Declaration of Frank C. Torchio for Settlement Purposes

Case 2:07-cv-05295-MRP -MAN Document 987-4 Filed 10/11/10 Page 21 of 721 Page ID
#:39209
Purchased or otherwise acquired Countrywide Capital V 7%
Securities (“the Capital Securities subclass”); or
Purchased or otherwise acquired Countrywide Financial
Corporation Series A Medium-Term Notes, Series B Medium
Term Notes, 6.25% Subordinated Notes Due May 15, 2016, Series
L Medium-Term Notes (limited to CUSIP nos. 22237LNR9 and
22237LPA4), and Series M Medium-Term Notes (limited to
CUSIP no. 22237LPM8) (“the debt securities subclass”). 17
40. In so certifying the Class, the Court ruled that Plaintiffs are entitled to the
presumption of market efficiency for those securities described above. My analysis below is
predicated on the Court’s ruling that the market for the securities indicated in the Court’s opinion
were informationally efficient throughout the Class Period. If Defendants raise new arguments
against market efficiency despite the Court’s ruling, I will respond to such arguments in my
rebuttal report.
VII. LIABILITY THEORY ASSUMED FOR DAMAGES
41. The quantification of damages is relevant only if the trier of fact finds in favor of
Plaintiffs regarding liability. Consequently, for the purposes of calculating damages, I assume
that the Defendants will be found liable for the alleged misconduct, misrepresentations and
omissions that are alleged by Plaintiffs. Plaintiffs allege that Defendants violated the federal
securities laws by making materially false and misleading statements during the Class Period.
Plaintiffs’ liability theory is encapsulated in the Summary of Findings in the Report of Professor
Richard K. Green, which I include in Exhibit 4. I list relevant excerpts from Professor Green’s
summary of his opinion which explains the economic effects of the alleged fraud.
I find that during the Class Period, Countrywide’s portfolio of loans held for
investment became increasingly risky.
17 December 9 Opinion at pp. 78-79, footnote omitted.
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