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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA
LEONARD R. CLEWLEY IRA andO !' 61838
GEORGINA C. CLEWLEY IRA,Individually and on Behalf of AllOthers Similarly Situated,
Plaintiffs,
-v-
PATRICK S. FLOOD andKEVIN D. RACE,
Defendants.
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DEC 17 2007Ct.4RENCE
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PLAINTIFFS' CLASS ACTION COMPLAINT
Plaintiffs allege the following upon personal knowledge as to themselves and their own
acts, and upon information and belief and in reliance on the investigation of counsel as to all
other matters:
NATURE OF THE ACTION
1. This is a class action brought under the Securities Exchange Act of 1934 on behalf
of plaintiffs and all others who purchased or otherwise acquired the common stock of HomeBanc
Corp. ("HomeBanc" or the "Company") between September 26, 2005 and August 3, 2007,
inclusive (the "Class Period")
2. As a result of Defendants' wrongful acts and omissions , and the drop in the
market value of the Company's common stock, shareholders have suffered damages.
JURISDICTION AND VENUE
3. The claims asserted herein arise under and pursuant to §§ 10(b) and 20(a) of the
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Exchange Act, (15 U.S.C. § §78j(b) and 78t(a)), and Rule IOb - 5 promulgated thereunder (17
C.F.R. §240.10b-5).
4. This Court has jurisdiction of this action pursuant to §27 of the Exchange Act, (15
U.S.C. §§1331 and 1337.
5. Venue is proper in this Judicial District pursuant to §27 of the Exchange Act, 15
U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein,
including the preparation and dissemination of materially false and misleading information,
occurred in substantial part in this Judicial District. Additionally, the Company maintains
executive offices within this Judicial District.
6. In connection with the acts and conduct alleged in this Complaint, Defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce , including the
mails and telephonic communications and the facilities of the NYSE, a national securities
exchange.
THE PARTIES
7. Plaintiffs purchased HomeBanc common stock, as set forth in the certifications
attached hereto and incorporated herein by reference, and were damaged thereby.
8. Non-defendant HomeBanc, founded in 1929, is a corporation incorporated under
the laws of Delaware with headquarters in Georgia. During the Class Period, HomeBanc
maintained executive offices at 1501 S.W. FAU Research Park Blvd., Suite 200, Deerfield
Beach, Florida 33441. HomeBanc , through its subsidiaries , engaged in the mortgage banking
business primarily in the southeast United States. On August 9, 2007, HomeBanc filed a
voluntary petition for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. As a
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result, HomeBanc is not named as a defendant in this Complaint.
9. Defendant Patrick S. Flood ("Flood") served as the Chief Executive Officer and
Chairman of the Board until he resigned on January 12, 2007.
10. Defendant Kevin D. Race ("Race") served as the Company's Chief Executive
Officer, President , Chief Operating Officer and Chief Financial Officer and was a director of the
Company.
11. Defendants Flood and Race are referred to herein as the "Individual Defendants."
CLASS ACTION ALLEGATIONS
12. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil
Procedure ("FRCP") 23(a) and 23(b)(3) on behalf of themselves and all those who purchased or
otherwise acquired HomeBanc common stock during the Class Period. Excluded from the Class
are Defendants herein, members of the Individual Defendants' immediate families, and any
person, firm, trust, corporation, officer, director or other individual or entity in which any
Defendant has a controlling interest or which is related to or affiliated with any of the
Defendants, and the legal representatives, agents, affiliates, heirs, successors-in-interest or
assigns of any such excluded party.
13. The members of the Class are so numerous that joinder of all members is
impracticable . As of May 7, 2007, there were approximately 51.45 million shares of the
Company's common stock outstanding. During the Class Period, the Company's common stock
was listed and actively traded on the NYSE under the symbol "HMB".'
' HomeBanc's common stock symbol was changed from "HMB" to "HMBN" on August
6, 2007 due to a change in listing from the NYSE to the Over-the-Counter (OTC) market.
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14. The precise number of Class members is unknown to Plaintiffs at this time but is
believed to number in the thousands, at a minimum. In addition, the names and addresses of the
Class members can be ascertained from the books and records of HomeBanc and/or its transfer
agent. Moreover, notice can be provided to such record owners by a combination of published
notice and first-class mail using techniques and a form of notice similar to those customarily used
in class actions arising under the federal securities laws.
15. Plaintiffs will fairly and adequately represent and protect the interests of the
members of the Class. Plaintiffs have retained competent counsel highly experienced in class
action litigation under the federal securities laws to further ensure such protection, and intends to
prosecute this action vigorously.
16. Plaintiffs' claims are typical of the claims of the other members of the Class
because Plaintiffs' and all the Class members' damages arise from the were caused by the same
false and misleading representations and omissions made by or chargeable to Defendants.
Plaintiffs do not have any interests antagonistic to, or in conflict with, the Class.
17. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Since the damages suffered by individual Class members may
be relatively small, the expense and burden of individual litigation make it virtually impossible
for the Class members to seek redress for the wrongful conduct alleged. Plaintiffs are not aware
of any difficulty which will be encountered in the management of this litigation which would
preclude its maintenance as a class action.
18. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. Among the
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questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by Defendants' acts as
alleged herein;
(b) Whether Defendants ' statements during the Class Period misrepresented or
omitted material facts about, among other things, HomeBanc and its business and financial
condition, performance, prospects, operations and management of the Company; and
(c) The extent of damages sustained by members of the Class and the
appropriate measure of such damages.
SUBSTANTIVE ALLEGATIONS
19. Defendant HomeBanc is incorporated under the laws of Delaware and
headquartered at 2002 Summit Boulevard , Suite 100, Atlanta , GA 30319. HomeBanc carries on
mortgage banking through subsidiaries in southeast U.S. HomeBanc offered various fixed and
adjustable rate residential mortgage loan products for one-to four family housing. The Company
also originated Fannie Mae/Freddie Mac mortgage loans; U.S. Department of Housing and Urban
Development and Veterans Administration government-insured mortgage loans; and adjustable-
rate mortgage loans, which include construction-to-permanent and second-lien mortgage loans,
nonconforming loans, and subprime mortgage loans. HomeBanc sold mortgage loans that it
originated to unrelated third parties. The Company offered its products through a retail network
of stores , and strategic marketing alliances (SMAs).
20. As of December 31, 2006, HomeBanc originated residential mortgage loans
through 21 store locations and 140 realtor store-in-store locations in the states of Georgia,
Florida, North Carolina, and South Carolina. The Company also had 229 strategic marketing
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alliances, as of the above date. HomeBanc qualified as a real estate investment trust, or REIT,
for federal income tax purposes. HomeBanc was founded in 1929 and was based in Atlanta,
Georgia, with executive offices in Deerfield Beach, Florida.
