Chitwood & Harley LLP Charges NovaStar Financial with Securities Fraud and Explains Varying Class Periods Alleged.

Business Editors

ATLANTA--(BUSINESS WIRE)--April 16, 2004

Chitwood & Harley LLP announces that it has sent for filing a securities fraud class action complaint against NovaStar Financial, Inc. (NYSE:NFI)("NovaStar Financial" or the "Company"), Scott Harmon and Lance Anderson on behalf of purchasers of NovaStar securities between November 3, 2003 and April 12, 2004. A copy of the complaint is available from the U.S. District Court, Western District of Missouri, and is on our website, www.classlaw.com.

Other actions charging NovaStar with securities fraud have also alleged, and some list a different class period. Ultimately, all of the putative class actions being filed against NovaStar that arise from a common set of facts will likely be consolidated by the Court into one proceeding, in which a lead plaintiff will be appointed by the Court. Lead Plaintiff and Lead Counsel will thereafter file a consolidated amended complaint which identifies the class period (i.e. the period of time during which plaintiffs contend the stock price was artificially inflated due to the defendants' fraud on the market) that will govern the proceeding, based on the information then available and their evaluation of the case. If you have questions about this case or wish to inquire about your rights in connection with this matter, you may contact us through our website, www.classlaw.com, by clicking on NovaStar, or by emailing or calling Lauren S. Antonino, Esq. at [e-mail] or 1-888-873-3999 ext 6888.

The complaint charges defendants with issuing a series of material misrepresentations to the market during the Class Period in violation of sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5. The complaint alleges that NovaStar issued press releases, and false financial reports with the SEC, reporting alleged record growth, supposedly on the strength of its core business. Unbeknownst to investors, however, the complaint alleges that the Company's growth had outpaced NovaStar's ability to maintain compliance with applicable regulations governing its business, thereby subjecting the Company to fines, regulatory action(s) and the serious, but undisclosed, risk that such non-compliance could materially and negatively impact the Company's ability to conduct business. Instead of disclosing these serious risks, and the fact that the Company had already been fined for noncompliance in two states, the complaint cites NovaStar for continuing to tout its alleged operational accomplishments in order to artificially inflate its stock price because it was planning two follow-on equity offerings to raise capital.

The Company's compliance problems were exposed by an article in The Wall Street Journal on April 12, 2004. In response to the announcement, the price of NovaStar common stock plummeted precipitously, closing at $37.50 per share on April 12, 2004, down from $54.18 per share on April 8, 2004 (the last trading day before the disclosure) -- a one day drop of 30.7% on unusually high trading volume.

Any member of the class who desires to be appointed lead plaintiff in the class action must file a motion with the Court no later than June 14, 2004 on their own or through counsel of their own choice. Class members must meet certain legal requirements to serve as a lead plaintiff. Please feel free to contact Lauren Antonino, Esq., at Chitwood & Harley, who will, without obligation or cost, attempt to answer questions concerning your rights with respect to this matter. You may also choose to do nothing and remain an absent class member.

Chitwood & Harley LLP is a class action firm that concentrates its practice in representing victims of securities fraud and corporate mismanagement, as well as other complex litigation. Chitwood & Harley has been appointed lead counsel in major actions throughout the United States and has been instrumental in recovering billions of dollars on behalf of its clients. Clients and courts alike have praised the results achieved by Chitwood & Harley. Recently, the federal judge in In re BankAmerica Securities Litigation, which resulted in one of the highest recoveries ever in a private securities class action, commented favorably on counsel's performance stating: "Class members were well served by experienced attorneys who, through considerable time and effort, obtained a significant recovery for their clients," and, "(a)s the Court has remarked throughout this litigation, class counsel...have performed at exceptionally high levels, and all parties have been exceedingly well represented."