Sunday, September 26, 2010

Suit Against Sallie Mae Proceeds

The Wall Street Journal

 
SLM Corp., which is better known as Sallie Mae, and its chief executive must defend a shareholder lawsuit over alleged misstatements about the company's financial health, a federal judge has ruled.

The lawsuit, which is seeking class-action status, claimed Sallie Mae misled the investing public about its financial performance in order to inflate its share price.

The alleged misleading statements related to the company's private-loan portfolio and its underwriting standards for those loans, which aren't backed by the federal government.

The lawsuit also claims the company inflated its profits through inadequate loan-loss reserves. Those inflated profits were reported between January 2007 and November 2007.

Separately, U.S. District Judge William Pauley III in Manhattan also dismissed a similar lawsuit brought on behalf of participants in Sallie Mae's 401(k) plan.

The lawsuit claimed Sallie Mae's stock was an imprudent investment between January 2007 and September 2009, in part because of its expansion of private loans to students who attend nontraditional or for-profit schools.

A Sallie Mae spokeswoman didn't immediately to a request for comment late Friday.

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