FALSE & MISLEADING STATEMENTS
21. On September 23, 2005, HomeBanc filed a shelf registration with the SEC on
Form S-3 under SEC Rule 415 to sell securities to the public, signed by Flood and Race. (The
registration was later dated as of September 26, 2005). On February 2, 2006, HomeBanc filed a
Form 424B2 Prospectus Supplement with the SEC in connection with its sale of HomeBanc's
10% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") (hereinafter
the "Offering"). The Registration and the Form 424B2 Prospectus Supplement constitute the
"Offering Documents." Under the Offering Documents, HomeBanc offered 2 million shares of
the Series A Preferred Stock to the public at $25 per share. J.P. Morgan and A.G. Edwards
underwrote the Offering. HomeBanc successfully raised approximately $50 million (minus
underwriting fees) in the Offering.
22. The Offering Documents , however , were materially false and misleading. The
Prospectus for the Offering stated that:
During 2004, we began holding and servicing certain mortgage loans, primarily
adjustable-rate mortgage loans with rates based on the London Interbank Offered
Rate ("LIBOR"), for investment. We expect to continue to hold and service these
types of loans for investment in the future. These loans are financed by equity anddebt, primarily through the issuance of adjustable notes through securitizationtransactions treated as secured borrowings of HomeBanc Corp. We have sold,
and presently expect to continue selling, the majority of the fixed-rate mortgageloans that we originate. This change in our business strategy in 2004 has shifted
our revenue sources from gain on sale of mortgage loans to net interest income
earned primarily on our adjustable-rate (including hybrid) mortgage loan portfolio
held for investment. In the fourth quarter of 2005, we also began to invest in
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residential mortgage-backed securities to increase our net interest income.
23. These statements were materially false and misleading. HomeBanc failed to
disclose that it was planning to sell or then selling its adjustable -rate mortgage loans for cash and
that it had altered its business plan. HomeBanc was buying lower quality residential mortgage-
backed securities, which had a greater default risk and a lower net interest margin than mortgage
loans. HomeBanc failed to disclose these facts until November 6, 2006 when it issued a press
release stating that mortgage-backed securities "typically generate a lower net interest margin
than mortgage loans held for investment."
24. The Offering Documents represented that HomeBanc would "continue selling the
majority of [its] fixed-rate mortgage loans" and would continue "holding and servicing certain
mortgage loans, primarily adjustable-rate mortgage loans." The Offering Documents also stated
that during the fourth quarter of 2005, HomeBanc "began to invest in residential mortgage-
backed securities to increase [HomeBanc ' s] net interest income."
25. HorneBanc also stated in the Offering Documents that its "ability to pay dividends
on the Series A Preferred Stock will depend almost entirely on the difference, or `spread,'
between the interest rates we earn on our assets and the interest rates we pay on our debt, as well
as payments and dividends received on our interests in our subsidiaries, especially HBMC."
26. These statements were materially false and misleading. HomeBanc's liquidity
was being adversely affected by an inverted yield curve - that is the Company's "spread" was a
yield curve under which it earned less in interest on its assets than it paid out in interest on its
debts and received from its subsidiaries. This lowered the Company's available cash. To raise
more cash, HomeBanc had either started selling more of its self-originated adjustable-rate prime
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mortgage loans to unrelated third parties than it had sold since its initial public offering in 2004,
or it planned to do so within weeks of the Offering. In fact, HomeBanc's 2006 Form 10-K
disclosed that in the first quarter of 2006, the Company "began selling a higher percentage of our
adjustable-rate prime mortgage loans originated by HBMC to unrelated third parties than we had
since our [initial public offering]. The Series A Preferred reached a high of $26.10 per share on
April 17, 2006.
27. On March 16, 2006, HomeBanc filed its 2005 Form 10-K with the SEC, signed by
defendants Flood and Race . The 10-K stated in relevant part:
The return on our investments and cash available for distribution to our shareholders
may be reduced to the extent that changes in market conditions cause the costs ofour
financings to increase relative to the income that can be derived from the assets we
hold in our portfolio. Further, the leverage on our equity may exacerbate any losseswe incur. This is especially true when, as occurred at the end of 2005, short-term
rates applicable to our financings were as high or higher than the rates available on
our long-term assets due to an "inverted" yield curve.
We also are funding our purchases and holdings of long-term MBS with short-term
repurchase agreements, and, absent successful risk mitigation strategies, the resultingduration and interest rate mismatches could adversely affect our earnings and asset
growth.
28. The foregoing statements were materially false and misleading because they failed
to disclose (i) that the occurrence of an inverted yield curve was not a single-period event, but
was present subsequent to year-end 2005, at the time of the Offering, and at the time of filing of
HomeBanc's 2005 Form 10-K; and (ii) that material interest rate mismatches had already
occurred at the Company.
29. In addition, the foregoing materially false and misleading financial statements
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failed to disclose the Company's accounting policy regarding income derived from charges
related to points and fees imposed in connection with loans that the Company originated. This
non-disclosure, which rendered the financial statements materially false and misleading, was in
violation of Generally Accepted Accounting Principles ("GAAP"), which require financial
statements to include a description of the accounting principles followed by the reporting entity
and the methods of applying those principles that materially affect the financial statements.
(APB Opinion No. 22).
30. On May 8, 2006, HomeBanc issued a press release announcing the Company's
consolidated results of operations for the quarter ended March 31, 2006. The Company filed its
2006 first quarter 10-Q with the SEC on May 10, 2006, signed by Flood and Race. The
Company reported that HomeBanc's interest income, after provision for loan losses, was $28.8
million for the quarter -- an increase of $17.7 million from the $ 11.1 million interest income
reported for the same period of 2005. The press release further stated that the "increase is
primarily due to the growth of the REIT investment portfolio and stable net interest margin," and
that the net interest margin for the period was 1.91%. Regarding loan originations, the press
release stated the following:
HomeBanc reports that its mortgage originations decreased approximately 11 % in the
first quarter of 2006 as comparted to the first quarter of 2005. Flood said, "Loan
originations in the market place, as expected, reflect the over-capacity developed by
our industry. We expect this condition to prevail for the balance of 2006."
31. On August 7, 2006, the Company issued a press release announcing the
consolidated results of operations for the quarter ended June 30, 2006. The Company filed its
2006 second quarter Form 10-Q on August 9, 2006, signed by Flood and Race. For the second
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quarter 2006, the Company reported a net income attributable to holders of common stock of
$1.6 million, or $0.03 per diluted share, and interest income, after provision for loan losses, was
$19.9 million, representing an increase of $4.3 million from $15.5 million for the same period of
2005. In addition, HomeBanc's total mortgage originations decreased by approximately 19%
during the second quarter of 2006 compared to the same period of 2005.
32. The Company further stated in the press release that the increase in interest
income is primarily due to the growth in net interest income resulting from the accumulation of
mortgage loans held for investment and the mortgage backed securities ("MBS") investment
strategy initiated in the fourth quarter of 2005 .... The net interest margin was 1.33% for the
three months ended June 20, 2006.
33. Although the August 7, 2006 press release and the 2006 second quarter Form 10-
Q were materially false and misleading and failed to disclose material adverse information
concerning the Company, the adverse information which was disclosed caused the price of Home
Banc's common stock to decline to $7.61 on August 8, 2006 from $8.03 on August 7, 2006. The
price of HomeBanc's common stock continued to decline over the next 48 hours, closing at
$6.85 on August 10, 2007.
