On May 7, 2009, a jury in the Northern District of Illinois reached a mixed verdict finding in plaintiffs’ favor on several counts in the Household International securities fraud class action. The trial will now move on to the damages phase. Prior to this verdict, only six other securities class actions that involve conduct after the passage of the PSLRA in 1995, have been tried to a verdict.
Originally filed in 2002, the operative complaint alleged that Household engaged in a "massive predatory lending scheme" that led to a $600 million financial restatement. In October 2002, Household International announced that it had entered into a $484 regulatory settlement regarding its lending practices.
According to various published reports, the jurors were asked to make specific findings with respect to 40 allegedly false and misleading statements. The jury found in favor of the defendants with respect to 23 of the statements. However, the jury found in favor of the plaintiffs with respect to 17 of the statements. The jury found that all four defendants acted recklessly with respect to the 16 statements on which the jury found in favor of plaintiffs. In addition, with respect to an additional statement (Statement No. 14), two defendants (Household and former Chairman and CEO William Aldinger) were found to have acted knowingly, one defendant (Gary Gilmore, the former Vice-Chair of Consumer Lending) was found to have acted recklessly, and one defendant (David Schoenholz, the former CFO and COO) was found not liable. With respect to the recklessly misleading statements, the jury assigned 55% of the responsibility to Household; 20% to Aldinger; 20% to Schoenholz; and 10% to Gilmer. The jury found that from March 23, 2001 (the date of Statement No. 14, with respect to which two of the defendants were found to have acted knowingly), the allegedly misleading statements inflated Household’s share price by as much as $23.94.
We will report on the outcome of the damages phase of the trial, or any settlement that results in the interim.