Suit says Impac misled investors
By COCO SALAZAR
1/12/2006

Shareholders are suing a California-based real estate investment trust, claiming they were lied to about the true financial condition of the company.

Wechsler Harwood has filed a class action suit on behalf of all investors who purchased securities of Impac Mortgage Holdings Inc. from May 13, 2005, through Aug. 9, 2005, according to an announcement Tuesday.

The complaint against the REIT and some senior officers and directors, including Chairman and Chief Executive Joseph R. Tomkinson, alleges that, during the class period, they caused Impac's "common stock to trade at artificially inflated prices through the issuance of false and misleading statements."

Impac General Counsel Ron Morrison told MortgageDaily.com it was still too early to respond to the accusations because "we really haven't been served with the complaint."

On May 13, the Newport Beach, Calif.-based lender reported first quarter 2005 net earnings had increased to $173.6 million -- $164.2 better than a year earlier. Impac cited the upturn was primarily due to a change in the value of the derivative instruments.

"While we have been operating in a very challenging interest rate and regulatory environment, we continue to believe that our fundamentals are solid and long term prospects for the company remain positive." Tomkinson said in the May announcement.

However, Impac "was unabashedly positive in its public statements," knowing but failing to "reveal that material indicators of the company's true financial condition would be lower than expected for the second fiscal quarter of 2005," Wechsler said in the announcement. "Rather than disclose this adverse information to investors, company insiders ... took the opportunity to sell more than 300,000 shares of their personally held company stock, reaping more than $5.5 million in proceeds."

On Aug. 9, the nonprime lender reported a second quarter net loss of $55 million, attributing the annual decrease in earnings to a $97.7 million unrealized mark-to-market change in the fair value of its derivative instruments. Impac noted the mortgage industry continued experiencing net interest margin compression, continued flattening of the yield curve, heightened prepayment speeds and competitive pricing pressures.

"Until market conditions definitively change, we believe that it is in the best interest of our stockholders to decrease our quarterly common stock dividend to a level that current and projected future estimated taxable income can support," Tomkinson said in the late-summer statement.

Impac forecasted a reduced dividend of 50 cents to 60 cents a share in the third quarter, from the previous $0.75. "On this news, shares plunged approximately 40% from a Class Period high of $22.32 to close at $13.46 on August 10, 2005, on volume of nearly 6.5 million shares -- or roughly 13 times above average daily volume," Wechsler said in the announcement.

Impac shares closed Wednesday at $9.66, nowhere near the $28 predicted by Roth Capital Partners a year ago. The analyst raised its ratings on Impac shares at the time because total assets in December 2004 quarter had exceeded projections.

Three months ago, Impac announced it would buy back up to 5 million shares of its common stock. With shares trading at a discount to book value, management believed the repurchase plan was "both prudent and accretive to earnings."


*MortgageDaily.com Publisher Sam Garcia holds shares of Impac

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