- Company Name
- Bank OZK
- Stock Symbol
- Class Period
- February 19, 2016 to October 18, 2018
- Motion Deadline
- December 25, 2018
- Eastern District of Arkansas
The complaint charges Bank OZK and certain of its officers with violations of the Securities Exchange Act of 1934. Bank OZK is a retail and commercial bank with several subsidiaries focused on investment securities, development of real estate, and ownership of private aircraft.
The complaint alleges that defendants made materially false and misleading statements and/or failed to disclose material adverse facts about the Company’s business, operations and prospects. Specifically, defendants failed to disclose to investors that the Company lacked adequate internal controls to assess credit risk, that, as a consequence, certain of the Company’s loans posed an increased risk of loss, and that certain substandard loans were reasonably likely to lead to charge-offs. As a result of defendants’ false statements and/or omissions, Bank OZK securities traded at artificially inflated prices during the Class Period, with the Company’s stock price reaching a high of more than $55 per share.
However, concerns about Bank OZK’s real estate portfolio began to surface in May 2016, when noted short-seller Carson Block (“Block”) of Muddy Waters revealed a short position in the Company. Block contended that Bank OZK’s construction-loan business was lending out more money than it could support in off-balance-sheet construction. The publication of the Muddy Waters report on May 4, 2016 caused Bank OZK’s stock price to decline by 11%. Subsequently, in July 2017, the Company’s Vice Chairman and Chief Lending Officer resigned, causing the price of Bank OZK stock to fall 12%.
Then, on October 18, 2018, the Company announced that its net income for the third quarter of 2018 was $74.2 million, a 22.7% decrease from the third quarter of 2017, and diluted earnings per common share for the third quarter of 2018 were $0.58, a 22.7% decrease from the third quarter of 2017, and reported that it had incurred combined charge-offs of $45.5 million on two Real Estate Specialties Group credits. Bloomberg noted that Bank “OZK reported . . . its expense for credit losses rose 439 percent to nearly $42 million, the result of two relatively large real estate loans, which had been on OZK’s books for more than a decade, going bad.” Barron’s reported that “[i]nvestors are giving up on Bank OZK after the regional lender revealed real-estate charge-offs that an analyst said were equivalent to nearly four times total historical losses from the unit that made the loans.” And short-seller Block, commenting on the October 18, 2018 announcement, stated: “‘We shorted OZK because we felt it had been taking outsized credit risks in order to fuel growth post financial crisis.’” Block continued, stating that “‘[t]hese charge-offs from 10-plus year-old loans are a stunning warning that belie the OZK fairy tale of being the only bank that knows how to grow rapidly through construction lending without taking undue credit risk.’” This news caused the price of Bank OZK stock to decline $9.33 per share, or more than 26%, to close at $25.52 per share on October 19, 2018.