Susan D'Errico, et al. v. Louis J. Rampino, et al. 07-CV ...securities.stanford.edu/filings-documents/1038/FMT_01/2007615_f0… · 16 LOUIS J. RAMPINO, 11-717 Defendant. JURY TRIAL

1 WILLIAM F. SALLE (#124498)-) LAW OFFICES OF WILLIAM F. SALLE

425 E. Colorado St., Suite 7553 Glendale, CA 912054 Telephone: (818) 543-1900

V„

5 Facsimile: (818) 543-1550 • _Email: wfslawgyahoo.com

6 ,,

Attorneys for Plaintiff Susan D'Errico _ -

UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

9

10

LS — MI1/-1 R-1()SUSAN D'ERRICO. Individually and NO.

H On Behalf of All Others SimilarlySituated,

12CLASS ACTION COMPLAINT

13 Plaintiff. FOR BREACH OF FIDUCIARY

14 DUTY AND VIOLATIONS OFvs. FEDERAL SECURITIES LAWS

15

16 LOUIS J. RAMPINO,

11-7 17 Defendant. JURY TRIAL DEMANDED

(. IS

23i3SUMMARY OF ACTION

71 1. This is a securities fraud class action on behalf of all persons

22 who purchased or othenvise acquired the common stock of Fremont General

Corporation ("Fremont General" or the "Company") between April 28, 2005 and

15 February 27, 2007 (the "Class Period") for breach of fiduciary dq3DEtaoiving!

of the Securities Exchange Act of 1934 ("1934 Act"). 2 2 2001 I

27

28 BY • j

CLASS ACTION COMPLAINT

Page I (

0PdCT,\,',AL

2. Durin g the Class Period defendant issued statements

concernin g Fremont General's business, operations and prospects which3

4 defendant knew or recklessly disre garded were materially false and misleadin g . As

5 a result of defendant's' failure to disclose the Company's improper business6

practices, Fremont General stock traded at artificially inflated prices during the

8 Class Period.

93. On February 27, 2007, investors were shocked when Fremont

10

General issued a press release disclosin g that the Company would postpone filing11

12 its Form 10-K annual report for 2006 with the SEC, and that the Company

13"intends to file a Form 12b-25 with the Securities and Exchange Commission

14

1 5 explainin g the reasons therefor." As a result of this news, the next day shares of

16 the Company's stock declined $2.84 per share, or 24 percent, to close on February17

28, 2007, at $8.81 per share, on unusually heavy tradin g volume.18

19 4. On March 2, 2007, the Company filed a Form 12b-25 with the

SEC informing investors that the Company was unable to timely file its Form 10-21

K and — even more disturbing — that the Company intended to exit its subprime

23 residential real estate lending business.

5. The true facts, which were known by the defendant but7,5

16 concealed from the investing public durin g. the Class Period, were that Fremont

27 General and its wholly owned bankin g subsidiary Fremont Investment 8.: Loan

CLASS ACTION COMPLAINTPage 2

1 (FIL) were, among other thin gs, en g a gin g in the followin g improper business

practices:

4 Operating with mana gement whose policies and practices aredetrimental to FIL;

5

6 Operating FIL without effective risk management policies andprocedures in place in relation to FIL's primary line of businessof brokered subprime mortgage lending;

9

-

Operating FIL without effective risk management policies andprocedures in place in relation to FIL's other primary line of

10 business of commercial real estate construction lending:

11- Operating with inadequate underv,Titin g criteria and excessive

risk in relation to the kind and quality of assets held by FIL;

13- Operating with a lar ge volume of poor quality loans:

14

15 Engaging in unsatisfactory lendin g practices;

16

-

Operating without an adequate strate gic plan in relation to the

17 volatility of FIL's business lines and the kind and quality ofassets held by FIL;

18

19 Operating with inadequate capital in relation to the kind andquality of assets held by FIL;

20

Operating in such a manner as to produce low andunsustainable earnings;

- Operating with inadequate provisions for liquidity in relation to

24 the volatility of FIL's business lines and the kind and quality ofassets held by FIL:

")5

26 Marketing and extending adjustable-rate mortgage ("ARM")


28 Pa2e 3

products to subprime borrowers in an unsafe and unsoundmanner that greatly increases the risk that borrowers willdefault on the loans or otherwise cause losses to FIL,

4 Making mortga ge loans without adequately considering the

5borrower's ability to repay the mort ga ge accordin g to its terms;and

6

7Operating inconsistently with the FDIC's Interagency Advisoryon Mortgage

9JURISDICTION AND VENUE

10 6. Jurisdiction is conferred by §27 of the 1934 Act. The claims

11asserted herein arise under §§10(b) and 20(a) of the 1934 Act and SEC Rule 10b-

13 7. (a) Venue is proper in this District pursuant to §27 of the 1934

14 Act. Many of the acts and transactions giving rise to the violations of law

15

16 complained of herein, includin g the preparation and dissemination to the investing

17 public of false and misleadin g information, occurred in this District.

18 (b) Fremont General's principal executive offices are situated in this19

Judicial District at 2425 Olympic Boulevard, Santa Monica, California 90404.

PARTIES

8. Plaintiff Susan D'Errico purchased Fremont General common

24 stock as described in the attached certification and was damaged thereby.

9. Defendant, Louis J. Rampino (hereinafter "Rampino" or

?6

77 CLASS ACTION COMPLAINT

28 Page 4

I "Defendant"), was, from May 2004 until May 2007 and at all times relevant

hereto, the Company's President and Chief Executive Officer. During the Class3

4 Period, Rampino was responsible for the false and misleading financial statements

5 issued to the public.6

10. Defendant Rampino, because of his positions with the7

S Company, possessed the power and authority to control the contents of Fremont

9General's quarterly reports, press releases and presentations to securities analysts,

10money and portfolio managers and institutional investors, i.e.. the market. He was

11

12 provided with copies of the Company's reports and press releases alleged herein to

13be misleading prior to or shortly after their issuance and had the ability and

14

15 opportunity to prevent their issuance or cause them to be corrected. Because of his

16 positions with the Company, and his access to material non-public information17

available to him but not to the public. Defendant knew that the adverse facts18

19 specified herein had not been disclosed to and were being concealed from the

public and that the positive representations being made were then materially false

and misleading. Defendant Rampino is liable for the false statements pleaded

23 herein.

24

Is


28 Page 5

•

FRAUDULENT SCHEME AND COURSE OF BUSINESS

11. Defendant is liable for: (i) makin g, false statements: or (ii)3

4 failing to disclose adverse facts lolown to him about Fremont General.

5 Defendant's fraudulent scheme and course of business that operated as a fraud or6

deceit on purchasers of Fremont General common stock was a success, as it: (i)7

8 deceived the investing public re garding Fremont General's business, operations

9and prospects: (ii) artificially inflated the price of Fremont General common stock:

I()and (iii) caused plaintiff and other members of the Class to purchase Fremont11

12 General common stock at inflated prices.

13CLASS ACTION ALLEGATIONS

14

15 12. Plaintiff brin gs this action as a class action pursuant to Rule 23

16 of the Federal Rules of Civil Procedure on behalf of all persons who purchased or17

otherwise acquired Fremont General common stock during the Class Period (the18

19 "Class"). Excluded from the Class is Defendant.

13. The members of the Class are so numerous that joinder of all?1

members is impracticable. The disposition of their claims in a class action will

23 provide substantial benefits to the parties and the Court.

2414. There is a well-defined community of interest in the questions

m of law and fact involved in this case. Questions of law and fact common to the


28 Page 6

•

1 members of the Class which predominate over questions which may affect

individual Class members include:3

4 (a) whether the 1934 Act was violated by Defendant;

5 (b) whether Defendant omitted and/or misrepresented material6

facts;

(c) whether Defendant's statements omitted material facts

9necessary to make the statements made, in light of the

10

11circumstances under which they were made, not misleading:

12 (d) whether Defendant knew or deliberately disregarded that his

13statements were false and misleading;

14

15 (e) whether the price of Fremont General's common stock was

16 artificially inflated; and17

(f) the extent of damage sustained by Class members and theIS

19 appropriate measure of damages.

15. Plaintiff's claims are typical of those of the Class because-)1

,y) plaintiff and the Class sustained damages from Defendant's wrongful conduct.