34. On October 31, 2006, HomeBanc entered into a Master Repurchase Agreement
with J.P. Morgan serving as the Administrative Agent for the various buyers, as Sole Bookrunner
and Sole Lead Arranger. The Master Repurchase Agreement, along with an Administration
Agreement, replaced the Amended and Restated Senior Secured Credit Agreement, dated as of
August 1, 2005, which expired in accordance with its terms on October 31, 2006.
35. The Master Repurchase Agreement provided for a $500 million committed
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facility and an October 30, 2007 termination date. It further provided that HomeBanc had the
option, subject to receipt of commitments from existing buyers or new buyers who become
parties to the Master Repurchase Agreement, to increase the aggregate commitment level to $750
million.
36. Thereafter, on November 6, 2006 HomeBanc issued a press release announcing
the Company's consolidated results of operations for the three and nine month periods ended
September 30, 2006. HomeBanc filed its 2006 third quarter Form 10-Q with the SEC on
November 9, 2006, signed by Flood and Race. For the third quarter of 2006, the Company
reported a net loss attributable to holders of common stock of $2.4 million, compared to a net
loss of $0.8 million for the same period of 2005. In addition, net interest income after provision
for loan losses was $19.2 million for the third quarter 2006, and total mortgage originations
decreased by approximately 31 % during the quarter compared to the same period of 2005. The
interest margin was 1.22% for the quarter, compared to 1.48% for the same period of 2005. The
press release stated that "the decline in net interest margin is primarily due to the addition of
MBS to the investment portfolio in 2006, which typically generate a lower net interest margin
than mortgage loans held for investment."
37. In addition, the press release quoted Defendant Flood as stating that the
HomeBanc expects "to elect not to operate our public company as a REIT in 20o07."
38. On November 7, 2006, HomeBanc held a conference call to discuss the financial
results for the third quarter of 2006. On the call, Defendant Race stated:
[W]e sold 100% of the loans in terms of dollar amount that we produced in the
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period ... We are going to be selling 100% of our loans through the 2007 period as
a way to maximize current revenue. Our volume expectation in that context is $5
billion to $6 billion. The portfolio effectively will have run-off, therefore, that we
will replace selectively with appropriate returns with mortgage-backed securities if
that is appropriate. So that is the second element to the portfolio strategy is to replace
portfolio run-off with MBS ... And lastly, the low point of our recent or upcoming
quarters in terms of GAAP earnings will be our fourth quarter. We are estimating a
loss of $0.06 to $0.10 a share.
39. Also during the conference call, in response to a question concerning the possibility
of HomeBanc being sold to a financial institution, Defendant Flood stated the following:
I think at this point we have got all of the options on the table. I think we justcontinue to see the concept itself in conjunction with our franchise being accretive
to everyone that is involved in the discussion. So we are at least at this stage pretty
far along in. evaluating the best way to get there. And our Board of Directors ofcourse continues that dialogue with HomeBanc's management team and withJPMorgan. So we don't have any other more definitive ideas in and around it, butI think it is logical to conclude that that would be a pretty reasonable alternative for
the organization based on where it currently exists.
40. Jim Agah, a Millennium analyst, stated the following:
[Y]our stock is trading as if there's going to be a liquidity event here. Like there is
going to be a business [failure] here almost, right? I mean it's down 50% since you
announced that you were -- or 35% since you announced that you were going to de-
REIT because of all the shareholders that are so focused on income and now David
Stumpf joins the crowd and throws the towel in because no one that bought it for
income is going to get it anymore apparently, right?
41. Although the November 6, 2006 press release and the 2006 third quarter Form 10-
Q were materially Use and misleading and failed to disclose material adverse information
concerning the Company, the adverse information which was disclosed caused the price of Home
Banc's common stock to decline. Specifically, the price of the Company's common stock
dropped to a closing price of $3.93 on November 7, 2006 from $4.83 on November 6, 2006. The
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price of HomeBanc' s Series A Preferred Stock, which had closed at $25.45 on November 6,
2006, dropped to a closing price of $24.17 on November 7, 2006.
42. On January 16, 2007, HomeBanc held a conference call in order to provide an
update on the Company's status. During the conference call, Defendant Race stated the
following:
We have built over the last two years a $6 billion investment portfolio ofhigh-qualityassets. About 4.5 billion of those assets at the end of September were loans that wecreated through our organization. We've shown a track record over time of a veryconsistent net interest margin and earnings power from that portfolio, and it providesthe foundation of earnings for our business as we pursue the efficiencies and right-sizing of the cost structure. So, our goal in `07 is to maximize that earnings power... We have a $6 billion investment portfolio that I talked about earlier that has $4.5billion of assets that were self-originated, has a history of stability in terms ofmargin
performance, and it will provide an earnings foundation as we rebuild and goingforward into later in `07 and into `08.
43. In addition, Defendant Race further stated during the conference call that the
strategic business review process that HomeBanc had implemented was "an exhaustive process",
and that J.P. Morgan had served as an advisor and helped the Company throughout the process.
44. In its position as an advisor during the Company's strategic review, J.P. Morgan
obtained proprietary, non-public information regarding HomeBanc and was, therefore, in
possession of material inside information regarding the Company and its future business
prospects. J.P. Morgan used this information to its advantage by manipulating the terms of the
Master Repurchase Agreement it had entered into with the Company less than three months
earlier, thereby cutting its exposure to risk of loss should HomeBanc falter.
45. On January 24, 2007, HomeBanc filed a Form 8-K with the SEC, announcing that,
on January 23, 2007, Home Banc entered into a new Master Repurchase Agreement with J.P.
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Morgan which replaced the Master Repurchase Agreement executed on October 31, 2006. The
revised Master Repurchase Agreement eliminated the provision in the original agreement
which stated that IlomeBanc had the option to increase the aggregate commitment levelfrom
J.P. Morgan to $7.50 million . This fundamental modification in the agreement, which was
entirely in J.P. Morgan's favor to the detriment of the Company, provided J.P. Morgan with the
ability to issue a notice of termination of the agreement and require HomeBanc to repurchase
outstanding mortgage loans that were previously purchased from J.P. Morgan "at least two
months following a notice of termination."
46. On February 27, 2007, HomeBanc filed a Form 8-K with the SEC announcing the
sale of substantially all of HomeBanc's MBS portfolio. The Form 8-K stated the following:
In a series oftransactions commencing on February 21, 2007, HomeBanc Corp. (The
"Company") disposed of an aggregate of approximately $1.2 billion of mortgage-
backed securities ("MBS") previously held for investment in the Company's
portfolio. The Company expects, in the very near term, to complete the sale of an
additional approximately $100 million ofMBS held for investment in the Company's
portfolio. These transactions collectively constitute the sale ofsubstantially all ofthe
Company's MBS portfolio. The MBS were sold in the open market to national
broker-dealers who routinely engage in the purchase of such securities. After
repayment of related debt obligations under repurchase agreements secured by the
MBS, the Company realized net cash proceeds of approximately $65 million as ofthe date hereof. The Company will use a portion ofthe proceeds from the sale ofthe
MBS portfolio to fund a share repurchase program, which is described below in Item
8.01 of this Current Report. The Company expects to use the remainder of the
proceeds from the sale of the MBS portfolio for liquidity, other general corporate
purposes and for capital management purposes.
