Toll Brothers in US$ 25 million class action settlement

09 November 2010

US luxury house builder Toll Brothers has paid US$ 25 million to settle a long-running class action lawsuit accusing it of misleading investors over its financial health during the downturn in the housing market.

Court documents filed on 28 October reveal that the parties agreed to settle after weighing up their options during mediation.

The Toll Brothers case was among the first of the subprime-related securities suits when it was filed in April 2007. The house builder had moved to dismiss the complaint that year, but the court denied this motion and allowed the class action to proceed.

The complaint alleged that Toll Brothers - which specialises in building large, expensive homes for high-end buyers - made a series of false and misleading statements indicating that its business model was immune from the adverse economic conditions affecting the mainstream housing market.

The complaint states: "Contrary to the positive statements defendants were making publicly they knew that a number of adverse developments were negatively impacting their business and signalling much slower growth than they were leading investors to expect."

Shortly after a 2005 stock sale which netted the company over US$ 617 million, Toll Brothers' share price plummeted 43 percent from its class-period high. The company revealed in a series of disclosures that deteriorating demand for luxury homes in the US had in fact lead to a decline in sales.

According to the settlement stipulation, the investors reached the decision to settle after recognising the "expense, length and complexity of continued proceedings".

US district Judge Daniel Jones stipulated in the filing that the US$ 25 million be paid to investors who bought Toll Brothers shares between 9 December 2004 and 8 November 2005.

Toll Brothers denies all wrongdoing in reaching the settlement - an agreement which is subject to court approval.

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