A U.S. District Court judge in Baltimore dismissed all securities fraud claims Wednesday against the Ryland Group and its affiliates in connection with a real estate investment trust that went sour in 1989.
Judge J. Frederick Motz dismissed the claims of a class of investors who lost money on the purchase of the common stock of RAC Mortgage Investment Corp. He disagreed with the plaintiffs' contention that the prospectus issued for the sale of the securities failed to spell out clearly risks associated with the investment.
"The prospectuses did disclose in excruciating detail the fact that these securities are sensitive to changes in interest rates. We're pleased with the judge's decision," said Francis B. Burch Jr., the Baltimore lawyer who represented Ryland and its affiliates in the case.
Eugene Spector of Philadelphia, one of the attorneys representing disgruntled investors in RAC, expressed disappointment at the ruling.
"I'm certainly disappointed that Judge Motz has found this way," Mr. Spector said. "We probably will appeal."
Mr. Spector declined to put a dollar value on the extent of losses allegedly sustained by the investors.
Although the ruling by Judge Motz dismisses all securities fraud claims against Ryland and RAC, it will not undo an out-of-court settlement reached earlier this year between unhappy investors in RAC and New York-based Prudential-Bache Securities, underwriters of the RAC shares.
In that agreement, Prudential-Bache agreed to establish a $10 million fund to settle claims related to the sale RAC securities.
The RAC stock was originally sold in a February 1988 offering for $10 per share and traded as high as $11 per share later in 1988 before falling to a low of $2.62 in June of 1989.
The stock has recently traded at about $8 per share. There are 14 million shares outstanding.