Boca Raton, May 4, 2007 – On April 12, 2007, Saxena White P.A. filed suit on behalf of shareholders against Coast Financial Holdings Incorporated (“CFHI” or the “Company”)(NASDAQ: CFHI) in the United States District Court for the Middle District of Florida.
The complaint seeks damages for violations of federal securities laws on behalf of all investors who acquired Coast Financial Holdings securities from January 21, 2005 through January 19, 2007 (the “Class Period”). The Complaint alleges that defendants violated the federal securities laws by issuing materially false and misleading statements contained in press releases and filings with the Securities and Exchange Commission during the Class Period.
During the Class Period, defendants issued quarter after quarter of improving financial results, and touted the strength of the Company’s assets including its residential construction loan portfolio. Defendants reported strong growth in the loan portfolio, but failed to disclose that a significant portion of CFHI’s loans were concentrated in projects with a company called Construction Compliance Incorporated (“CCI”). In fact, as revealed in a February 4, 2007 article published in the St. Petersburg Times, the relationship between CCI and CFHI began in early 2004, when CCI’s owner Jesse Battle formed a relationship with a mortgage company called American Mortgage Link and with senior lender Phillip Coon from CFHI to establish a no-money-down investment program to sell houses. Pursuant to this program, borrowers would put little or no money as down payments, and take out construction loans in their name that CCI would then use to construct the homes. CCI used the credit lines for construction and to pay the interest on the loans. Once the projects were completed, borrowers would sell the homes in a relatively short time period for fast profits.
At the start of the Class Period, defendants knew but failed to disclose that CFHI had increased its business with CCI, and was vulnerable by having extended millions of dollars in connection with highly speculative CCI projects. Defendants not only failed to disclose the nature of the relationship with CCI, but failed to increase CFHI’s loan loss reserves associated with the risky CCI loans. Beginning on January 19, 2007, the true nature of the CCI relationship and CFHI’s resulting exposure started to surface. On January 19, 2007, it was revealed that CCI withdrew tens of millions of dollars from CFHI and never completed construction on many homes. According to a February 4, 2007 article published by the St. Petersburg Times, CFHI financed at least 482 of the CCI loans and is on the hook for upwards of $77 million in loans which customers may never repay. As a result, defendants revealed that CFHI’s loan portfolio associated with CCI was most likely impaired because CCI could not complete a significant portion of their construction projects. As a result, defendants were forced to add $14 million to CFHI’s loan loss reserves to account for the CCI projects. Currently, defendants are seeking to bail out of CFHI by courting a buyer for the Company, even though it will be at a significantly depressed price. A Miami banking analyst quoted in the St. Petersburg Times article noted that “[i]t’s going to be like visiting the clearance rack in the back of the store. They’re not going to pay top price for Coast, this time next year, Coast will be a footnote in history.”
In response to the news, the price of CFHI stock fell 25% on unusually large trading volumes. On January 22, 2007, when additional information about the true high-risk composition of CFHI’s loan portfolio was revealed, the stock fell another 29%, resulting in massive losses to CFHI investors.
If you acquired Coast Financial Holdings securities from January 21, 2005 through January 19, 2007 you may wish to contact the following attorneys at Saxena White P.A. to discuss your rights and interests:
Maya Saxena
msaxena@saxenawhite.com
Joseph White
jwhite@saxenawhite.com
Saxena White P.A.
2424 North Federal Highway
Suite 257
Boca Raton, FL 33431
Tel: (561) 394-3399
Fax: (561) 394-3382
www.saxenawhite.com
If you wish to apply to be the lead plaintiff in this action, a motion on your behalf must be filed with the court no later than May 21, 2007. You may contact the attorneys at Saxena White P.A. to discuss your rights regarding the appointment of lead plaintiff and your interest in the class action. Please note that you may also retain counsel of your choice and need not take any action at this time to be a class member.
