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Judge Seeks Specifics in First Alliance Suit

July 30, 2002|From Bloomberg News

First Alliance Corp. customers who claim Prudential Financial Inc. and Wachovia Corp.'s First Union helped the mortgage lender deceive them must add more specifics to their lawsuit, a federal judge ruled Monday.

At a hearing in Santa Ana, Judge David O. Carter told the plaintiff's attorney, Richard Scruggs, to submit a new complaint that details how the First Alliance mortgage customers learned of the fraud they claim was committed by Prudential and First Union.

First Alliance, formerly one of the nation's largest lenders to people with spotty credit, agreed in March to pay as much as $60 million to settle Federal Trade Commission charges that it deceived borrowers. First Alliance targeted customers with poor credit histories and failed to give accurate information about the costs of their loans, the agency charged in its 2000 lawsuit.

"We are very confident" we can rewrite the complaint to Carter's specifications, said Scruggs, a Mississippi lawyer who helped negotiate a settlement in 1998 between state attorneys general and tobacco companies.

First Union and Prudential couldn't immediately be reached for comment.

The consumer suit, filed in February by First Alliance customers, says the financial service companies extended lines of credit to First Alliance when the mortgage company engaged in predatory lending. The plaintiffs, who plan to seek class-action status, are asking for unspecified damages.

The FTC settlement doesn't prevent customers from pursuing suits against First Alliance's bankers, who funded the mortgages and bundled them for sale as securities.

Irvine-based First Alliance filed for Chapter 11 bankruptcy protection in 2000. The company blamed the bankruptcy filing in part on "unwarranted negative publicity." First Union is a unit of Wachovia. Shares of its Charlotte-based parent rose $1.82 to $35.25. Newark, N.J.-based Prudential shares rose $1.94 to $32.20, both on the New York Stock Exchange.

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