SOURCE: Abraham Fruchter & Twersky LLP

May 05, 2005 16:02 ET

Class Action Lawsuit Filed Against Doral Financial Corp.

NEW YORK, NY -- (MARKET WIRE) -- May 5, 2005 -- Abraham Fruchter & Twersky LLP today announced that a class action has been commenced in the United States District Court for the Southern District of New York on behalf of purchasers of Doral Financial Corp. ("Doral") (NYSE: DRL) publicly traded securities during the period between October 10, 2002 and April 19, 2005 (the "Class Period").

The complaint charges Doral and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Doral is a diversified financial services company engaged in mortgage banking, commercial banking, institutional broker-dealer activities and insurance agency activities.

The complaint alleges that during the Class Period, defendants made materially false and misleading statements regarding the Company's business and prospects. On January 19, 2005, the company reported fourth quarter earnings and for the first time warned of potential trouble with its hedging strategy against interest rate changes through its use of a derivative portfolio of interest-only strips ("IO Strips"). Doral was forced to record a $97.5 million pretax impairment charge on its derivative portfolio of IO Strips. On March 15, 2005, Doral filed its Annual Report on Form 10-K with the Securities and Exchange Commission ("SEC"). In its 2004 Annual Report the Company disclosed for the first time its use of overly aggressive assumptions in valuing its derivatives portfolio of IO Strips. In a matter of days Doral stock plummeted from $38.29 per share to $21.50 per share in extremely heavy volume of more than ten times the daily average.

Then on April 19, 2005, the Company announced that "after consulting with various financial institutions and other firms with experience in valuation issues, the Company has determined that it is appropriate to correct the methodology used to calculate the fair value of its portfolio of floating rate interest only strips ("IOs"). The Company's preliminary estimate is that this correction will result in a decrease in the fair value of its floating rate IOs of between $400 million to $600 million as of December 31, 2004."

According to the complaint, the true facts, which were known by each of the defendants but concealed from the investing public during the Class Period, were as follows: (a) the Company was using overly aggressive and unrealistic assumptions to value its derivative portfolio of IO Strips used to hedge its mortgage portfolio against interest rate fluctuations; (b) the Company was using fraudulent accounting practices and materially overstated its net income, net gain on mortgage loan sales and net capital; and (c) the Company was using ineffective risk management and hedging strategies against the increasing risk of rising interest rates. As a result of these false statements, Doral's stock price traded at inflated levels during the Class Period, increasing to as high as $49.45 per share on January 18, 2005. The Company sold $740 million worth of notes and $345 million worth of preferred stock during the Class Period. However, after the truth was revealed in Doral's press release on April 19, 2005, the Company's shares fell to below $16 per share.

Plaintiff seeks to recover damages on behalf of all purchasers of Doral publicly traded securities during the Class Period (the "Class"). The plaintiff is represented by Abraham Fruchter & Twersky LLP which has expertise in prosecuting investor class actions and extensive experience in actions involving financial fraud.

If you wish to serve as lead plaintiff, you must meet certain legal requirements set forth in the applicable law and file appropriate papers with the Court no later than 60 days from April 21, 2005. You do not need to seek appointment as a lead plaintiff in order to share in any recovery. Under certain circumstances, one or more Class members may together serve as lead plaintiff. You may retain Abraham, Fruchter & Twersky, LLP, or other counsel of your choice, to serve as your counsel in this action or you may choose to do nothing and remain an absent class member.

If you have any questions concerning this case or your rights or interests with respect to this matter, please contact plaintiff's counsel: Jack G. Fruchter, Esq. or Ximena Skovron, Esq. of Abraham, Fruchter & Twersky, LLP, One Penn Plaza, Suite 2805, New York, New York 10119, by telephone at (212) 279-5050 or toll free at (800) 440-8986, by facsimile at (212) 279-3655, or by e-mail at jfruchter@aftlaw.com or xskovron@aftlaw.com.

Contact Information

  • Jack G. Fruchter, Esq.
    Abraham Fruchter & Twersky, LLP
    (212) 279-5050
    (800) 440-8986
    facsimile (212) 279-3655
    jfruchter@aftlaw.com

    Ximena Skovron, Esq.
    Abraham Fruchter & Twersky, LLP
    (212) 279-5050
    (800) 440-8986
    facsimile (212) 279-3655
    xskovron@aftlaw.com