Lockridge Grindal Nauen P.L.L.P. Seeks to Recover Losses for Investors Who Purchased or Otherwise Acquired Publicly Traded Common Stock of NovaStar Financial, Inc. -- NFI


MINNEAPOLIS, March 6, 2007 (PRIME NEWSWIRE) -- On March 5, 2007, Lockridge Grindal Nauen P.L.L.P. filed a class action suit in the U. S. District Court for the Western District of Missouri against NovaStar Financial, Inc. ("NovaStar" or the "Company") (NYSE:NFI) and certain of its officers and directors, on behalf of all persons or entities who purchased or otherwise acquired the publicly traded common stock of NovaStar between May 4, 2006 and February 20, 2007, inclusive (the "Class Period").

The Complaint alleges that on February 20, 2007, the Company disclosed that: (i) its credit performance deteriorated during the fourth quarter of 2006, resulting in impairments on mortgage securities and additional loss provisions for loans; (ii) it experienced a greater level of loan repurchase requests due to early payment defaults than it had historically; (iii) it expected to recognize little, if any, taxable income for 2007 through 2011 and management is currently evaluating whether it was in shareholders' best interest to retain the company's REIT status beyond 2007; and (iv) the Company was "tightening" its underwriting guidelines.

On February 21, 2007, in reaction to NovaStar's disclosure, its shares declined from $17.56 per share at the close of trading on February 20, 2007, to close at $10.10 per share, a one-day decline of approximately 42%, on heavier than usual volume.

The Complaint alleges that during the Class Period, defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by publicly issuing a series of false and misleading statements regarding the Company's business and financial results, thus causing NovaStar's publicly traded common stock to trade at artificially inflated prices. According to the Complaint, during the Class Period, defendants knew or recklessly disregarded that: (i) NovaStar lacked adequate internal controls, and, as a result, the Company's guidelines and appraisal review process were inadequate to gauge risk involved in its lending practices; (ii) NovaStar's financial statements were materially false and misleading due to its failure to properly account for its allowance for loan losses; (iii) due to the deterioration of the credit performance of its portfolio, NovaStar would be forced to: a) record impairments on mortgage securities and additional loan provisions; and b) to repurchase a greater level of loans due to defaults; and iv) as a result of these adverse conditions, NovaStar could not reasonably expect to report taxable income for the period 2007 through 2011, thus endangering its dividend and continued status as a REIT.

If you are a member of the proposed Class, you may move the Court, no later than April 24, 2007, to serve as a lead plaintiff for the Class. You need not seek to become a lead plaintiff in order to share in any possible recovery. Plaintiff seeks to recover damages on behalf of the Class and is represented by Lockridge Grindal Nauen P.L.L.P. If you have questions about the lawsuit or would like to discuss it with an attorney, please call or e-mail:



            Karen H. Riebel, Esq. (khriebel@locklaw.com) 
            Lockridge Grindal Nauen P.L.L.P.
            100 Washington Avenue South, Suite 2200
            Minneapolis, MN  55401
            (612) 339-6900

More information on this and other class actions can be found on the Class Action Newsline at www.primenewswire.com/ca



            

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