Several class actions have been filed against specialty finance company NovaStar Financial, Inc. (NYSE:NFI) and certain of its officers and directors by stockholders who purchased the company's common stock between October 29, 2003, and April 8, 2004. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.

The action alleges that during the applicable period, the company’s shares were artificially inflated, hitting a high of $67 per share because the defendants created the illusion that the number of NovaStar offices was increasing and record results would follow. In an attempt to finance the company through stock sales, the defendants allegedly overstated the actual number of offices NovaStar operated in numerous states. The action further alleges that: (1) the company’s growth through branch office expansions was grossly overstated; (2) many offices were illegally conducting business in Nevada and elsewhere; (3) the company’s projected growth would see a downturn once regulators unearthed the defendants’ unlawful business; (4) the company actually exaggerated the number of its branches in existence-- for example, NovaStar overstated its number of Nevada branches by 120%; and (5) that the full extent of the defendants’ unlawful practices are only beginning to be known. The last allegation is allegedly being borne out in the fact that It has just been reported that none of NovaStar’s branches in Texas are licensed to do business.

As a result of the defendants’ allegedly false statements, NovaStar stock traded at inflated levels during the applicable period, increasing to as high as $67 on March 22, 2004, when the company sold more than $107 million worth of its shares to the unsuspecting public.

If you purchased securities issued by NovaStar during the applicable period, you may request appointment by the court as a lead plaintiff if you do so by June 14, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiffs. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve as you in this action, or you may choose to do nothing, and remain in the class as a silent member.