16. Plaintiff will adequately protect the interests of the Class and

74has retained counsel who are experienced in class action securities litigation.

/5

26 Plaintiff has no interests which conflict with those of the Class.


1 17. A class action is superior to other available methods for the fair

and efficient adjudication of this controversy.3

4 SUBSTANTIVE ALLEGATIONS

5 18. Fremont General Corporation is the holdin g company for6

Fremont Investment & Loan, which en gages in commercial and residential real7

estate lending business in the United States. It ori ginates non-prime or sub-prime

9residential real estate loans through independent brokers on a wholesale basis.

10which are primarily sold to third-party investors, and commercial real estate loans,11

12 includin g, bridge, construction and permanent loans on a nationwide basis.

13.Defendant's False and Misleading Statements During the Class Period

14

15 21. On April 28, 2005, Fremont General issued a press release

16 announcin g the Company's financial results for first quarter 2005. The press17

18 release, in relevant part, stated:

19 Fremont General Reports a 9% Increase in Quarterly Net Income

20SANTA MONICA, Calif., April 28 TRNewswire-FirstCall/ -

21 Fremont General Corporation (NYSE: FMT) (the "Company"), anationwide residential and commercial real estate lender doingbusiness primarily through its wholly- owned industrial banksubsidiary, Fremont Investment & Loan, reported today its results for

24 the first quarter of 2005. Net income for the first quarter of 2005 was$90,102,000, which represents an increase of 9%, as compared to netincome of 882,663,000 for the first quarter of 2004. Diluted net

/6 income


28 Pane 8

per share was $1.22 for the first quarter of 2005, up 9% as comparedto S1.12 per share for the first quarter of 2004.

3 Residential Real Estate Lending,4

5Residential real estate loan originations totaled $7.76 billion during

the first quarter of 2005, up from $5.09 billion during the first quarter

6 of 2004. ...

7 * * *

8 As a result of this volume, loans held for sale increased to $6.09

9billion at March 31, 2005, up from S3.75 billion at March 31, 2004. ...

10 * * *

11 thThe net gain on the sale of residential real estate loans during e firstquarter of 2005 totaled $108.4 million (or 1.55%) on whole loan sales

12 and securitizations of $7.06 billion, as compared to a gain of $122.2

13 million (or 2.62%) on whole loan sales and securitizations of $4.63billion during the first quarter of 2004. The gross premiums realized

14 on whole loan sales and securitizations during the first quarter of

15 2005 were lower than in the first quarter of 2004 as a result of lowerinterest rate margins reflecting price competition in the non-prime

16 mortgage origination market.17

Commercial Real Estate Lending18

19 Commercial real estate loans held for investment, before theallowance for loan losses, totaled approximately $3.81 billion atMarch 31, 2005, as compared to $3.90 billion at March 31, 2004.

7 1 New loan commitments entered into increased to S1.08 billion duringthe first quarter of 2005, up from S804.7 million durin g the fourthquarter of 2004 and $396.9 million in the first quarter of 2004. ...

* * *

Non-accrual commercial real estate loans and REO totaled $96.2million (comprised of 14 loans and 6 REO properties andrepresenting 2.51% of total

-)7 CLASS ACTION COMPLAINT

Page 9

•

1 portfolio and RE0 ,) at March 31. 2005, down from $103.7 million(comprised of 15 loans and 11 REO properties and representing2.61% of total portfolio and REO) as of March 31, 2004. Net loancharge-offs for the commercial real estate portfolio decreased during

4 the first quarter of 2005 to S621.000 from S9.1 million durin g the first

5quarter of 2004. The annualized net char ge-off ratio for the quarterending March 31, 2005 for the commercial real estate loan portfolio

6 was 0.07%, as compared with a ratio of 0.91% for the quarter endedMarch 31, 2004.

7

Other Highlights

9* Net interest income increased to $118.8 million for the first

10 quarter of 2005, as compared to $117.6 million for the first quarter of

11 2004. Net interest income, as a percentage of net interest-earningassets at the financial services operations level, while still at strong.

12 levels, decreased from 5.30% in the first quarter of 2004 to 4.89%

13 for the first quarter of 2005. This decrease is primarily a resultof lower interest rate mar gins as fundin g costs increased faster than

14 the yields on the loans outstandin g durin g the first quarter of 2005.15

* As a result of the decreased level of net charge-offs durin g the

16 first quarter of 2005, the Company realized a decrease in its

17 provision for loan losses expense to S1.04 million as compared to$16.4 million for the first quarter of 2004. As of March 31, 2005,

IS the allowance for loan losses totaled S171.9 million, or 4.50% of the

19 total commercial real estate loans held for investment.

70* Fremont Investment & Loan, as of March 31, 2005, had $10.8

7 1 billion in assets and $7.8 billion in FDIC-insured deposits, with atotal Risk-Based Capital ratio of 18.03%.

23 * The residential real estate loan servicing platform was servicingapproximately $18.8 billion in loans outstanding as of March 31,2005. This amount was comprised of the Company's securitizedloans, loans held for sale and interim servicing for loans sold to thirdparties.


28 Pane 10

* Stockholders' equity per share was S14.13 at March 31, 2005.

22. On May 10, 2005 Fremont General filed its quarterly report for the3

4 period ended March 31. 2005 with the SEC on Form 10-Q, which was si g:ned by

5 Defendant Rampino and reaffirmed the Company's previously announced6

financial results. Pursuant to Section 302 of the Sarbanes-Oxley Act of 20027

S ("Sarbanes-Oxley"), the Form 10-Q included a certification si gned by Rampino

9stating that the Form 10-Q did not include any material misrepresentations.

10

1123. On July 28, 2005. Fremont General issued a press release

12 announcing the Company's financial results for second quarter 2005. The press

13release, in relevant part, stated:

14

15 Fremont General Reports Diluted Net Income per Share of S1.21 For

16the Second Quarter of 2005

17 SANTA MONICA, Calif.. July 28 /PRNewswire-FirstCalli --Fremont General Corporation (the "Company") (NYSE: FMT), a

18 nationwide residential and commercial real estate lender doing19 business primarily throu gh its wholly- owned industrial bank

subsidiary, Fremont Investment & Loan, reported today its results for')()

the second quarter of 2005. Net income for the second quarter of7 1 2005 was $90,770,000, which represents a decrease of 4.8%, as

compared to net income of $95,378,000 for the second quarter of2004. Diluted net income per share was $1.21 for the second quarterof 2005, down 7% as compared to $1.30 per share for the secondquarter of 2004.

Net income for the first six months of 2005 was $180,872,000, anincrease of 1.6% as compared to S178,041,000 for the first six months


28 Paee I I

of 2004. Diluted net income per share was $2.43 for the first sixmonths of 2005, as compared to the same $2.43 per share for the firstsix months of 2004.

3

4 Residential Real Estate Lending

5 Residential real estate loan ori ginations totaled $9.24 billion during

6 the second quarter of 2005, up from S5.89 billion during the secondquarter of 2004. ...

7

8 * * *

9As a result of this volume, loans held for sale increased to $5.49billion at June 30, 2005, up from $4.43 billion at June 30, 2004. ...

10* * *

11The net gain on the sale of residential real estate loans during the

second quarter of 2005 totaled $92.0 million (or 0.93%) on whole

13 loan sales and securitizations of $9.76 billion, as compared to a gainof $127.1 million (or 2.46%) on whole loan sales and securitizations

14 of $5.18 billion during the second quarter of 2004. The gross

15 premiums realized on whole loan sales and securitizations durin g thesecond quarter of 2005 were lower than in the second quarter of 2004

16 primarily as a result of lower interest rate mar gins reflectin g increased

17 price competition in the non-prime mortgage origination market.

18 Commercial Real Estate Lending19

Commercial real estate loans held for investment, before the?c,1allowance for loan losses, totaled $3.73 billion at June 30, 2005, as

21 compared to $3.84 billion at June 30, 2004. New loan commitmentsentered into increased to $1.16 billion durin g the second quarter of2005, up from $1.06 billion during the first quarter of 2005 and

23 $644.8 million in the second quarter of 2004. The increase in loan

24 commitments has not resulted in a corresponding increase in theCompany's loans outstanding due to a hi gher level of loan portfolio

"Yj run-off and lower avera ge fundin g.s on new loan commitments

26 entered into. ...