47. On February 27, 2007, HomeBanc issued a press release announcing the
consolidated results of operations for the quarter and year ended December 31, 2006. On March
15, 2007, HomeBanc filed its 2006 Form 10-K with the SEC, signed by, among others, defendant
Race. For Fiscal 2006, the Company reported (I) a GAAP consolidated net loss attributable to
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the holders of the common stock of $10.7 million, or $0.19 per share, for the quarter; (ii) total
consolidated revenues of $28.7 million for the quarter, compared to revenues of $36.4 million for
the same period of 2005; (iii) a decrease in net interest income after provision for loan losses of
24% to $ 17.4 million, compared to $22. 9 million for the same period of 2005; and (iv) a net
interest margin of 1.35% for fiscal 2006, down from 1.48% for fiscal 2005.
48. The press release stated that the net interest income decrease of 24% was "due to
an increase in the percentage of the investment portfolio comprised by [MBS], which generally
provide a narrower net interest margin than mortgage loans held for investment .... As a result
of this change in portfolio composition, we have experienced downward pressure on our net
interest margin."
49. The press release also quoted Defendant Race as stating that "early in 2006, we
made the decision to sell the majority of our loan originations to improve GAAP earnings at a
time when gain on sale margins were compressed, thus limiting the benefit from the increased
sale of mortgage loans. Additionally, in order to augment asset growth, we increased the amount
of MBS in our investment portfolio, which earn a lower net interest margin than our mortgage
loans."
50. The press release further noted that, in raising cash to meet HomeBanc's liquidity
requirements, HomeBanc's asset portfolio was significantly diminished: "The Company also
announced that it has sold substantially all of its MBS portfolio, which generated approximately
$70 million of net proceeds. As a result of that sale, the Company's investment portfolio was
reduced by 22%, from approximately $5.9 billion at December 31, 2006 to $4.6 billion, and is
now comprised almost entirely of mortgage loans."
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51. In addition, the 2006 Form 10-K stated the following:
(a) ". . . during 2004, the yield curve began to invert, meaning that short-term
interest rates exceeded long-term rates. This trend continued throughout 2005 and 2006."
(b) "Early in 2006, we began selling a significantly higher percentage of our
loans to unrelated third parties than we have since our IPO."
(c) "In an effort to generate greater short-term income, and to continue to
narrow the difference between our GAAP income and our REIT taxable income , we began to sell
substantially all of the mortgage loans that we originated."
(d) "In lieu of transferring mortgage loans to our investment portfolio, we
began to purchase and hold MBS to supplement our net interest income."
(e) "Our decision to purchase MBS, which tend to generate a lower net
interest margin than mortgage loans, to `replace' the mortgage loans that we otherwise would
have transferred to our portfolio, but instead sold, resulted in a decrease in the net interest income
from our investment portfolio... Our net interest margin, inclusive of the impact of derivative
financial instruments, on our MBS portfolio is generally less than on our loans held for
investment portfolio."
(f) "During the first quarter of 2007, to enhance our short-term liquidity
position, we sold substantially all of our MBS portfolio and, in the near term, we do not expect to
make any additional significant purchases of MBS through our REIT. Consequently, we expect
our net interest income to be adversely impacted in 2007 and future periods."
52. Although these adverse facts were disclosed , the impact of these disclosures were
offset by HomeBanc's February 27, 2007 announcement of a major infusion of cash and an
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assurance of long-term liquidity:
Liquidity is a measure of our ability to meet potential cash requirements, including
ongoing commitments to pay interest on and repay the principal amounts of our
borrowings, fund and maintain investments, make distributions to our shareholders
and pay our general business expenses. We presently believe our current cash
balances, funds available under our financing arrangements (as described
below) and cash flows from operations , including proceeds from sales of fixed-
rate and ARM loans and the net proceeds from the sale of our MBS , will be
sufficient to support our liquidity requirements for the next 12 months and
beyond.
53. Defendants knew or recklessly failed to know that the foregoing statement was
materially false and. misleading because, in view of the material decrease in loan originations, the
existence of an inverted yield curve, and the diminished quality of HomeBanc ' s investment
portfolio, there was no reasonable basis for stating that HomeBanc could support its liquidity
requirements for the next 12 months and beyond.
54. On April 27, 2007, HomeBanc filed a Form 8-K with the SEC announcing that on
April 25, 2007, the Company executed an amendment to the January 23, 2007 Master
Repurchase Agreement. According to the Form 8-K, the amendment "clarified the security
interest of the Buyer in collateral securing borrowings by [HomeBanc] under the" Master
Repurchase Agreement. The clarification constituted an attempt to improve J.P. Morgan's
standing in the event of HomeBanc's bankruptcy by memorializing that, although Home Banc
and J.P. Morgan intended to treat the transactions as indebtedness for accounting and tax
purposes, the transactions were sales and purchases, not loans:
Section 8 of the Existing Repurchase Agreement is hereby amended by deleting thefirst paragraph thereto in its entirety and replacing it with the following language:
Although the parties intend that all Transactions hereunder be sales andpurchases and not loans (provided, however, that the parties intend to treat
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Transactions as Indebtedness for accounting and tax purposes), in the event any
such transactions are deemed to be loans, each Seller hereby pledges to Buyer as
security for the performance by the Sellers of their Obligations and hereby grants,
assigns and pledges to Buyer a security interest in the Purchases Mortgage Loans, the
Records, all servicing rights related solely to the Purchased Mortgage Loans, the
Repurchase Documents (to the extent such Repurchase Documents and the Sellers'rights thereunder relate to the Purchased Mortgage Loans), any Property relating toany Purchased Mortgage Loan or the related Mortgaged Property, all insurance
policies and insurance proceeds relating to any Purchased Mortgage Loan or theRelated Mortgaged Property, including but not limited to any payments or proceeds
under any related primary insurance or hazard insurance, any Income relating to any
Purchased Mortgage Loan, the Collection Account, anyl Interest Rate Protection
Agreements relating to any Purchased Mortgage Loans, any rights (but excluding the
obligations) to participation interests in any Interest Rate Protection Agreement
relating to any Purchased Mortgage Loan, any accounts relating to any Purchased
Mortgage Loan, and any other contract rights, accounts (including any interest ofthe
Sellers in escrow accounts), payments, rights to payment (including payments ofinterest or finance charges) and general intangibles to the extent that the foregoing
relates to any Purchased Mortgage Loan and any other assets relating to thePurchased Mortgage Loans or any interest in the Purchased Mortgage Loans, all
collateral under any other secured debt facility between a Seller or their Affiliates on
the one hand and the Buyer and the Buyer's Affiliates on the other, and any proceeds
(including the related securitization proceeds) and distributions and any other
property, rights, title or interests as are specified on a Trust Receipt and Exception
Report with respect to any of the foregoing, in all instances, whether now owned orhereafter acquired, now existing or hereafter created, and wherever located
(collectively, the "Repurchase Assets").
