"Curtis J. Timm of Sarasota, Fl. filed a $150,000,000 lawsuit yesterday against IMPAC Mortgage Holdings, Inc. (NYSE Amex: IMH), a Maryland corporation, headquartered in Irvine, California. The suit, filed by Steven D. Silverman, Managing Partner of Silverman, Thompson, Slutkin & White, focuses on the breach of the provisions of two written contracts, each of which created a separate class of preferred stock.
According to a press release on IMPAC's website during the third quarter of 2011, the IMPAC continued to expand its mortgage lending activities increasing loan originations and loan sales. During the three and nine months ended September 30, 2011, the IMPAC originated $256.6 million and $538.1 million and sold $250.3 million and $485.5 million of loans, respectively, as compared to $22.1 million of loans originated in the first nine months of 2010.
Timm seeks to certify a class and asks for declaratory and injunctive relief and compensatory and punitive damages in the amount of $150,000,000.
"These sorts of shady dealers are the ones that brought financial disarray to our country," said Silverman. "They obviously didn't get the message that greed can cause innocent people to be forced into financial ruin. We want to send a message to these people that they can no longer line their pockets with other people's money."
The breaches began in 2004, when IMPAC twice amended its governing charter first by filing Articles Supplementary to create 7,500,000 shares of 9.375% Series B Preferred Stock ("Preferred B") and later in 2004 by filing Articles Supplementary to create 5,500,000 shares of 9.125% Series C Cumulative Redeemable Preferred Stock ("Preferred C").
IMPAC sold 2 million shares of Preferred B for $25 per share in a public offering in 2004, and 4.47 million shares of Preferred C for $25 per share in a later second public offering, raising a total of $161.7 million from new investors in the Preferred B and C shares.
To induce investors to buy the preferred stock, each share of Preferred B paid a quarterly 9.375% dividend or $2.34 per year and each share of Preferred C paid a quarterly 9.125% dividend or $2.28 per year. Additionally, each of the Articles Supplementary creating the Preferred B and C shares provided a number of protections to the holders.
On June 29, 2009, IMPAC filed two unauthorized amendments to its charter purporting to amend the Articles Supplementary of the Preferred B and Preferred C shares. These amendments eliminated virtually every valuable right of the holders of the Preferred B and C shares, including the right to receive cumulative priority dividends, preference rights and other valuable rights.
In an attempt to get legal authorization to approve these amendments, IMPAC linked a consent solicitation to amend the Articles Supplementary of the Preferred B and C shares to a tender offer in which IMPAC offered to purchase the Preferred B shares for $0.29297 per share and the Preferred C shares for $ 0.28516 per share. The linked consent solicitation/tender offer was a "vote buying" scheme.
"The vote evaded the statutory prohibition on the corporation voting its own shares and interfered with the voting rights of non-tendering holders of the Preferred B and C shares," said Mr. Silverman. "It's an outrageous violation of the law."
Silverman says a condition of the tender offer was that at least two-thirds of the holders of the Preferred B and at least two-thirds of the holders of Preferred C shares tender, with the purpose of obtaining sufficient "exit consents" to eliminate the valuable quarterly dividends, preference rights, voting rights and other valuable rights of preferred holders refusing to tender their shares. In this way, the linked tender offer/consent solicitation was deliberately structured to coerce the preferred shareholders into tendering for reasons other than the economic merits of the transaction and into voting for amendments to the terms of the Articles Supplementary of the preferred shares they were selling. Holders of the Preferred B and C shares had to tender or face the prospect of losing virtually all of the economic value of their shares.
IMPAC's proposed amendments to the Articles Supplementary of each class of preferred shares allegedly sought to eliminate all economic value.
"The Preferred B shareholders and Preferred C shareholders have been deprived of their common law and contractual rights under the Articles Supplementary of the Preferred B and C shares as a result of IMPAC's invalid vote, improper amendments and unfair tender offer/consent solicitation," Mr. Silverman said. "In short - IMPAC robbed investors."