28 Pasze 12

* * *

Non-accrual commercial real estate loans and REO totaled S51.2million (comprised of 8 loans and 6 REO properties) at June 30,

3 2005, down from S86.7 million (comprised of 13 loans and 9 REO

4 properties) as of June 30. 2004. Net loan charge-offs for the

5commercial real estate portfolio increased during the second quarterof 2005 to $7.8 million from $4.9 million during the second quarter of

6 2004. Of the 87.8 million in net loan char ge-offs in the secondquarter of 2005, $6.2 million came from one loan. The annualized netcharge- off ratio for the quarter endin g June 30, 2005 for thecommercial real estate loan portfolio was 0.81%, as compared with a

9ratio of 0.50% for the quarter ended June 30, 2004. The annualizednet charge-off ratio for the six month period ending June 30, 2005

10 was 0.45%, a decrease as compared to 0.71% the first six months of

112004.

12 Other Highlights

13* Net interest income increased to S128.0 million for the second

14 quarter of 2005, as compared to $121.4 million for the second quarter

15 of 2004. Net interest income increased as a result of increasedaverage interest-earning assets; however, net interest income, as a

16 percentage of net interest-earnin g assets at the financial services

17 operations level, while still at strong levels, decreased to 4.63% forthe second quarter of 2005 from 5.17% for the second quarter of

18 2004. This decrease is primarily a result of lower interest rate

19 margins as fundin g costs increased faster than the yields on theloans outstanding during the second quarter of 2005.

21 * As a result of the decrease in the non-accrual loan balances inthe commercial real estate loan portfolio in the second quarter of2005, the Company realized a decrease in its provision for loanlosses, which resulted in a $4.22 million credit to income ascompared to a $146,000 expense for the second quarter of 2004. Asof June 30, 2005, the allowance for loan losses totaled S160.0 million,or 4.28% of the total commercial real estate loans held for investment.

26

-r7 CLASS ACTION COMPLAINT

Page 13

* Fremont Investment & Loan, as of June 30, 2005, had S10.8billion inassets and $8.3 billion in FDIC-insured deposits, with a totalRisk-Based Capital ratio of 19.62%.

3

4

* The residential real estate loan servicing platform was servicing.approximately 821.0 billion in loans outstanding as of June 30,

5 2005. This amount was comprised of the Company's securitized6 loans, loans held for sale and interim servicin g, for loans sold to third

parties.

* Stockholders' equity per share was S15.37 at June 30, 2005.

924. On Au gust 9, 2005 Fremont General filed its quarterly report

0for the period ended June 30, 2005 with the SEC on Form 10-Q, which was

12 signed by Defendant Rampino and reaffirmed the Company's previously

13announced financial results. Pursuant to Section 302 of Sarbanes-Oxley, the Form

14

15 10-Q included a certification signed by Rampino statin g that the Form 10-Q did

16 not include any material misrepresentations.17

25. On October 27, 2005, Fremont General issued a press releaseIS

19 announcing the Company's financial results for third quarter 2005. The press

release, in relevant part, stated:'71

Fremont General Reports Diluted Net Income Per Share of S1.23 forthe Third Quarter of 2005

SANTA MONICA, Calif., Oct. 27 TRNewswire-FirstCall/ —Fremont General Corporation (NYSE: FMT) (the "Company"), a

/5 nationwide residential and commercial real estate lender doing

26 business primarily through its wholly- owned industrial bank

?7


Pasze

1 subsidiary, Fremont Investment & Loan, reported today its results forthe third quarter of 2005. Net income for the third quarter of 2005was $92,565,000, which represents an increase of 8.7%, as compared3to net income of 585,120.000 for the third quarter of 2004. Diluted

4 net income per share was 51.23 for the third quarter of 2005. up 7%

as compared to $1.15 per share for the third quarter of 2004.5

6 Net income for the first nine months of 2005 was 5273,437,000, anincrease of 3.9% as compared to $263,161,000 for the first nine

7months of 2004. Diluted net income per share was $3.65 for the first

8 nine months of 2005, as compared to 53.58 per share for the first nine

9months of 2004.


11Residential real estate loan ori ginations totaled 59.61 billion during.

12 the third quarter of 2005, up from S9.24 billion and $5.88 billion

13 during the second quarter of 2005 and the third quarter of 2004.respectively. ...

14

* * *15

As a result of this volume, loans held for sale increased to 55.77

16 billion at September 30, 2005, up from $4.36 billion at September 30,

17 2004. ...

IS * * *

19 The net gain on the sale of residential real estate loans durin g thethird quarter of 2005 totaled 5116.0 million (or 1.26%) on whole loansales and securitizations of S9.27 billion, as compared to a gain of589.4 million (or 1.32%) on whole loan sales and securitizations of56.80 billion during the third quarter of 2004. The gross premiums1-)realized on whole loan sales and securitizations during the third

23 quarter of 2005 were lower than in the third quarter of 2004 primarilyas a result of lower interest rate margins.

25 Commercial Real Estate Lending

26


1 Commercial real estate loans held for investment, before theallowance for loan losses, totaled 54.11 billion at September 30,2005, as compared to 53.85 billion at September 30, 2004. New loan

3 commitments entered into increased to S1.56 billion durin g the third

4 quarter of 2005, up from 51.16 billion durin g the second quarter of2005 and $881.2 million in the third quarter of 2004. The third

5 quarter increase in loan commitments has resulted in an increase in

6 the Company's loans outstanding . ...

* * *

8 Non-accrual commercial real estate loans and REO totaled 546.6

9million (comprised of 6 loans and 7 REO properties) at September 30,2005, down from 591.6 million (comprised of 14 loans and 11 REO

10 properties) as of September 30, 2004. The Company incurred no net

11 loan char ge-offs during the third quarter of 2005 and realized $2.8million in recoveries of loan balances previously charged-off; this iscompared to $5.0 million in net loan char ge- offs durin g the third

13 quarter of 2004. The annualized net char ge-off ratio for the ninemonth period ending September 30, 2005 was 0.20%, a decrease as

14 compared to 0.65% the first nine months of 2004.

15Other Highlights

16

17 * Net interest income increased to $120.3 million for the thirdquarter of 2005, as compared to $113.5 million for the third quarter of

18 2004. Net interest income increased as a result of increased average

19 interest-earning assets; however, net interest income, as a percentageof net interest-earnin g assets at the financial services operations

70level, while still at strong levels, decreased to 4.56% for the thirdquarter of 2005 from 5.15% for the third quarter of 2004. Thisdecrease is primarily a result of lower interest rate margins as-)?funding costs have increased faster than loan yields.

?3

24 * As a result of the decrease in the non-accrual loan balances inthe commercial real estate loan portfolio in the third quarter of 2005,

?5 the Company realized a decrease in its provision for loan losses,

76 which resulted in a $4.07 million credit to income as compared to a

CLASS ACTION COMPLAINTPate 16

S10.31 million credit to income for the third quarter of 2004. As ofSeptember 30, 2005, the allowance for loan losses totaled Sl's8.7million, or 3.85% of the total commercial real estate loans held for

3 investment.4

5* Fremont Investment & Loan, as of September 30, 2005, had

S10.8 billion in assets. $8.4 billion in FDIC-insured deposits and 51.56 billion in stockholder's equity, with a total Risk-Based Capital ratio of

16.6%.

8 * The residential real estate loan servicing platform was servicing

9approximately S22.2 billion in loans outstanding as of

September 30, 2005. This amount was comprised of the Company's10 securitized loans, loans sold with servicin g retained, loans held for

11 sale and interim servicing for loans sold to third parties.

* Stockholders' equity totaled S1.3 billion, or $16.64 per share, at

13 September 30, 2005.

14 26. On November 9, 2005 Fremont General filed its quarterly

15

16 report for the period ended September 30, 2005 with the SEC on Form 10-Q,

17 which was signed by Defendant Rampino and reaffirmed the Company's

18 previously announced financial results. Pursuant to Section 302 of Sarbanes-19

Oxley, the Form 10-Q included a certification signed by Rampino stating that the

21 Form 10-0 did not include any material misrepresentations.

-r)27. On March 9, 2006, Fremont General issued a press release

14 announcing the Company's financial results for fourth quarter and full-year 2005.

