First Alliance Corp

A federal appeals court on Friday upheld a jury's decision that Wall Street giant Lehman Bros. Holdings Inc. was liable for aiding and abetting a carefully scripted fraud committed against elderly and financially strapped homeowners by a now-defunct Irvine mortgage firm. The 9th Circuit Court of Appeals in San Francisco ruled that the federal jury in Santa Ana had decided correctly in 2003 that Lehman Bros. shared blame for the fraud perpetrated by First Alliance Corp.

The long-awaited legal battle between embittered customers of First Alliance Corp. and Lehman Bros., the Wall Street firm that bankrolled the now-defunct Irvine lender, got underway in earnest Tuesday as lawyers traded charges about First Alliance's business practices -- and how much Lehman knew about them.

Desire to dominate the lucrative mortgage securities market caused Lehman Bros. to bankroll First Alliance Corp., even though the Wall Street firm knew the now-defunct Irvine lender was systematically swindling older homeowners, a lawyer for First Alliance customers told a jury Thursday. Wrapping up a three-month fraud trial before U.S. District Judge David O. Carter in Santa Ana, attorney Richard Scruggs called the case "a shameful exploitation" of people under economic stress.

Hard-luck former customers of First Alliance Corp. make sympathetic witnesses, but there is too little evidence to link the defunct Irvine mortgage company's Wall Street backer, Lehman Bros., to systematic fraud, defense attorneys told jurors Friday at a class-action trial seeking damages from Lehman.

Prudential Financial Inc. can't be sued for aiding and abetting alleged predatory lending by now-defunct First Alliance Corp. because the events occurred too long ago to bring a lawsuit, a U.S. judge in Santa Ana ruled this week. Prudential was sued for financing Irvine-based First Alliance, formerly one of the nation's largest lenders to people with bad credit, from the mid-1990s to 1998.

A federal jury Monday held Lehman Bros. Holdings Inc. accountable for fraud at an Irvine mortgage company it helped finance, saying the investment bank aided and abetted a First Alliance Corp. scheme to cheat borrowers. The verdict marked the first time a financial backer of an abusive lender has been held liable, carving out a new area of vulnerability for Wall Street.

Lehman Bros. Holdings Inc. doesn't have to return $83 million it collected as a creditor in First Alliance Corp.'s bankruptcy case, a federal judge in Orange County ruled last week. U.S. District Judge David O. Carter denied a bid by the First Alliance bankruptcy trustee to force Lehman to return the money, which represented $77 million in loans plus interest. The trustee had argued that Lehman aided fraud at the now-defunct mortgage lender.

Irvine consumer finance company First Alliance Corp. reported net income of $781,000, or 4 cents a share, for the second quarter, which included a $4.5-million write-down in the value of residual interests. A year ago, the company earned $7.9 million, or 36 cents a share. Revenue dropped 32% to $15.8 million from $23.2 million. For the first half, net income declined 49% to $8 million, or 39 cents a share, from $15.6 million, or 70 cents a share, for the first six months last year.

A shareholder sued Irvine-based First Alliance Corp., alleging that the sub-prime mortgage lender misrepresented operating results and business prospects. The complaint, filed in Orange County Superior Court, charges that certain directors and officers sold the company's stock at inflated prices. The suit seeks class-action status on behalf of investors who bought First Alliance stock from April 24, 1997, to May 28, 1998.

First Alliance Corp.'s bid to acquire a savings and loan for up to $11 million died Monday after federal regulators failed to give their approval to the planned purchase of Standard Pacific Savings. First Alliance, an Irvine mortgage banking company, and the nearly dormant Newport Beach thrift had set Jan. 31 as the deadline for completing the transaction. That date had been extended from a Dec. 31 deadline.