Lawsuits Brought Against Triad Guaranty

A putative securities class action filed in federal district court charges executives at mortgage insurer Triad Guaranty Inc. with failing to disclose to investors the real risks of the company's guaranties of riskier mortgage products, which led the company into runoff last summer as defaults mounted, according to A.M. Best Co.

San Diego-based firm Coughlin Stoia Geller Rudman & Robbins filed the case in the the U.S. District Court for the Middle District of North Carolina on behalf of Triad shareholders who bought the company's stock between Oct. 26, 2006, and Nov. 10, 2008. Similar suits also were filed in the same jurisdiction by Hartford, Conn.-based Izard Nobel LLP and Baltimore-based Brower Piven.

In their respective suits, the firms charge that Triad ‘concealed from the investing public’ that it was not adequately reserved for the risks it would face in connection with insurance of Alt-A and pay-option adjustable-rate mortgage products. The suits also charge that Triad failed to engage in proper underwriting practices in 2006 and 2007, had far greater exposure to losses than it disclosed, lacked effective internal controls to police the underwriting process, and failed to disclose risks associated with ratings downgrades and its ability to write new business.

In a statement, Triad said it ‘believes the plaintiff's allegations are without merit and intends to vigorously contest the action.’

After peaking at $58.45 a share in January 2007, Triad's stock tumbled precipitously as the extent of troubles within the U.S. mortgage market became apparent through the year, ultimately dropping to $0.70 a share on Nov. 11, 2008. Hit hard by a wave of defaults arising out of the mortgage crisis, Triad posted a $77.5 million net loss for 2007 and took $508.9 million of net losses through the first three quarters of 2008.

SOURCE: A.M. Best Co.


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