25 The press release, in relevant part, stated:

CLASS ACTION COMPLAINT28 Page 17

Fremont General Reports Diluted Net Income Per Share of S4.37 forFull-Year 2005 and $0.72 for the Fourth Quarter of 2005

3 SANTA MONICA, Calif., March 9 /PRNewswire-FirstCall/ —4 Fremont General Corporation (NYSE: FMT) (the "Company"), a

nationwide residential and commercial real estate lender doing5 business primarily throu gh its wholly-owned industrial bank. Fremont6 Investment & Loan, reported today its results for the fourth quarter of

2005 and the full-year 2005. Net income for the fourth quarter of2005 was $54,511,000, which represents a decrease of 39.8%, ascompared to net income of 890,595.000 for the fourth quarter of

92004. Diluted net income per share was S0.72 for the fourth quarterof 2005, down 41.0% as compared to 81.22 per share for the fourth

10 quarter of 2004. Net income for all of 2005 was S327,948,000, a

11decrease of 7.3% as compared to 8353.756,000 for all of 2004.Diluted net income per share was $4.37 for all of 2005, as comparedto 84.80 per share for all of 2004.

13The Company's Board of Directors declared a quarterly cash

14 dividend of 80.11 per share on its common stock, payable April 28,

15 2006 to stockholders of record on March 31, 2006. This declarationrepresents a 10% increase over the previous quarter's dividend and is

16 the 117th consecutive quarterly cash dividend to be paid by the17 Company.

18 Residential Real Estate Lending19

Residential real estate loan ori ginations totaled $9.63 billion duringthe fourth quarter of 2005. up from 87.04 billion during the fourth

21 quarter of 2004. ...* * *

The net gain on the sale of residential real estate loans durin g the23 fourth quarter of 2005 totaled $29.2 million (or 0.29%) on whole loan

24 sales and securitizations of 89.89 billion, as compared to a gain of$98.7 million (or 1.68%) on whole loan sales and securitizations of

75 85.90 billion during the fourth quarter of 2004. The gross premiumsrealized on whole loan sales and securitizations during the fourth


">8“ IPa.,e8

quarter of 2005 (1.23% before derivative gains) were lower than inthe fourth quarter of 2004 (3.06?c before derivative gains) primarilyas a result of rapidly increasing interest rates, combined with softer

3 secondary market conditions.4

5The Company securitized more of its loans during the fourth

quarter of 2005 as management viewed the secondary market

6 execution for whole loan sales to significantly understate the

7long-term value of the underlyin g, loans. The Company increased itssecuritization volume during the fourth quarter of 2005 to S3.23billion from $1.03 billion in the third quarter of 2005 and as

9compared to $790.2 million in the fourth quarter of 2004. As a resultof the increase in securitization volume during the fourth quarter of

10 2005, the Company's balance of residual interests increased to $170.7

11 million at December 31, 2005. The residual interest balance wassubsequently reduced durin g. January of 2006 as the Company

12 executed a net interest margin ("NIM") transaction of approximately

13 $89 million.

14 During the past several quarters, the Company continued to

15 increase its weighted-average-coupon ("WAC") on its loanoriginations. For the third quarter of 2005, the WAC on first

16 mortgages was 7.32%, durin g, the fourth quarter of 2005, the WAC

17 had increased to 7.84% and during the first two months of 2006, theWAC on first mortgages further increased to approximately 8.35%.

18 As a result of these rate increases and improved secondary market

19 conditions, the Company has observed an increase in whole loan saleprices. The Company has entered into approximately $2 billion in

70forward sale commitments for the second quarter of 2006 with

21 execution levels resulting in gross premiums in excess of 2%. TheCompany, however, expects that the gross premium realized on its7./whole loan sales and securitizations for the first quarter of 2006 willbe lower than what was realized during the fourth quarter of 2005.

").4Commercial Real Estate Lending.

/5

26 Commercial real estate loans held for investment, before the

'77 CLASS ACTION COMPLAINT

28 Page 19

allowance for loan losses, totaled a record level of $4.75 billion atDecember 31. 2005, as compared to S3.48 billion at December 31.2004. New loan commitments entered into increased to a record level

3 of 82.13 billion durin g the fourth quarter of 2005. up from 81.56

4 billion durin g the third quarter of 2005 and S713.3 million in thefourth quarter of 2004. The fourth quarter increase in loan

5 commitments has resulted in an increase in the Company's loans

6 outstanding. ...

* * *

Loan quality for the commercial real estate loan portfolio continued

9to be strong during the fourth quarter of 2005. Non-accrualcommercial real estate loans and REO totaled $59.5 million

10 (comprised of 5 loans and 7 REO properties) at December 31, 2005,down from S103.6 million (comprised of 13 loans and 8 REO11properties) as of December 31, 2004. The annualized net charge-offratio for all of 2005 was a favorable 0.27%, down from 0.59% for allof 2004.13

14 Other Highlights

15* Net interest income increased to $133.4 million for the fourth

16 quarter of 2005, as compared to 8116.3 million for the fourth quarter

17 of 2004. Net interest income increased as a result of increasedaverage interest-earnin g. assets.

18

19 * The Company's provision for loan losses was a $3.3 millionexpense in the fourth quarter of 2005 as compared to a $13.1 millioncredit to income for the fourth quarter of 2004. As of December 31,

21 2005, the allowance for loan losses totaled S156.8 million, or 3.29%of the total commercial real estate loans held for investment.

* Fremont Investment & Loan, as of December 31, 2005, had$11.3 billion in assets, $8.6 billion in FDIC-insured deposits and S1.6billion in stockholder's equity, with a total Risk-Based Capital ratio of15.5%.

26


?8 Pave 20

1 * The residential real estate loan servicing platform was servicingapproximately $22.3 billion in loans outstanding as of December =11,2005, up 49% from S15.0 billion at December 31, 2004. These

3 amounts are comprised of the Company's securitized loans, loanssold with servicing retained, loans held for sale and interim servicingfor loans sold to third parties.

5

6 * Fremont Investment & Loan was assigned residential sub-primeloan servicer ratings during the fourth quarter of 2005 by Standard S.:Poors Ratin g_ Services (Average - Positive Outlook) and Moody's

8 Investors Service (SQ3+). The ratin2s, according to the rating

9agencies, were based on the Company's highly experiencedmanagement team, above average collection abilities and above

10 average foreclosure and REO timeline management.

11* The Company's stockholders' equity totaled $1.36 billion, or

1 7 $17.51 per share, at December 31, 2005, up 34% from $1.01 billion,

13 or $13.12 per share. at December 31. 2004.

14 28. On March 16, 2006 Fremont General filed its annual report for

15the period ended June 30, 2005 with the SEC on Form 10-K. The Form 10-K was

16

17 signed by Defendant Rampino, among others, and reaffirmed the Company's

18 previously announced financial results. Pursuant to Section 302 of Sarbanes-19

Oxley, the Form 10-K included a certifications signed by Rampino stating that the

21 Form 10-K did not include any material misrepresentations.

-y)29. On May 9, 2006, Fremont General issued a press release

14 announcing the Company's financial results for first quarter 2006. The press


76

CLASS ACTION COMPLAINTPaue 21

1 Fremont General Reports Diluted Net Income Per Share of S0.42 forFirst Quarter 2006

3 SANTA MONICA, Calif., May 9 ,PRNewswire-FirstCalr --

4 Fremont General

5Corporation (NYSE: FMT)(the "Company"), a nationwide residentialand commercial real estate lender doin g business primarily through

6 its wholly- owned industrial bank, Fremont Investment & Loan,reported today its results for the first quarter of 2006. Net income forthe first quarter of 2006 was S31,687,000, which represents adecrease of 65%, as compared to net income of S90,102,000 for the

9first quarter of 2005. Diluted net income per share was $0.42 for thefirst quarter of 2006, as compared to S1.22 per share for the first

10 quarter of 2005.

11Residential Real Estate Lending_

13 Residential real estate loan ori ginations totaled $8.54 billion duringthe first quarter of 2006, up from $7.76 billion during the first quarter

14 of 2005. ...

