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Southeastern Pennsylvania Transportation Authority v. Orrstown Financial Services

August 20, 2012

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS
v.
ORRSTOWN FINANCIAL SERVICES, INC., ET AL., DEFENDANTS



The opinion of the court was delivered by: (Chief Judge Kane)

MEMORANDUM ORDER

This federal class action was filed on behalf of purchasers of the common stock of Orrstown Financial Services, Inc. ("Orrstown") in connection with Orrstown's February 23, 2010 Registration Statement and March 24, 2010 Prospectus Supplement, seeking to pursue remedies under the Securities Act of 1933, and on behalf of purchasers of Orrstown stock between March 24, 2010 and October 27, 2011, inclusive (the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934.*fn1 Presently pending before the Court is a motion for appointment as lead plaintiff and for approval of lead counsel filed by Southeastern Pennsylvania Transportation Authority ("SEPTA"). (Doc. No. 28.) For the reasons that follow, the Court will grant the motion.

I. BACKGROUND

According to the allegations of the complaint, Orrstown is a Pennsylvania holding company that owns and supervises its wholly owned subsidiary Orrstown Bank ("the Bank"). (Doc. No. 1 ¶ 18.) The state-chartered Bank has twenty-one branches, twenty of which are located in Pennsylvania, and provides community banking services, including issuing consumer, commercial, residential, and agribusiness loans, within its geographic markets. (Id. ¶ 19.)

SEPTA's claims arise from Orrstown's common stock offering of 1,481,481 shares in March 2010. (Id. ¶ 50.) SEPTA alleges that, throughout the Class Period, Defendants issued materially false and misleading statements -- including in the February Registration Statement and the March Prospectus Supplement -- regarding the Bank's lending practices and financial results. (Id. ¶¶ 1, 5, 47, 51-59.) Specifically, Defendants allegedly failed to disclose to investors that: (1) the Bank's loan portfolio primarily consisted of risky, impaired loans; (2) the Bank's underwriting and credit administration policies, procedures, and controls were not stringent or conservative; (3) the Bank's credit risk management practices were not adequate; (4) the Bank failed to maintain internal controls and programs that would identify adequate allowances for loan and lease losses; and (5) the Bank's management was not sufficient. (Id. ¶¶ 5, 7, 47, 54; see also Doc. No. 29 at 7.) Moreover, SEPTA alleges that Orrstown purposefully misled purchasers of the common stock about these matters, thereby causing the stock to trade at artificially inflated prices during the Class Period. (Doc. No. 1 ¶¶ 5, 10, 116, 122, 129, 133.)

SEPTA asserts that investors were not aware of Orrstown's practices and financial status until Orrstown released financial quarterly results and a letter to investors on October 27, 2011. (Id. ¶ 6; see also Doc. No. 29 at 8.) On this date, "Orrstown shocked the market with news that because of its tremendous losses, it was suspending its dividend indefinitely at the direction of the federal banking regulator. In reaction to this news . . . Orrstown's share price fell by $3.91 per share, or 29.6% . . . ." (Doc. No. 1 ¶ 6.) According to SEPTA, "it was the news of regulator involvement coupled with poor financial results that devastated the stock price." (Id.)

SEPTA purchased 14,574 shares of Orrstown common stock, expending total net funds of $369,053.37 during the Class Period. (Doc. No. 29 at 13.) Due to the artificial inflation of the cost of these shares, SEPTA allegedly suffered losses of approximately $250,404. (Id. at 13-14.)

II. APPOINTMENT OF LEAD PLAINTIFF

The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides that within twenty days of filing a class action, the filing plaintiff "shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class" of the following information: (1) the pendency of the action; (2) the claims asserted; (3) the purported class period; and (4) the members' right to move the court to serve as lead plaintiff of the purported class "not later than 60 days after the date on which the notice is published." 15 U.S.C. §§ 77z-1(a)(3)(A)(i), 78u-4(a)(3)(A)(i). After considering all motions for appointment as lead plaintiff filed in response to the notice, the district court shall then "appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members . . . ." 15 U.S.C. §§ 77z-1(a)(3)(B)(i), 78u-4(a)(3)(B)(i). Under the PSLRA, there is a rebuttable presumption that the most adequate plaintiff is the person or group of persons that:

(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(I);

(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and

(cc) otherwise satisfies the requirements of Rule 23 of the Federal

Rules of Civil Procedure.

Id. ยงยง 77-z1(a)(3)(B)(iii)(I), 78u-4(a)(3)(B)(iii)(I). The presumption may be rebutted "only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff" either "will not fairly and adequately protect the interests of the class" or "is subject to unique defenses that render such plaintiff incapable of ...


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