55. The Company's attempt, along with J.P. Morgan, to memorialize J.P. Morgan's
position with respect to HomeBanc's assets was some indication to the market that HomeBanc was
experiencing significant financial problems.
56. On April 30, 2007, after the close of trading, HomeBanc issued a press release
revising previously provided guidance for the quarter ended March 31, 2007. While the Company
had previously announced an expected loss of $0.20 to $0.24 per share, HomeBanc announced an
expected loss of $0.30 to $0.34 per share. In addition , financial results for the first quarter of 2007
would be announced on May 9, 2007, after the market closed.
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57. After this announcement, the Company's common shares again dropped 11 % to
$2,49, on May 1, 2007.
58. On May 9, 2007, HomeBanc issued a press release announcing consolidated results
of operations for the quarter ended March 31, 2007. On May 10, 2007, the Company filed a Form
10-Q with the SEC' for the first quarter of 2007, signed by, among others, defendant Race. The
Company reported (i) a consolidated net loss attributable to holders of common stock of $23.8
million, or $0.42 per diluted share, for the quarter; (ii) investment portfolio assets comprised of
mortgage loans held for investment and securities held to maturity and available for sale of $4.5
billion at quarter-end, compared to $5.9 billion for the same period of 2006; (iii) mortgage
origination volume of $1.1 billion for the quarter, a decrease of 13% from $1.2 billion for the same
period of 2006; and (iv) net interest income after provision for loan losses of $5.6 million for the
quarter, compared to $28.8 million for the same period of 2006.
59. The 2007 first quarter Form 10-Q also discussed HomeBanc's business strategy
(stating it was a strategy that investors "should not rely upon"), noting the following steps or
alternatives that the Company would consider:
(a) cessation of significant purchases of MBS to be held in HomeBanc's
investment portfolio;
(b) use of liquidity to repurchase stock, for other general corporate purposes
(including payment of "costs associated with potential strategic alternatives, including, without
limitation, changes to our corporate operating structure"), and capital management purposes
("including, but not limited to, potentially refinancing outstanding debt and trust preferred
securities");
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(c) implementation of cost reduction initiatives;
(d) acquisition of mortgage loans from other originators;
(e) origination of mortgage loans through a direct lending channel;
(f) opening of new stores in new markets; and
(g) opportunistically consider any number of alternative and/or additional
strategic plans that may be or become available to us, and we may change our strategy at any time
to pursue any such alternative or additional strategies.
60. Furthermore, in an effort to alleviate the concern of investors, the 2007 first quarter
Form 10-Q hinted at a possible sale of the Company by stating that HomeBanc continues to explore
"any number of strategic alternatives that may be available" to the Company. HomeBanc also stated
that "[w]e presently believe our current cash balances, funds available under our financing
arrangements ... and cash flows from operations, including proceeds from sales of fixed-rate and
adjustable-rate mortgage loans and the net proceeds from the sale of our MBS will be sufficient to
support our liquidity requirements for theforeseeablefuture."
61. Upon release of this information, HomeBanc's common stock price dropped from
$2.08 on May 9, 2007 to $1.90 on May 10, 2007, and continued to decline in the days following the
announcement.
62. Thereafter, during the first two weeks of July, HomeBanc remained silent regarding
the date of its 2007 second quarter earnings release . As the days passed, the market was wary of an
impending announcement of delisting or, even worse, dissolution of the Company. By mid-July,
HomeBanc's common stock declined to under $1.00.
63. On July 30, 2007, HomeBanc filed a Definitive Proxy Statement with the SEC which
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 21 of
contained a detailed disclosure of potential payments to officers and directors "upon termination or
change of control." This filing, in conjunction with the Company's continued silence regarding its
2007 second quarter financial results, caused the investing public to question HomeBanc's future
viability, and the price of the Company's stock declined again . The common stock, which had
closed at $0.83 per share the day prior to this filing, dropped to a closing price of $0.72 per share on
the day of the filing. Within 72 hours, the Company's common stock dropped to $0.43 per share.
64. On August 3, 2007, the New York Stock Exchange notified HomeBanc that it had
suspended the listing of the Company's common stock and Series A Preferred Stock effective
immediately, and that the decision to suspend the listings was reached in view of the "abnormally
low" trading price of HomeBanc ' s common stock , which closed at $0.30 on August 3, 2007.
65. The delisting of the Company's stock caused HomeBanc's common stock to drop
by 50%, to close at $0.15 per share.
66. On August 6, 2007, HomeBanc filed a Form 8-K with the SEC which contained a
second amendment to the Master Repurchase Agreement, which stated that HomeBanc was
required to provide J.P. Morgan with "daily and weekly reports regarding margin calls, liquidity
position, operating budget and asset dispositions."
67. Disclosure of the fact that J.P. Morgan was requiring Home Banc to provide daily
and weekly reports regarding margin calls, liquidity position, operating budget and asset
dispositions caused the investment community to question whether or not the March 15, 2007
and the May 10, 2007 statements by the Company that HomeBanc was able to support its
liquidity requirements "for the next 12 months and beyond" and that HomeBanc was able to
support its liquidity requirements "for the foreseeable future", respectively, were truthful.
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68. This filing, in conjunction with the absence of news concerning HomeBanc's
2007 second quarter financial results, caused the price of HomeBanc's common stock to drop by
more than 50% to close at $0.07 per share.
69. On August 7, 2007, HomeBanc announced that it was unable to borrow any
additional amounts under its credit facilities to satisfy its mortgage loan funding obligations, and
on August 9, 2007, HomeBanc filed a voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
70. The foregoing statements by the Company during the Class Period were materially
false and misleading because , among other things, they failed to disclose (i) that the Company's
reported net interest margin during the Class Period would have been flat or negative but for the
inclusion of points and loan origination fees; (ii) that without an acceleration in the dollar value
of loans originated by HomeBanc, the future reported net interest margin would flatten or
become negative; (iii) that a decline in loan originations would adversely impact the Company's
net interest margin; (iv) that as a result of the persistent inverted yield curve, and in order to raise
additional cash, HoreBanc had sold a higher percentage of its self-originated adjustable-rate
prime mortgage loans to unrelated third parties than it had since its IPO; (vi) that the Company
was abandoning its touted business strategy of maintaining a favorable yield curve by originating
and retaining high quality adjustable-rate mortgage loans, and matching the funding of such loans
with adjustable-rate debt; (vii) that HomeBanc was purchasing and retaining lower quality
residential MBS, which carried a greater default risk and which generated a lower net interest
margin than mortgage loans; and (viii) that the Company's continued assurances to investors that
it could support its liquidity requirements were false and misleading.
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71. In addition, several of the foregoing financial statements were false and
misleading because; they violated GAAP by failing to disclose the Company's accounting policy
regarding income from loan origination fees.
72. Furthermore, the Company was required to disclose in its financial reports filed
with the SEC the "known trends or any known demands, commitments, events or uncertainties"
that are reasonably likely to have a material impact on the Company's revenues, income or
liquidity, or cause previously reported financial information not to be indicative of future
operating results. 17 C.F.R. §229.303(a)(1)-(3) and Instruction 3. The Company violated this
requirement in its failure to disclose such significant trends, demands, commitments, events or
uncertainties, including the full extent of the existence of an inverted yield curve, the digression
from a stated business plan, the sale of high-quality adjustable-rate prime mortgage loans to
generate cash, and the purchase and retention of lower-quality MBS which carried a greater
default risk and a lower net interest margin than mortgage loans.