15* * *

16 The loss on the sale of residential real estate loans durin g the first

17 quarter of 2006 totaled $15.2 million on whole loan sales of $7.26billion. This is compared to a gain of S108.4 million on whole loan

18 sales and securitizations of $7.06 billion durin g the first quarter of

19 2005. As previously indicated by the Company, the gross premiumsrealized on whole loan sales during the first quarter of 2006 werelower than in previous periods. The loans sold during the first quarterof 2006 were sold pursuant to forward loan sale commitments enteredinto during the fourth quarter of 2005, when secondary marketconditions were weak. In addition, pricing for second mort gages inthe secondary market has declined and the Company experienced aloss on the sale of these loans durin g the first quarter of 2006. TheCompany also recorded increased levels of provisions for loan

25 valuation and repurchase reserves, primarily as a result of increased

26 loan repurchase trends and lower pricing for second mortgages.

CLASS ACTION COMPLALNT

28 Page "r)

1 The Company has continued to increase itsweighted-avera ge-coupon ("WAC") on its loan originations. For thefirst quarter of 2006, the WAC on first mortgages was 8.35%, as

3 compared to a WAC of 7.84% durin g the fourth quarter of 2005. As

4 a result of these rate increases and improved secondary marketconditions for first mort gages. the Company has observed an increase

5- in whole loan sale prices for loans to be sold in the second quarter of

6 2006. The Company expects to sell over 89 billion in loans duringthe second quarter of 2006 with execution levels for its first

7mortgages resultin g in realized gross premiums in excess of 2%.

8 During April 2006, the Company ori ginated a total of 83.2 billion in

9residential real estate loans.

10 Commercial Real Estate Lending

11Commercial real estate loans held for investment, before the

17 allowance for loan losses, totaled a record level of $5.35 billion at

13 March 31, 2006, as compared to 83.81 billion at March 31, 2005.New loan commitments entered into increased to $1.09 billion during

14 the first quarter of 2006, as compared to 81.06 billion for the first

15 quarter of 2005. The increase in the Company's loans outstandingduring the first quarter of 2006 is a result of increased levels of loan

16 commitment origination in recent periods and a reduction in loan

17 paydowns.* * *

18 Loan quality for the commercial real estate loan portfolio continued

19 to be stron g during the first quarter of 2006. Non-accrual commercialreal estate loans and REO totaled 870.8 million (comprised of 5 loans

'70and 7 REO properties) at March 31, 2006, down from 896.2 million(comprised of 14 loans and 6 REO properties) as of March 31, 2005.The Company did not experience any commercial real estate loancharge-offs durin g the first quarter of 2006, nor did it restructure any

23 commercial real estate loans.

?.4Other Highlights

?5

26 * Net interest income increased to 8154.0 million for the first


28 Pa2e 23

quarter of 2006, as compared to S118.8 million for the first quarter of2005. Net interest income increased as a result of an increase in theaverage of commercial and residential real estate loans outstanding

3 and increased levels of retained residual interests in securitized loans.4

* The Company's provision for loan losses was a $3.9 million5 expense in the first quarter of 2006 as compared to a $1.0 million6 expense for the first quarter of 2005. As of March 31, 2006, the

allowance for loan losses totaled S160.8 million, or 3.0% of the totalcommercial real estate loans held for investment.

8

* Fremont Investment Loan, as of March 31, 2006, had 512.99

billion in assets, $9.3 billion in FDIC-insured deposits and 51.510 billion in stockholder's equity, with a total Risk-Based Capital ratio of

1114.1%.

* The residential real estate loan servicing platform was servicing

13 approximately $23.2 billion in loans outstanding as of March 31,2006, up 23% from $18.8 billion at March 31, 2005. Of the 523.2

14 billion at March 31, 2006, $8.6 billion was being serviced to maturity

15 in either the Company's securitizations or from whole loan sales withservicing retained; the remaining loans were either the Company's

16 loans held for sale or loans being interim serviced by the Company17 after being sold to third parties.

18* The Company's stockholders' equity totaled S1.38 billion, or

19 $17.69 per share, at March 31, 2006, up 25% from $1.10 billion, or$14.13 per share, at March 31, 2005.

30. On May 10, 2006 Fremont General filed its quarterly report for

the period ended March 31, 2006 with the SEC on Form 10-Q, which was signed

24 by Defendant Rampino and reaffirmed the Company's previously announced

25 financial results. Pursuant to Section 302 of Sarbanes-Oxley, the Form 10-Q

,6

,7


28 Paee 24

included a certification signed by Rampino statin g, that the Form 10-Q did not

include any material misrepresentations.3

4 31. On August 8, 2006. Fremont General issued a press release

5announcing the Company's financial results for second quarter 2006. The press

6

release, in relevant part, stated:7

8 Fremont General Reports Diluted Net Income Per Share of 50.68 for

9Second Quarter 2006 and Declares Common Stock Dividend

10 SANTA MONICA, Calif., Aug. 8 !PRNewswire-FirstCall/ --

11Fremont GeneralCorporation (NYSE: FNIT) (the "Company"), a nationwide residentialand commercial real estate lender doing business primarily through

13 its wholly- owned industrial bank, Fremont Investment & Loan,reported today its results for the second quarter of 2006. Net income

14 for the second quarter of 2006 was $51,924,000, which represents a

15 decrease of 43%, as compared to net income of $90,770,000 for thesecond quarter of 2005. Diluted net income per share was $0.68 for

16 the second quarter of 2006, as compared to S1.21 per share for the

17 second quarter of 2005.

18 Net income for the first six months of 2006 was $83,611,000 a

19 decrease of 54% as compared to $180,872,000 for the first six monthsof 2005. Diluted net income per share was S1.10 for the first six

90months of 2006, as compared to $2.43 per share for the first six

21 months of 2005. The decrease in net income for the second quarterand the first six months of 2006 was a result of a significant decreasein the net gain on whole loan sales and securitizations of theCompany's residential real estate loans, offset in part by an increase in

24 net interest income.

75 The Company's Board of Directors declared a quarterly cashdividend of $0.11 per share on its common stock, payable October 31,


28 Pace 25

1 2006 to stockholders of record as of September 29, 2006. Thisdeclaration represents the 119th consecutive quarterly cash dividendto be paid by the Company.

3


5 Residential real estate loan originations totaled $9.54 billion during

6 the second quarter of 2006, up from $9.24 billion during the second

7quarter of 2005. For the first six months of 2006, residential realestate loan originations totaled $18.1 billion, up from $17.0 billion

8 during_ the first six months of 2005. ...* * *

9The gain on the sale of residential real estate loans during the second

10 quarter of 2006 totaled $8.4 million on whole loan sales and

11securitizations ("loan sales") of S9.89 billion. This is compared to again of S92.0 million on loan sales of $9.76 billion during the second

12 quarter of 2005 and a loss of S15.2 million on loan sales of $7.26

13 billion during the first quarter of 2006.The gross premiums realizedon Tier I loan sales decreased during the second quarter of 2006 to

14 2.15%, as compared to the second quarter of 2005 level of 2.78%, but

15 was an increase over the first quarter of 2006 level of 1.21%.

16 The Company's level of „gain on loan sales during the second

17 quarter of 2006 was negatively impacted by higher expenseprovisions for loan valuation, loan repurchase and premium recapture

18 reserves. During the second quarter of 2006, these provisions totaled

19 $97.6 million, as compared to $25.1 million for the second quarter of2005 and $35.9 million for the first quarter of 2006. Losses on Tier IIloan sales increased to $26.9 million during the second quarter of

21 2006, up from $3.2 million in the second quarter of 2005 and $14.0million for the first quarter of 2006.

The Company recorded these increased provision levels primarily

24 as a result of increased loan repurchase and re-pricing trends from itsprevious whole loan sale transactions, as well as lower secondarymarket pricing for second mortgages. These increased loanrepurchase and re-pricing levels, which have been noted

'77 CLASS ACTION COMPLAINT

Page 26

industry-wide, are primarily due to increased levels of early paymentdelinquencies and a greater incidence of repurchase requests fromwhole loan purchasers. The Company's loan repurchases and

3 re-pricings increased to $238.4 million durin g the second quarter of

4 2006, up from $67.7 million and $107.7 million for the secondquarter of 2005 and the first quarter of 2006. respectively.

