Joint Declaration of Stickney and Kessler in Support of Motion for ...

Case 1:09-md-02017-LAK Document 807 Filed 03/08/12 Page 38 of 63
board meetings, receipt of management reports on various aspects of Lehman’s plans and
operations, and specifically reviewing financial and risk issues at both the Board and Board
Committee levels. See, e.g., Examiner’s Report at 55, 148-49, 633, 803, 947 n.3653, 1460
n.5633, 1484-87, App. 8 at 22-23; see also 194 (the Director Defendants “plainly implemented a
sufficient reporting system and controls”). This defense is an issue for trial necessitating expert
testimony. Likewise, the D&O Defendants relied upon the findings in the Examiner’s Report
(see, e.g., Examiner’s Report at 56, 195, 945) to argue that they “had no reasonable ground to
believe and did not believe” that the statements in the expertized portion of the registration
statement were untrue or contained material omissions. 15 U.S.C. § 77k(b)(3)(C). According to
the D&O Defendants, Lehman’s public auditor, E&Y, knew about the Repo 105 transactions,
issued an unqualified audit opinion certifying that financial statements included in Lehman’s
2007 Form 10-K were prepared in accordance with GAAP and fairly presented Lehman’s
financial condition in all material respects, and issued statements in Lehman’s quarterly reports
stating that it was not aware of any material modifications that should be made to Lehman’s
financial statements for them to conform with GAAP. See ECF No. 263, July 27, 2011 Opinion
at 63 (“They point to the fact that E&Y knew about Lehman’s Repo 105 transactions and
approved of their use and the accounting for them.”). This “expert reliance” defense for the
D&O Defendants is also an issue for trial requiring expert testimony.
(b)
Under Section 11(e) of the Securities Act, damages may be reduced or eliminated
if the defendant proves that a portion or all of the statutory damages are attributable to causes
other than the alleged misstatements or omissions. Throughout the litigation, the D&O
Defendants asserted – and were expected to continue to assert through summary judgment and
trial – that causes other than the alleged untrue statements and omissions were to blame for the
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