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Special Reports
Return of Subprime
FirstPlus Settles Investor Class Action Suits
DALLAS -- FirstPlus Financial Group Inc. here, once one of the high-flyers in
the subprime mortgage business, has settled the class-action lawsuits filed by investors against the company in
the wake of its downfall.
The U.S. District Court for the Northern District of Texas held a fairness hearing
in October, and FirstPlus completed its steps to implement the settlement on Nov. 24, 2003. Like many other firms
in the subprime business, FirstPlus ran into problems as a result of the October 1998 "flight to quality"
by investors who had been buying subprime paper. Before then, FirstPlus had been widely known through its relationship
with former Miami Dolphin quarterback Dan Marino and its sponsorship of a NASCAR racing team.
The company conducted massive layoffs and attempted to enter into several transactions
looking for a savior (including proposed deals with Apollo Financial and the former parent of Superior Bank FSB,
the thrift once controlled by the Pritzker family).
After those failed, in June 2002 FirstPlus entered into a transaction with another
well-known name in the subprime world, Jack Roubinek.
Under that deal, CL Capital Lending, Dallas, acquired 25,639 convertible preferred
shares of FirstPlus stock.
Mr. Roubinek was the founder of CL Capital Lending.
In return, FirstPlus acquired over 40% of CL Capital Lending. Mr. Roubinek controlled
27.4%, while Daniel T. Phillips, chairman and chief executive of FirstPlus had control of a similar amount (separate
from the FirstPlus interests).
The settlement agreement virtually unwinds the preferred stock sale transaction.
There will be a cash settlement of $5 million, plus a transfer of a 10% ownership
interest in Capital Lending Strategies LLC (as the company is now known) to an escrow account to benefit those
who have claims against FirstPlus.
The remainder of the Capital Lending interests held by FirstPlus will be transferred
back to the company in return for the 25,639 preferred shares. These shares gave Capital Lending 51% of the voting
stock of FirstPlus.
As part of the stipulations for the settlement, Mr. Phillips has resigned his
post as chief executive, but remains a director of FirstPlus. Mr. Roubinek has resigned as a director of FirstPlus.
The new president, chief executive and chief financial officer of FirstPlus is
J.D. Draper.
The co-lead counsel for those investors who sued FirstPlus will receive 30% of
the settlement fund, plus $394,000 in reimbursement for expenses.
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