5

6 Given these loan repurchase and re-pricing trends, with anobjective of reducing its early payment delinquencies, the Company

7made modifications in its loan ori gination parameters durin g the

8 second quarter of 2006, includin g eliminatin g or reducing certain

9higher loan-to-value products and lower FICO bands. The Companyexpects to see the impact of these changes durin g the fourth quarter of

10 2006 and the first quarter of 2007.

11The residential real estate loan servicin g platform was servicing

17 approximately $24.9 billion in loans outstanding as of June 30, 2006,

13 up 19% from $21.0 billion at June 30. 2005. Of the $24.9 billion atJune 30, 2006, $11.2 billion was bein g serviced to maturity in either

14 the Company's securitizations or from whole loan sales with servicing

15 retained, as compared to $4.9 billion at June 30, 2005; the remainingloans were either the Company's loans held for sale or loans being

16 interim serviced by the Company after being sold to third parties.17

Commercial Real Estate Lending18

19 Commercial real estate loans held for investment, before theallowance for loan losses, totaled a record level of $5.69 billion at

')0June 30, 2006, as compared to £3.73 billion at June 30, 2005. New

7 1 loan commitments entered into increased to $1.44 billion durin g thesecond quarter of 2006, as compared to $1.16 billion for the secondquarter of 2005. The increase in the Company's loans outstanding

23 during the second quarter of 2006 is a result of increased levels ofloan commitment ori gination in recent periods and a reduction in loan24paydowns.

* * *

76 Loan quality for the commercial real estate loan portfolio continued


Pa2e 27

1 to be strong during the second quarter of 2006. Non-accrualcommercial real estate loans and REO totaled 839.7 million(comprised of 4 loans and 1 REO property) at June 30, 2006. down

3 from $51.2 million (comprised of 8 loans and 6 REO properties) as of

4 June 30, 2005. The Company did not experience any commercial real

5estate loan charge-offs durin g, the second quarter of 2006, nor did itrestructure any commercial real estate loans. Delinquent loans 30

6 days past due increased to 1.04% of the outstanding portfolio at June30, 2006, up from 0.0% and 0.15% at June 30, 2005 and March 31,2006, respectively. The total amount of 30 day delinquencies at June

8 30, 2006 is related to one loan.Delinquent loans 60 days past due or

9greater decreased to 0.59% of the outstanding portfolio at June 30,2006, down from 0.72% and 0.69% at June 30, 2005 and March 31,

10 2006, respectively.

11The Company's provision for loan losses was an 811.7 million

expense in the second quarter of 2006 as compared to a 84.2 million

13credit to income for the second quarter of 2005. The provision levelis primarily derived from a higher level of commercial real estate

14 loans outstanding as of June 30, 2006 and the increase in 30 day

15 delinquencies. As of June 30, 2006, the allowance for loan lossestotaled 8172.7 million, or 3.03% of the total commercial real estate

16 loans held for investment, as compared to 8160.0 million, or 4.28%,

17 as of June 30, 2005.

18 Other Highlights19

* Net interest income increased to 8165.4 million for the second*)0

quarter of 2006, as compared to 8128.0 million for the second quarter

21 of 2005. Net interest income increased primarily as a result of anincrease in the average of commercial and residential real estateloans outstanding.

* Fremont Investment & Loan, as of June 30, 2006, had 812.6-)4billion in assets, 89.6 billion in FDIC-insured deposits and 81.6

25 billion in stockholder's equity, with a total Risk-Based Capital ratioof 13.9%.

CLASS ACTION COMPLAINTPa2e 2S

•

1 * The Company's stockholders' equity totaled S1.44 billion, or$18.45 per share, at June 30, 2006, up 20% from $1.20 billion, or$15.37 per share, at June 30, 2005.

3

4 32. On August 9, 2006 Fremont General filed its quarterly report

5 for the period ended June 30, 2006 with the SEC on Form 10-Q, which was signed6

by Defendant Rampino and reaffirmed the Company's previously announced

8 financial results. Pursuant to Section 302 of Sarbanes-Oxley, the Form 10-Q

9included a certification si gned by Rampino statin g that the Form 10-Q did not

10

include any material misrepresentations.11

33. On November 9, 2006, Fremont General issued a press release

13announcin g the Company's financial results for third quarter 2006. The press

14


16 Fremont General Reports Diluted Net Income Per Share of $0.39 for

17 Third Quarter 2006

18 SANTA MONICA, Calif., Nov. 9 i ."PRNewswire-FirstCallt -

19 Fremont GeneralCorporation (the "Company") (NYSE: FMT), a nationwide residentialand commercial real estate lender doin g business primarily throughits wholly- owned industrial bank, Fremont Investment & Loan,reported today its results for the third quarter of 2006. Net income forthe third quarter of 2006 was $29,525,000, which represents adecrease of 68%, as compared to net income of $92,565,000 for the

24 third quarter of 2005. Diluted net income per share was $0.39 for thethird quarter of 2006, as compared to $1.23 per share for the third

-)5 quarter of 2005.


28 Page 29

1 Net income for the first nine months of 2006 was $113,136.000 adecrease of 59% as compared to $273,437,000 for the first ninemonths of 2005. Diluted net income per share was $1.49 for the first

3 nine months of 2006, as compared to $3.65 per share for the first nine

4 months of 2005. The decrease in net income for the third quarter andthe first nine months of 2006 was primarily the result of a significant

5 decrease in the net gain on whole loan sales and securitizations of the6 Company's residential real estate loans, offset in part

by an increase in net interest income.7


9Residential real estate loan ori ginations totaled $7.8 billion during

10 the third quarter of 2006, down from S9.6 billion during the third

11quarter of 2005. For the first nine months of 2006, residential realestate loan originations totaled $25.8 billion, down sli ghtly from$26.6 billion during the first nine months of 2005. ...

13* * *

14 The following are the primary comparative aspects for the residential

15 real estate lending operations between the second and third quartersof 2006:

16

17 * Loan ori gination volume decreased from $9.54 billion in thesecond quarter to $7.76 billion in the third quarter - this decrease is

1S due in large part to the implementation in the second quarter of19 various loan underwritin g guideline adjustments desi gned to lower

early payment defaults, reduce the level of second mortgagesoriginated and to improve the overall credit performance of the loans.

21

) * The third quarter loss on the sale of residential real estate loans7-)totaled $9.6 million on whole loan sales and securitizations of $8.15billion. This is compared to a gain of $8.4 million on loan sales of

24 $9.89 billion during the second quarter of 2006.

25 * During the third quarter, as part of its loss on the sale of

26 residential real estate loans, the Company recognized a hed ging loss


28 Page 30

of S20.4 million as compared to a gain of S1.6 million durin g, thesecond quarter.

* The Company had lower expense provisions for loan valuation,

4 loan repurchase and premium recapture reserves during the third

5quarter.

During the third quarter, these provisions totaled S76.3 million,6 as compared to S124.5 million for the second quarter.

7* Loan repurchases and re-pricin gs increased to S345.7 million

8 during the third quarter, up from S238.4 million for the second

9quarter.

10 * The Company had a lower avera ge amount of loans held for saleoutstandin g durin g the quarter, which when combined with a slightly

11lower wei ghted-average interest rate on the loans during the thirdquarter, led to a decrease in net interest income on the loans during

13 the third quarter.

14 * During the third quarter, the gross premiums realized on Tier I

15 loan sales (both first and second mort gages) decreased to 1.82%, ascompared to the second quarter level of 2.15%. The third quarter

16 level was impacted by:17

-- A hi gher overall level of loan securitizations (includin g a18 stand-alone second mort gage only securitization), for which the19 Company books a lower gross premium, but for which it does not

have any loan repurchase requirements.20

21 -- The Company also entered into a whole loan sale for S1.06billion in which the Company received a lower level of grosspremium in return for the buyer assuming certain levels of first

1- payment defaults in the loan pool.

")4-- Tier I loan pricin g for the Company's whole loan sales of first

25 mortgages were in the 2.300/o to 2.40% range during the third

26 quarter.