SCIENTER ALLEGATIONS
73. As alleged herein , Defendants acted with scienter in that Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding HomeBanc, their control over, and/or
receipt and/or modification of HomeBanc's allegedly materially misleading misstatements and/or
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 24 of
their associations with the Company which made them privy to confidential proprietary
information concerning HomeBanc, participated in the fraudulent scheme alleged herein.
LOSS CAUSATION
74. Defendants' wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiffs and the Class.
75. During the Class Period, Plaintiffs and the Class purchased securities of
HomeBanc at artificially inflated prices and were damaged thereby. The price of HomeBanc's
securities significantly declined when the misrepresentations made to the market, and/or the
information alleged. herein to have been concealed from the market, and/or the effects there, were
revealed, causing investors' losses.
APPLICABILITY OF PRESUMPTION OF RELIANCE;FRAUD ON THE MARKET DOCTRINE
76. At all relevant times, the market for HomeBanc stock was an efficient market for
the following reasons, among others:
(a) HomeBanc stock met the requirements for listing, and was listed and
actively traded, on the NYSE, a highly efficient market;
(b) As a regulated issuer, HomeBanc filed periodic public reports with the
SEC and the NYSE;
(c) HomeBanc stock was followed by securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales force and certain
customers of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace; and
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(d) HomeBanc regularly issued press releases which were carried by national
newswires. Each of these releases was publicly available and entered the public marketplace.
77. As a result , the market for HomeBanc securities promptly digested current
information with respect to the Company from all publicly-available sources and reflected such
information in HomeBanc's stock price. Under these circumstances, all purchasers of
HomeBanc securities during the Class Period suffered similar injury through their purchase of
stock at artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
78. The statutory safe harbor provided for forward- looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Many of the specific statements pleaded herein were not identified as "forward-looking
statements" when made . To the extent there were any forward-looking statements, there were no
meaningful cautionary statements identifying important factors that could cause actual results to
differ materially from those in the purportedly forward-looking statements . Alternatively, to the
extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,
Defendants are liable for those false forward-looking statements because at the time each of those
forward-looking statements was made, the particular speaker knew that the particular forward-
looking statement was false, and/or the forward-looking statement was authorized and/or
approved by an executive officer of HomeBanc who knew that those statements were false when
made.
COITNT I
For Violations Of §10(b) Of The Exchange Act And
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Rule 10b-5 Promulgated ThereunderAgainst All Defendants
79. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully
herein.
80. During the Class Period, the Individual Defendants, and each of them, carried out
a plan, scheme and course of conduct which was intended to and, throughout the Class Period,
did: (I) deceive the investing public, including Plaintiffs and other Class members, as alleged
herein; (ii) artificially inflate and maintain the market price of HomeBanc securities; and (iii)
cause Plaintiffs and other members of the Class to purchase HomeBanc securities at artificially
inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, the
Individual Defendants, and each of them, took the actions set forth herein.
81. These Defendants: (a) employed devices, schemes, and artifices to defraud; (b)
made untrue statements of material fact and/or omitted to state material facts necessary to make
the statements not misleading; and (c) engaged in acts, practices and a course of business which
operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to
maintain artificially high market prices for HomeBanc securities in violation of § 10(b) of the
Exchange Act and Rule I Ob-5. Defendants are sued as primary participants in the wrongful and
illegal conduct charged herein. The Individual Defendants are also sued herein as controlling
persons of HomeBanc, as alleged herein.
82. In addition to the duties of full disclosure imposed on Defendants as a result of
their making of affirmative statements and reports, or participation in the making of affirmative
statements and reports to the investing public, they each had a duty to promptly disseminate
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 27 of
truthful information that would be material to investors in compliance with the integrated
disclosure provisions of the SEC as embodied in SEC Regulation S X (17 C.F.R. § 210.01 et
seq.) And S-K (17 C.F.R. § 229.10 et seq .) And other SEC regulations, including accurate and
truthful information with respect to the Company's operations, financial condition and
performance so that the market prices of the Company's publicly traded securities would be
based on truthful, complete and accurate information.
83. The Individual Defendants , individually and in concert , directly and indirectly, by
the use of means or instrumentalities of interstate commerce and/or of the mails, engaged and
participated in a continuous course of conduct to conceal adverse material information about the
business, business practices, performance, operations and future prospects of HomeBanc as
specified herein. These Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of HomeBanc' s value and
performance and substantial growth, which included the making of, or the participation in the
making of, untrue statements of material facts and omitting to state material facts necessary in
order to make the statements made about HomeBanc and its business, operations and future
prospects in the light of the circumstances under which they were made, not misleading, as set
forth more particularly herein, and engaged in transactions, practices and a course of business
which operated as a fraud and deceit upon the purchasers of HomeBanc's securities during the
Class Period.
84. Each of the Individual Defendants' primary liability, and controlling person
liability, arises from the following facts: (i) each of the Individual Defendants was a high-level
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 28 of
executive and/or director at the Company during the Class Period; (ii) each of the Individual
Defendants, by virtue of his responsibilities and activities as a senior executive officer and/or
director of the Company, was privy to and participated in the creation, development and
reporting of the Company's operational and financial projections and/or reports; (iii) the
Individual Defendants enjoyed significant personal contact and familiarity with each other and
were advised of and had access to other members of the Company' s management team, internal
reports, and other data and information about the Company's financial condition and
performance at all relevant times; and (iv) the Individual Defendants were aware of the
Company's dissemination of information to the investing public which they knew or recklessly
disregarded was materially false and misleading.
85. These Defendants had actual knowledge of the misrepresentations and omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were readily available to them.
Such Defendants' material misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing HomeBanc's operating condition,
business practices and future business prospects from the investing public and supporting the
artificially inflated price of its stock. As demonstrated by their overstatements and misstatements
of the Company's financial condition and performance throughout the Class Period, the
Individual Defendants, if they did not have actual knowledge of the misrepresentations and
omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining
from taking those steps necessary to discovery whether those statements were false or
misleading.
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86. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price of HomeBanc securities
was artificially inflated during the Class Period. In ignorance of the fact that the market price of
HomeBanc shares was artificially inflated, and relying directly or indirectly on the false and
misleading statements made by Defendants, or upon the integrity of the market in which the
securities trade, and/or on the absence of material adverse information that was known to or
recklessly disregarded by Defendants but not disclosed in public statements by Defendants during
the Class Period, Plaintiffs and the other members of the Class acquired HomeBanc securities
during the Class Period at artificially inflated high prices and were damaged thereby.
87. At the time of said misrepresentations and omissions , Plaintiffs and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiffs
and the other members of the Class and the marketplace known of the true performance, business
practices, future prospects and intrinsic value of HomeBanc, which were not disclosed by
Defendants, Plaintiffs and other members of the Class would not have purchased or otherwise
acquired HomeBanc securities during the Class Period, or, if they had acquired such securities
during the Class Period, they would not have done so at the artificially inflated prices which they
paid.
