Jan. 31--A class-action lawsuit has been filed against Triad Guaranty Inc. and its current and former top executive by stockholders claiming that the officials violated federal securities laws.

The lawsuit was filed Thursday on behalf of plaintiff James Phillips in the U.S. District Court for the Middle District of North Carolina. Four law firms are a party to the lawsuit, with others expected to join.

Stockholders affected are those who bought the common stock of Triad from Oct. 26, 2006, when the share price was $53.27, through Nov. 10, 2008, when the share price was 88 cents.

Besides the company, Mark Tonnesen, its former chief executive and president, and Ken Jones, its current chief executive and president, were named in the lawsuit. Tonnesen led Triad for three years before announcing an early retirement July 18 that was effective Aug. 15. Jones took over Oct. 22.

The company said yesterday in a statement that "it believes the plaintiff's allegations are without merit and intends to vigorously contest the action."

The lawsuit accuses Triad of "issuing materially false statements concerning the company's business and financial results" in quarterly earnings reports and other statements.

Those comments led stockholders to buy the company's common stock "at prices that were artificially inflated," the lawsuit said.

The lawsuit alleges that the defendants failed to disclose that Triad "was not adequately accounting for loss reserves in violation of generally accepted accounting principles (GAAP), causing its financial results to be materially misstated."

The lawsuit also alleges that Triad failed to use proper underwriting practices for its insurance written in 2006 and 2007, including the insurance related to its Alt-A and pay-option adjustable-rate mortgage products.

Triad also was accused of having "far greater exposure to anticipated losses and defaults related to insurance written in 2006 and 2007 than it had disclosed."

The lawsuit is the latest major development at Triad, which analysts have described as the first major mortgage insurer to fall victim to the national housing crisis.

As have most mortgage insurers, Triad Guaranty has been hit hard by the sharp rise in delinquencies and foreclosures in overheated real-estate markets, such as California, Florida, Georgia and Nevada.

In reaction to the collapse of the talks with potential partner Lightyear Capital LLC last summer, the company has cut at least 40 percent of its work force, or 100 jobs.

The company discontinued writing new mortgage-insurance business July 15. It is conducting "an orderly transition of its business to runoff," which means that the company's revenue will come from existing policies until they expire. The company has said it expects to exist for another six to 11 years.

Tony Plath, a finance professor at UNC Charlotte, said that class-action lawsuits, such as the one filed against Triad, have become common in the current economic environment.

"I don't know that you can accuse Triad of reckless misrepresentation, but you can sure accuse them of excessive optimism in the face of a total market collapse," Plath said.

Michael Lord, an associate professor of management at Wake Forest University, said he expects to see similar lawsuits filed against financial firms.

"For example, first Wachovia and now Bank of America both seem to have grossly misrepresented the health of their firms, and shareholders have suffered horribly," Lord said. "More observers are starting to call for criminal or at least civil action against more financial firms and their executives. Many of them have played roulette with people's life savings -- and lost."

But Lord cautioned that "typically, very little is recovered for shareholders, though the attorneys often do well for themselves."

Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.

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