CLASS ACTION COMPLAINTPasx 31

As previously reported for the second quarter of 2006, theCompany made modifications to its business processes during thesecond quarter, includin g chan ges in its loan origination parameters,

3 with an objective of reducing its early payment defaults and overall

4 loan repurchase levels. The Company's actions included. but werenot limited to:

6 * Eliminating the ori gination of combined first and secondmortgage loans with FICO scores under 640 for stated-incomedocumentation loans and 600 for full documentation loans;

8

* Modifyin g its whole loan sale agreements to limit the9

notification period for repurchase requests and to extend the

10 qualifying first payment measurement period;

11* Increasing of loan servicin g customer contact rates with the

focus on minimizin g early payment defaults;

13* Enhancement of the appraisal review process and analysis

14 systems. In the third quarter of 2006, the Company began to see the

15 positive impact of these measures. The following are some of themetrics that were notable:

16

17 * A 33% decrease in the dollar volume of second mortgages to6.2% from 9.2% during the second quarter of 2006 -- the percentage

18 of second mortgages to first mort gages produced, in terms of units,

19 also decreased durin g the third quarter to 25.3% from 40.0% duringthe second quarter of 2006;

20

* A decrease in stated-income documentation loans to 38.3% as apercentage of loan production from 44.6% during the second,7)

quarter of 2006;

24 * An increase in the overall wei ghted-average FICO score to 627for first mort gages and 664 for second mortgages from 623 and 652during the second quarter of 2006.

,7 CLASS ACTION COMPLAINT

78 Page 32

1 The Company expects to begin to see the impact of these changeson the Company's provisioning levels during the first quarter of 2007.Early indications are that these changes in production are decreasing

3 the level of first payment defaults.4

The residential real estate loan servicing platform was servicingapproximately $24.3 billion in loans outstanding as of September 30,

6 2006, up 9% from S22.2 billion at September 30, 2005. Of the S24.3

7billion at September 30, 2006, $15.1 billion was being serviced tomaturity in either the Company's securitizations or from whole loansales with servicing retained, as compared to S6.1 billion at

9September 30, 2005; the remaining loans were either the Company'sloans held for sale or loans being interim serviced by the Company

10 after being sold to third parties.

11Commercial Real Estate Lending

13 Commercial real estate loans held for investment, before theallowance for loan losses, totaled of 56.14 billion at September 30,

14 2006, as compared to $4.11 billion at September 30, 2005. New loan

15 commitments entered into decreased to S1.38 billion during the thirdquarter of 2006, as compared to S1.56 billion for the third quarter of

16 2005. ...17

* * *18 Loan credit performance for the commercial real estate loan portfolio

19 continued to be strong during the third quarter of 2006. Non-accrualcommercial real estate loans and REO totaled $39.0 million

-)0(comprised of 3 loans and 2 REO properties) at September 30, 2006,

7 1 down from $46.6 million (comprised of 6 loans and 7 REOproperties) as of September 30, 2005. The Company recorded?-)$153,000 in commercial real estate loan net charge-offs durin g, thethird quarter of 2006, and did not restructure any commercial real

24 estate loans. Delinquent loans 60 days past due or greater were0.51% of the outstanding portfolio at September 30, 2006, ascompared to 0.59% and 0.39% at June 30, 2006 and September 30,

26 2005, respectively.


28 Paec

1 The Company's provision for loan losses was a S12.7 millionexpense in the third quarter of 2006 as compared to a 84.1 millioncredit to income for the third quarter of 2005. The provision level is

3 primarily derived from a hi gher level of commercial real estate loans

4 outstanding as of September 30, 2006. As of September 30, 2006. theallowance for loan losses totaled S185.2million, or 3.01% of the total

5 commercial real estate loans held for investment, as compared to

6 S158.7 million, or 3.85%, as of September 30, 2005.

7 The Company's commercial real estate loan operation has

8 maintained a strong level of credit quality while growing its loan

9portfolio. While the Company has seen a decline in the sales velocityof some of the condominium projects that it finances, no significant

10 changes to the pricin g of the related units has been observed. To the

11 extent that sales prices do soften, the Company's underwritin g_standards provide protection in that most loans have been

12 underwritten to an approximate level of 65% of the expected net retail

13 sales proceeds. These loans also are structured with variousbalancing guarantees that require cash infusions from the developer

14 of the project in the event they become necessary. Further reducing

15 the Company's credit exposure on these projects is that the Company'scondominium portfolio is geo graphically diversified and that a

16 substantial amount of the loans are covered by pre-sales that involve

17 significant (generally between 5% and 20%) non-refundable deposits.

18 Other Highlights19

* Net interest income increased to S148.8 million for the third70

quarter of 2006, as compared to $120.3 million for the third quarter

21 of 2005. Net interest income increased primarily as a result of anincrease in the avera ge of commercial and residential real estateloans outstanding.

-)3

74 * Fremont Investment & Loan, as of September 30, 2006, had$12.6 billion in assets, $9.6 billion in FDIC-insured deposits and

25

81.6 billion in stockholder's equity, with a total Risk-Based Capital

26 ratio of 13.93%.

T7


28 Pe 34

•

* The Company's stockholders' equity totaled S1.5 billion, or518.70 per share, at September 30, 2006, up 12% from S1.3 billion, orS16.64 per share, at September 30. 2005.

3

1 * Durin g_ the third quarter. the Company opened its new residential

5loan servicing center in Irving. Texas. This new center adds to theCompany's capacity as it continues to grow its loan servicing

6 portfolio.

34. On November 9, 2006 Fremont General filed its quarterly

report for the period ended September 30, 2006 with the SEC on Form 10-Q,9

10 which was signed by Defendant Rampino and reaffirmed the Company's

11previously announced financial results. Pursuant to Section 302 of Sarbanes-

12

13 Oxley, the Form 10-Q included a certification signed by Rampino stating that the

14 Form 10-Q did not include any material misrepresentations.15

Disclosures at the End of the Class Period16

17 35. On February 27, 2007, Fremont General issued a press release

18announcing a delay in the filing of the Company's 2006 Form 10-K with the SEC,

19

20 and that the Company "intends to file a Form 12b-25 with the Securities and

21 Exchange Commission explaining the reasons therefor." The press release further

-y)stated that following:

/3

FREMONT GENERAL CORPORATION TO POSTPONERELEASE OF RESULTS FOR 2006 AND DELAY FILING OF

25 FORM 10-K26

"17i


28 Pane 35

(SANTA MONICA, CALIFORNIA .) — February 27, 2007: FremontGeneral Corporation (the "Company"). a nationwide residential andcommercial real estate lender doing business primarily through its

3 wholly-owned industrial bank, Fremont Investment & Loan, today

4 announced that it will postpone the release of its fourth quarter and

5full-year 2006 results of operations, as well as the conference call todiscuss such results, each previously scheduled for February 28,

6 2007. The Company also announced that it will not file its AnnualReport on Form 10-K for the fiscal year ended December 31, 2006 byMarch 1, 2007 and that it intends to file a Form 12b-25 with theSecurities and Exchange Commission explainin g, the reasons therefor.

9 * * *

10

36. As a result of this news, the next day shares of Fremont

General stock declined $2.84 per share, or 24 percent, to close on February

1328, 2007, at $8.81 per share, on unusually heavy trading volume.

14

15 Post Class Period Disclosures

16 37. On March 2, 2007, the Company filed a Form 12b-2517

with the SEC informing investors that, among other things. the CompanyIS

19 was unable to timely file its Form 10-K and — even more disturbing — that

20the Company intended to exit its subprime residential real estate lending

business.