88. By virtue of the foregoing, the Individual Defendants each violated § 10(b) of the
Exchange Act and Rule I Ob-5 promulgated thereunder.
89. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and
the other members of the Class suffered damages in connection with their purchases of the
Company's securities during the Class Period.
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COUNT II
For Violations of §20 (a) of the Exchange ActAgainst the Individual Defendants
90. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully
herein.
91. The Individual Defendants were and acted as controlling persons of HomeBanc
within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions with the Company, participation in and/or awareness of the Company's operations
and/or intimate knowledge of the Company's actual performance, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiffs contend are false and misleading. Each of the Individual Defendants
was provided with or had unlimited access to copies of the Company' s reports , press releases,
public filings and other statements alleged by Plaintiffs to be misleading prior to and/or shortly
after these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
92. In addition, each of the Individual Defendants had direct involvement in the day-
do-day operations of the Company and, therefore, is presumed to have had the power to control
or influence the particular transactions giving rise to the securities violations as alleged herein,
and exercised the same.
93. As set forth above, HomeBanc (not named as a defendant herein) and the
Individual Defendants each violated § 10(b) and Rule 1 Ob-5 by their acts and omissions as alleged
30
Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 31 of
in this Complaint. By virtue of their controlling positions, the Individual Defendants are liable
pursuant to §20(a) of the Exchange Act. As a direct and proximate result of Defendants'
wrongful conduct, Plaintiffs and other members of the Class suffered damages in connection
with their purchases of the Company's securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs demand judgment as follows:
(i) Declaring this action to be a class action properly maintained pursuant to Rule
23(a) and (b)(3) of the Federal Rules of Civil Procedure;
(ii) awarding Plaintiffs and other members of the Class damages together with interest
thereon;
(iii) awarding Plaintiffs and other members of the Class their costs and expenses of
this litigation, including reasonable attorneys' fees, accountants' fees and experts' fees and other
costs and disbursements; and
(iv) awarding Plaintiffs and other members of the Class such other and further relief as
may be just and proper under the circumstances.
JURY DEMAND
Plaintiffs hereby demand a trial by jury.
Dated: December 17, 2007 VIANALE &
By:Keiihieth J. canalFla. Bar No^ 01 668Julie Prag VianaleFla. Bar No. 0184977
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 32 of
2499 Glades Road, Suite 112Boca Raton, Florida 33431Tel: 561-392-4750Fax: 561-392-4775
SHALOV STONE BONNER& ROCCO LLPLee S . Shalov485 Seventh Avenue (Suite 1000)New York, NY 10018Tel: 212-239-4340Fax: 212-239-4310
Bruce G . Murphy, Esq.LAW OFFICES OFBRUCE G. MURPHY265 Llwyds LaneVero Beach, FL 32963Tel.: (772) 231-4202Fax: (772) 492-1245
Attorneysfor Plaintiffs
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Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 33 of11/04/07 06:lSpm P. 006
C$RTIFX A.TION OF SAM= PLAINTIFF
PSJRSU,'RW TO FZDERAL SECURITIES LAWS
1, t, L-i Jz Cj.y h))_ FY , ("Pluintifr') declare the following clams asserted
under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing . Plaintiff retains the
Law Offices of Bruce G. Murphy, P.C. and such co-counsel it deems appropriate to associate
with to pursue such action on a contingent fee basis.
2. Plaintiff did not acquire the securities that are the subject of this action at the
direction of plaintiff s counsel or in order to participate in this private action or any other
litigation under the federal securities laws.
3. Plaintiff is willing to serve as a Named and/or Lead Plaintiff either individually or
as a representative party on behalf of the class, including providing testimony at deposition and
trial, if necessary,.4. Plaintiff has made the following tt action(s) during the Class period in the
secuei es that are the subject of this action:No. of shares fkn,rirc, t PIPYIsrll
vicuc lopi MP,er 1, fl *&tsiW On a !e.Aanne O,oe n1puer, iAec.cMw. --- -
These securities were: acquired or held in (check all that apply): OOeneraI (non-retirementaccou^at) l .rig€c^ tva risiti di'itt^ibation OG3#t {A 'GfnVIvm-sponscsred plan (401k,403b, etc.)
5. Dearing the three years prior to the date of this Certificate, Plaintiff has not soughtto serve or served as a representative patty for a class in no action filed under the federalsecurities laws except as detailed below:
6. The Plaintiff will not accept any payment for serving as a representative party on behalfof the class beyond the Plaintiffs pro rata share of any recovery, except such reasonable costsand expenses (intcludiing lost wages) directly relating to the representation of the class as orderedor appfoved by the court.
I declare under penalty of perjury that the foregoing is true and correct.
f:xecutetI this -6-1-day of N4.V gg , 2007.
Cignaiure Print Name
Case 0:07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 34 of11/04/07 06c19pm P. 003
C RTIFICATIO OAP' NMI= PI.mXNTXFk'
PURSUANT TO FEDERAL 8 CURITIS$ LAWS
s l Lg j' ("plaintiff") declare the following Claims asserted
under the federal securities laws, that:
Plaintiff has reviewed the complaint and authorized its filing. Plaintiff retains the
Law Pffi ces of Bruce 10, 'Murphy, P.C. and such co-counsel it deems appropriate to associate
with to pursue such action on a contingent fee basis.
2. Plaintiff did not acquire the securities that are the subject of this action at the
direction of plaintiff' s counsel or in order to participate in this private action or any other
litigati a under the federal securities laws.
3. Plaintiff is willing to serve as a Named and/or Lead Plaintiff either individually or
as a representative party on behalf of the class, including providing testimony at deposition and
trial, if necessary.4. Plaintiff has made be following transoettonic) during the Class Period to the
securfiies that are the subject of this uetiou:
No.-AUA-KQ Secu i3^43 ^P, Cll PM
0 . /.0 Anoo7 .1.,'._
Pletice i9t aryl trsncuc^iortc -on n, cotluMe th n6f P ' if nnresFnty,
These secwitics vxca-acquired or.J cld in. (. 4 aii ^iwt.^giy): 00enewi jaon-rtti re. em
accoutit) I..IMerger/ acquisition/distribution [JGift ttA L.?Fmployer-sponsored plan (401k,
403b,'etc.)
S. During the three years prior to the date of this Certificate, Plaintiff has not sought
to serve or served as a representative party for a class in an action filed under the federal
securities laws except as detailed below:
6. The Plaintiff will not accept any payment for serving as a representative party on behalf
of tbf class beyond the Plainii;<3f's pro rata share of any recovery, except such reasonable costs
and expenses (including lost wages) directly relating to t e representation of the class as ordered
or approved by the court.
I declare under penalty ofperjury that the foregoing is true and correct.
