Law Firms Announce Class Action Against Penson
August 25, 2011
A series of law firms late Tuesday said that a class action had been started against clearer Penson Worldwide, over "materially false and misleading statements" about the Dallas firm's financial condition.
All the action centers in the U.S. District Court for the Northern District of Texas, where the law firms seek to recover damages on behalf of shareholders. The primary law firms making an announcement about the class action suit included Kaplan Fox & Kilsheimer in New York and San Francisco and Schneider Wallace Cottrell Brayton Konecky LLP, of Houston.
Making separate announcements were the law offices of Howard G. Smith in Bensalem, Pennsylvania and Levi & Korsinsky in New York.
The Kaplan Fox complaint alleges that Penson:
Failed to disclose that by at least the end of 2010 1) the Company had approximately $96-97 million in receivables ("Nonaccrual Receivables") of which approximately $43 million were collateralized by illiquid securities and therefore unlikely to be collected; 2) the Company's assets (Nonaccrual Receivables) were materially overstated and should have been written down at least by the end of 2010; 3) as a result, the Company's reported income and EBITDA (earnings before interest, taxes, depreciation, amortization and stock-based compensation, and excluding certain nonoperating expenses) were materially overstated; and 4) the Company's financial statements were not prepared in accordance with generally accepted accounting principles ("GAAP").
It is further alleged that starting on May 9, 2011, Penson began to reveal the truth about its financial condition. On May 9, 2011, Penson disclosed it held Nonaccrual Receivables of approximately $97 million of which approximately $43 million were collateralized by illiquid securities issued by a troubled horse track and real estate project in Texas. Between May 9 and May 11, 2011, Penson shares declined from a close on May 9, 2011 of $5.45 per share to close at $3.93 per share on May 11, 2011, a decline of approximately 28%, on heavy volume.
Then, on May 12, 2011, the Complaint alleges that Penson disclosed the resignation of Company director Thomas R. Johnson, stating "[b]ased on Mr. Johnson's position as chief executive officer of Call Now, Inc, a holder of a portion of the Retama related collateral, both Mr. Johnson and the Company felt it appropriate for him to resign his position at this time." On May 12, 2011, Penson shares declined $0.81 per share further, or approximately 21%, to close at $3.12 per share, on heavy volume.
Finally, on August 4, 2011, it is alleged that after the close of trading, Penson disclosed that "the Company recorded a non-cash write down of $43.0 million, equal to $26.7 million or ($0.94) per share net of tax, against $96.6 million of nonaccrual receivables. The write down was recorded in conjunction with Penson's initiation of foreclosure proceedings on the majority of the collateral underlying these receivables, including, but not solely related to, certain assets associated with the Retama Development Corporation, and shares of Penson Worldwide stock."
Kaplan Fox said parties involved could seek to be designated a lead plaintiff within 60 days.
The Howard Smith firm said “no class has yet been certified.’’
Penson said Wednesday it had not yet been served with the suit. But a spokesperson said Penson believes "the key allegations are without merit and we intend to vigorously defend the company."
Three weeks ago, Penson Worldwide said it planned a series of “strategic initiatives” to restore profitability, as its loss in the second quarter quadrupled from a year ago.