23 38. The Form 12b-25 also disclosed that Fremont General

Corporation, Fremont Investment & Loan (FR) and Fremont General Credit7)5

26 Corporation would enter into a voluntary cease and desist order with the


28 Page 36

1 Federal Deposit Insurance Corporation (FDIC) related to allegations of

unsafe or unsound banking practices. The cease and desist order requires3

the Company to discontinue, among other things:

5

-

Operating with mana gement whose policies and practices are6 detrimental to FIL;

7 - Operating FIL without effective risk management policies and8 procedures in place in relation to FIL's primary line of business

9of brokered subprime mortgage lending;

10 Operating FIL without effective risk mana gement policies and

11 procedures in place in relation to FIL's other primary line ofbusiness of commercial real estate construction lending;

13 Operating with inadequate undenvriting criteria and excessiverisk in relation to the kind and quality of assets held by FIL;

14

15 Operating with a large volume of poor quality loans;

16

-

Engaging in unsatisfactory lendin g practices;

17- Operating without an adequate strate gic plan in relation to the

IS volatility of FIL's business lines and the kind and quality of19 assets held by FIL;

- Operating with inadequate capital in relation to the kind andquality of assets held by FIL;

- Operating in such a manner as to produce low andunsustainable earnings;

- Operating with inadequate provisions for liquidity in relation to25 the volatility of FIL's business lines and the kind and quality of

26 assets held by FIL;

/7 CLASS ACTION COMPLAINT

Page

Marketing and extending adjustable-rate mort ga ge ("ARM")products to subprime borrowers in an unsafe and unsoundmanner that greatly increases the risk that borrowers will

3 default on the loans or otherwise cause losses to FIL,

4- Making mort ga ge loans without adequately considerin g the

5 borrower's ability to repay the mort gage according to its terms;6 and

- Operatin g inconsistently with the FDIC's Intera gency Advisoryon Mortgage

9UNDISCLOSED ADVERSE FACTS

10

11 39. The market for Fremont General securities was open,

12 well-developed and efficient at all relevant times. As a result of

13Defendant's materially false and misleadin g statements and failures to

14

15 disclose, Fremont General securities traded at artificially inflated prices

16 during the Class Period. Plaintiff and other members of the Class purchased17

or otherwise acquired Fremont General securities relying upon the integrity18

19 of the market price of Fremont General securities and market information

20relating to Fremont General, and have been dama ged thereby.

21

40. During the Class Period, Defendant materially misled the

investing public, thereby inflatin g the price of Fremont General securities,

24by publicly issuing false and misleadin g statements and omittin g to disclose

15

26 material facts necessary to make Defendant's statements, as set forth herein,


28 Page 3S

not false and misleading. Said statements and omissions were materially

false and misleadin g in that they failed to disclose material adverse3

4 information and misrepresented the truth about the Company, its business

5and operations, as alleged herein.

6

41. At all relevant times, the material misrepresentations and7

omissions particularized in this Complaint directly or proximately caused or

9were a substantial contributin g cause of the dama ges sustained by plaintiff

10

11 and other members of the Class. As described herein, during the Class

12 Period, Defendant made or caused to be made a series of materially false or

13misleading statements about Fremont General's business, prospects and

14

15 financial performance. These material misstatements and omissions had the

16 cause and effect of creatin g in the market an unrealistically positive17

assessment of Fremont General and its business, operations, andis

19 performance, thus causin g- the Company's securities to be overvalued and

7)0artificially inflated at all relevant times. Defendant's materially false and

misleading statements durin g the Class Period resulted in plaintiff and other

members of the Class purchasin g the Company's securities at artificially

?-4inflated prices, thus causing the damages complained of herein.

26

1-7 CLASS ACTION COMPLAINT

2S Pac/e 39

Applicability Of Presumption Of Reliance:Fraud-On-The-Market Doctrine

3 42. At all relevant times, the market for Fremont General securities4

was an efficient market for the following reasons, among others:5

6 (a) Fremont General stock met the requirements for listin g, and

7was listed and actively traded on the NYSE, a highly efficient and

9automated market;

10 (b) As a re gulated issuer, Fremont General filed periodic

11public reports with the SEC and the NYSE:

11

13 (c) Fremont General re gularly communicated with public

14 investors via established market communication mechanisms, including

15

16through regular disseminations of press releases on the national circuits of

17 major newswire services and through other wide-ranging public disclosures,

18 such as communications with the financial press and other similar reporting19

services; and20

(d) Fremont General was followed by several securities

analysts employed by major brokerage firms who wrote reports which were

24 distributed to the sales force and certain customers of their respective

25 brokerage firms. Each of these reports was publicly available and entered

'6


Paee 40

the public marketplace.

43. As a result of the foregoin g, the market for Fremont General3

4 securities promptly digested current information concerning Fremont

5 General from all publicly available sources and reflected such information6

in Fremont General's stock price. Under these circumstances, all purchasers

8 of Fremont General securities during the Class Period suffered similar

9injury through their purchase of Fremont General securities at artificially

10

11 inflated prices and a presumption of reliance applies.

12 LOSS CAUSATION

1344. Defendant's wrongful conduct, as alleged herein, directly

14

15 and proximately caused the economic loss suffered by Plaintiff and the

16 Class.17

45. During the Class Period, Plaintiff and the Class18

19 purchased or otherwise acquired Fremont General securities at artificially

inflated prices and were damaged thereby. The price of Fremont General21

common stock declined when the misrepresentations made to the market,

and/or the information alleged herein to have been concealed from the

24market, and/or the effects thereof, were revealed, causin g investors' losses.

-)6


28 Pac-IC 41

COUNT I

Against Defendant Rampino for Breach of Fiduciary Duty

4 46. Plaintiff repeats and realle ges each and every allegation

5 contained above as if fully set forth herein.6

47. Defendant owed a fiduciary duty to the Class, as

purchasers and owners of Fremont General stock.

948. Defendant, by means of his makin g the foregoing false

10

11and misleadin g statements, breached his fiduciary duty to the Class.

17 COUNT II

13Against Defendant Rampino for Violations of §10(b) of the 1934 Act

14 and Rule 10b-5 Promulgated Thereunder

1549. Plaintiff repeats and realle ges each and every allegation

16

17 contained above as if fully set forth herein.

1850. During the Class Period, Defendant Rampino

19

20disseminated or approved the false statements specified above, which he

21 knew or deliberately disregarded were misleading in that they contained

misrepresentations and failed to disclose material facts necessary in order to-)3

24 make the statements made, in light of the circumstances under which they

were made, not misleading.76


28 Page 42

L Defendant violated §10(b) of the 1934 Act and Rule 10b-

5 in that he:

(a) employed devices, schemes and artifices to defraud;

5 (b) made untrue statements of material facts or omitted to6

state material facts necessary in order to make the

8 statements made, in light of the circumstances under

9which they were made, not misleading; or

10

1(c) enga ged in acts, practices and a course of business that

1

12 operated as a fraud or deceit upon plaintiff and others

13

similarly situated in connection with their purchases of14

15 Fremont General common stock during the Class Period.

16 52. Plaintiff and the Class have suffered damages in that, in17

reliance on the integrity of the market, they paid artificially inflated prices18

19 for Fremont General common stock. Plaintiff and the Class would not have

2(1purchased Fremont General common stock at the prices they paid, or at all,

if they had been aware that the market prices had been artificially and

falsely inflated by Defendant's misleadin g, statements.

75

26

1-7


28 Pane 43

COUNT II

Against Defendant Rampino for Violations of §20(a) of the 1934 Act3

4 53. Plaintiff repeats and realleaes each and every allegation

5 contained above as if fully set forth herein.6

54. Defendant Rampino acted as a controlling person of

8 Fremont General within the meanin g. of §20(a) of the 1934 Act. By reason

9of his positions with the Company, and his ownership of Fremont General

10

11 stock, Defendant had the power and authority to cause Fremont General to

engage in the wrongful conduct complained of herein. Fremont General

13controlled the Defendant and all of its employees. By reason of such

14

15 conduct, Defendant is liable pursuant to §20(a .) of the 1934 Act.

16 PRAYER FOR RELIEF17

WHEREFORE, plaintiff prays for judgment as follows:18

A. Declaring this action to be a proper class action pursuant19

to Fed. R. Civ. P. 23;10

B. Awarding plaintiff and the members of the Class-)1

12 damages, including interest;

C. Awarding plaintiffs reasonable costs and attorneys'

24 fees; and

25 D. Awarding such equitable/injunctive or other relief as the

26 Court may deem just and proper.


28 Pe 44

0

1 JURY DEMAND

Plaintiff hereby demands a trial by jury.3

Respectfully submitted,

5 I Dated: June 14, 2007 LAW OFFICP " 9..̀..2 • • . t • - LE

6By:

7 William F. Salle425 E. Colorado St., Suite 755

8 Glendale, CA 91205

9 Telephone: (818) 543-1900Facsimile: (818) 543-1550•

10 Email: [email protected]

11 An'orneys for Plaintiff

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Documents

Susan D'Errico, et al. v. Louis J. Rampino, et al. 07-CV ...securities.stanford.edu/filings-documents/1038/FMT_01/2007615_f0… · 16 LOUIS J. RAMPINO, 11-717 Defendant. JURY TRIAL