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Federal court rules Countrywide shareholder suit can go forward

[JURIST] A federal judge ruled [PDF text] this week that a shareholder derivative lawsuit brought against the directors and officers of mortgage lender Countrywide Financial [corporate website] for misrepresenting its financial condition could proceed. The court held that the plaintiffs, including a number of state pension funds, met the requisite heightened pleading standards under the Private Securities Litigation Reform Act [text] to allow the lawsuit to move to discovery. Plaintiffs said that Countryside's directors and officers failed to provide effective oversight of the company's origination, lending, and underwriting practices, which caused the company's stock to plummet. The court granted defendants' motions to dismiss some claims against current director Harley W. Snyder [corporate profile] and former director Michael E. Dougherty. AP has more.

Recently, Countrywide has objected to providing financial information during discovery in a number of bankruptcy actions brought by its borrowers. In April, the US District Court for the Western District of Pennsylvania denied [Memorandum opinion; order] Countrywide’s attempt to block access to its corporate and financial information in bankruptcy proceedings, holding that good cause existed and the information sought was within the aegis of federal bankruptcy rules. In March, the US Department of Justice and the Federal Bureau of Investigation launched [JURIST report] criminal investigations to determine whether Countrywide violated securities laws in the private mortgage bond market [BBC backgrounder].

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Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

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