezone.com/ca