Suit Triggers Presley Cos. Stock Plunge

Presley Cos. posted the biggest percentage loss on the New York Stock Exchange Friday after an announcement of a class-action lawsuit by stockholders against the home-building firm.

Presley’s stock lost 26% of its value in a single day of trading. It closed at $2.875 a share, down $1, on heavy trading volume of 1.1 million shares. The closing price was a new low for the stock.

The selloff was apparently triggered by a press release issued by the Newport Beach company Thursday about a class-action suit filed against it stemming from October’s initial public offering of the company’s stock. The suit, filed earlier this month in U.S. District Court in Santa Ana by San Diego lawyer William S. Lerach, alleges that stockholders were defrauded when the company failed to disclose in its prospectus its true financial condition.

The shares, issued at $10 apiece, hit a high of $17.25 earlier this year.

“Based on the company’s initial review of the complaint, it believes the allegations to be without merit and intends to vigorously defend the action,” Presley said in a statement.

One market watcher said Friday’s price drop is evidence of the crisis facing Presley and several other large home builders, which are caught with large tracts of expensive land at a time when there are few buyers for mid- and high-priced homes.

“I think they’re in big trouble,” said Charles Biderman, editor of the Market Trim Tabs investor newsletter, based in Santa Rosa. “In their last public filing, it looked as if they were at the end of the borrowing limit in terms of how much they can get from their bank. They were forced to admit they might not be able to refinance” the debt on the land holdings.

On Aug. 11, investors sold more than 700,000 shares of Presley stock, driving down the price by 30%. That selloff came a day after the company announced that certain real estate holdings had declined in value by an estimated $26 million.