Executed this D day of _tL62yl . 2007.
na'tur$s^ Print Name
Case 0 : 07-cv-61838-JIC Document 1 Entered on FLSD Docket 12/18/2007 Page 35 of®JS 44 (Rev. 1I/05) CIVIL COVER SHEET
The JS 44 civil cover sheet and the information contained herein neither re lace nor supplement the filing and service ofpleadings or other papers as required by law, except as provided
by local rules of court. This form, approved by the Judicial Conference ofthe United States in September 1974. is required for the use ofthe Clerk of Court for the purpose of initiating
the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) NOTICE: Attorneys MUST Indicate All Re-filed Cases Below.
1. (a) PLAINTIFFS DEFENDANTS
LEONARD R. CLEWLEY IRA and GEORGINA C. CLEWLEY IRA, Patrick S. Flood and Kevin D . RaceIndividually and on behalf of all others similarly situated
(b) County of Residence of First Listed Plaintiff Orange County County of Residence of First Listed Defendant -
(EXCEPT IN U.S. PLAINTIFF CASES) (IN U.S. PLAINTIFF CASES ONLY)
(C) Attorney's (Finn Name, Address , and Telephone Number ) NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE TRACT
LAND INVOLVED.
Vianale & Vianale LLP 2499 Glades Road , Suite 112Boca Raton , Florida 33431 (561) 392-4750 ry Attorneys ( Ifw o • 83
(d) Check County Where Action Arose: O MIAMI- DADE O MONROE 0 BROWARD O PALM BEACH O MARTIN O ST. LUCIE O INDIAN RIVER O OKEECHOBEEHIGHLANDS
II. BASIS OF JURISDICTION (Place an "X" in One Box Only) III . CITIZENSHIP OF PRINCIPAL PARTIES(Place an "X" in One Box for Plaintiff(For Diversity Cases Only ) and One Box for Defendant)
O I U.S. Government O 3 Feceral Question PTF DEF PTF DEF
Plaintiff ( U.S. Government Not a Party ) Citizen of This State O 1 D 1 Incorporated or Principal Place O 4 D 4
of Business In This State
D 2 U.S. Government D 4 Diversity Citizen of Another State D 2 O 2 Incorporated and Principal Place O 5 O 5
Defendant ( Indicate Citizenship of Par ' es in Item 111 )of Business In Another State
Z^ IO
N
- 1-12 Citizen or Subject of a D 3 O 3 Foreign Nation O 6 O 6
A
J 62Forei m Count
Ill/ IATr1RF n 17 Q11IT ini..,.e ..,,n- ra,,-n.,i,,s
CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
O 110 Insurance PERSONAL INJURY PERSONAL INJURY O 610 Agriculture O 422 Appeal 28 USC 158 O 400 State Reapportionment
D 120 Marine D 310 Airplane O 362 Personal Injury - O 620 Other Food & Drug D 423 Withdrawal O 410 Antitrust
O 130 Miller Act D 315 Airplane Product -Med. Malpractice O 625 Drug Related Seizure 28 USC 157 O 430 Banks and Banking
O 140 Negotiable Instrument Liability D 365 Personal Injury - of Property 21 USC 881 O 450 Commerce
O 150 Recovery of Overpayment D 320 Assault, Libel & Product Liability O 630 Liquor Laws PROPERTY RIGHTS O 460 Deportation
& Enforcement of Judgment Slander O 368 Asbestos Personal O 640 R.R. & Truck O 820 Copyrights O 470 Racketeer Influenced and
O 151 Medicare Act O 330 Federal Employers' Injury Product O 650 Airline Regs. O 830 Patent Corrupt Organizations
D 152 Recovery of Defaulted Liability Liability Cl 660 Occupational O 840 Trademark O 480 Consumer Credit
Student Loans O 340 Marine PERSONAL PROPERTY Safety/Health O 490 Cable/Sat TV
(Excl. Veterans) O 345 Marine Product D 370 Other Fraud O 690 Other D 810 Selective Service
O 153 Recovery of Overpayment Liability O 371 Truth in Lending LABOR SOCIAL SECURITY 2 850 Securities/Commodities/
of Veteran's Benefits O 350 Motcr Vehicle D 380 Other Personal O 710 Fair Labor Standards D 861 HIA (13951) Exchange
n 160 Stockholders' Suits D 355 Motcr Vehicle Property Damage Act D 862 Black Lung (923) O 875 Customer Challenge
D 190 Other Contract Product Liability O 385 Property Damage O 720 Labor/Mgmt. Relations D 863 DIWC/DIWW (405(g)) 12 USC 3410
O 195 Contract Product Liability O 360 Other Personal Product Liability O 730 Labor/Mgmt.Reporting O 864 SSID Title XVI O 890 Other Statutory Actions
D 196 Franchise Inju ry & Disclosure Act D 865 RSI (405 (g)) O 891 Agricultural Acts
REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS O 740 Railway Labor Act FEDERAL TAX SUITS O 892 Economic Stabilization Act
D 210 Land Condemnation O 441 Voting O 510 Motions to Vacate O es (U.S. Plaintiff O 893 Environmental Matters
D 220 Foreclosure D 442 Employment Sentence O . h•c- Defendant) O 894 Energy Allocation Act
0 230 Rent Lease & Ejectment 0 443 Housing/ Habeas Corpus : ecu777rri Act O 871 1 S-Third Party O 895 Freedom of Information
D 240 Torts to Land Accommodations O 530 General 2 USC 7609 Act
D 245 Tort Product Liability D 444 Welfsre D 535 Death Penalty
DEC 17 20D 900Appeal of Fee Determination
D 290 All Other Real Property O 445 Amer. w/Disabilities - D 540 Mandamus & Other Under Equal Access
Employment D 550 Civil Rights to Justice
0 446 Amer. w/Disabilities - O 555 Prison Condition CLARENCE MADDOO 950 Constitutionality of
Other CLERK U. S. DIST. State Statutes
0 440 Other Civil Rights S.D. OF FLA. • FT. L p,
V. ORIGIN (Place an "X" in One Box Only) Appeal to DistrictTransferred from Judge from
I Original O 2 Removed from O 3 Re-filed- O 4 Reinstated or Cl 5 another district O 6 Multidistrict O 7 MagistrateProceeding State Court (see VI below ) Reopened (specify) Litigation
Judgment
a) Re-filed Case DYES ONO b) Related Cases I'YES ONOVI. RELATED/RE-FILED ( Se.instruc[ionsCASE(S). second page): JUDGE Martinez
DOCKET Kadel v. Homebanc 07-61753NUMBER
Cite the U.S Civil Statute under which you are filing and Write a Brief Statement of Cause (Do not cite jurisdictional statutes unless
diversity):VII. CAUSE OF
15 U.S.C.^78j(b) (Securities Fraud)ACTION
LENG TH OF TRIAL via days estimated (for both sides to try entire case)
VIII. REQUESTED IN 10 CHECK IF THIS IS A CLASS ACTION DEMAND S CHECK YES only if demanded in complaint:
COMPLAINT: UNDER F.R.C.P. 23 JURY DEMAND: [jd Yes ff No
ABOVE INFORMATION IS TRUE & CORRECT T IGNATU E OF O)N OF RECORD DATETHE BEST OF MY KNOWLEDGE N,
6Ue^^ /Z- // ^FOR OFFICE USE O LY
AMOUNT RECEIPT# IFP