memorandum in response to pretrial order no. 38 - order t - Lehman ...

Case 1:09-md-02017-LAK-GWG Document 1047 Filed 11/13/12 Page 1 of 6In reUNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORKLEHMAN BROTHERS SECURITIES ANDERISA LITIGATIONThis Document Applies To:Civil Action 09 MD 2017 (LAK)ECF CaseFifty-Ninth Street Investors LLC and Arthur NAbbey v. Fuld, et al., 11 Civ. 4278 (LAK)AviSchron and Adina Schron, JTWROS v. Fuldet al., 11 Civ. 5112 (LAK)PLAINTIFFS' MEMORANDUM IN RESPONSE TOPRETRIAL ORDER NO. 38 - ORDER TO SHOW CAUSEABBEY SPANIER RODD& ABRAMS, LLP212 East 39 th StreetNew York, New York 10021(212) 889-3700Attorneys for Plaintiffs Fifty-Ninth Street Investors LLC,Arthur N Abbey, Avi Schron and Adina Schron, JTWROSDated: November 13, 2012

Case 1:09-md-02017-LAK-GWG Document 1047 Filed 11/13/12 Page 3 of 6Lehman Brothers Securities and ERISA Litigation, 799 F. Supp. 2d at 258, 283 (S.D.N.Y. 2011),as well as class plaintiffs' adequate allegations of scienter, Id. at *292-96, should apply here. TheIndividual Defendants seek dismissal because "the Examiner's Report concluded that 'a trier offact could find that [Repo 105 transactions] were used to create a materially misleading pictureof [Lehman's] financial condition only beginning in late 2007.'" Br. at 6. That identicalargument has been rejected. In re Lehman Bros. Sec. & ERISA Litig., No. 09 MD 2017 (LAK),2012 U.S. Dist. LEXIS 148177, at *45 (S.D.N.Y. Oct. 15,2012) (the Court "declines to limit thetime period with respect to which plaintiffs may seek relief for the alleged failure to disclose theRepo 105 transactions on the basis of the Examiner's opinion.,,).2The Individual Defendants also contend that the misleading or omitted information in theOffering Memo cannot be attributed to them because they did not participate in the offer or saleof the Warrants andlor sign the Offering Memo. The ruling in the EID Class Action is dispositivehere because this Court determined that the Individual Defendants could be held liable forstatements made in Lehman's financial filings that were also incorporated by reference inoffering materials. Lehman, 799 F. Supp. 2d at 264. See Centaur Classic Convertible ArbitrageFund Ltd. v. Countrywide Fin. Corp., 793 F. Supp. 2d 1138 (C.D. Cal. 2011)(finding thatplaintiffs had adequately alleged that individual defendants misrepresented and omitted materialfacts concerning Countrywide's business practices and performance in SEC filings which wereincorporated by reference into an unregistered, privately placed offering memorandum).The AC's substantially mirror the EID Class Action in alleging that E&Y acted withscienter and issued false audit opinions and review reports on Lehman's financial statements,which were not fairly stated and did not comply with GAAP. ~~47, 61-70, 85. Lehman Bros.,2 Plaintiffs in the EID Class Action alleged that Lehman's 2Q 2007 lO-K, filed on July 10, 2007, repeatedinformation contained in its June 12, 2007 Form 8-K. EID Class Action TAC ~44. The June 12, 2007 8-K wasincorporated by reference in the Offering Memo and was issued prior to the June 29, 2007 private placement.2

Case 1:09-md-02017-LAK-GWG Document 1047 Filed 11/13/12 Page 5 of 6Offering Memo, which incorporated Lehman's false and misleading SEC filings. ~~26-27.Asexplained in Plaintiffs' opposition briefing, the reliance element for Section lOeb) liability issatisfied in this case by the Defendants' alleged material omissions. See Stoneridge Inv.Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 159 (2008) (citing Affiliated Ute Citizensof Utah v. United States, 406 U.S. 128, 154 (1972)). Plaintiffs' reliance was reasonable andDefendants' have failed to show that Plaintiffs could have learned the truth about Lehman's useof fraudulent Repo 105 transactions through any reasonable investigation.Just like the plaintiffs in the EID Class Action, Plaintiffs have adequately alleged thatLehman's misstatements and omissions with respect to the Repo 105 transactions caused theirlosses. See ~~2, 4, 27, 34, 47, 50, 77. Plaintiffs submit that the Lehman bankruptcy represented a"materialization of the concealed risk" that had been hidden from investors by Defendants'omissions and misrepresentations in the Offering Memo. Based on its prior holding, this Courtshould reject the Individual Defendants' argument that Plaintiffs cannot prove loss causationbecause of the "impact of the financial crisis on Lehman and peer institutions." Br. 14-16;Lehman Bros., 799 F. Supp. 2d at 304-06. ("Even granting arguendo the contribution toLehman's demise of the market-wide circumstances to which defendants refer, the existence ofsuch a causative factor would not of itself exclude a sufficient causal connection between thealleged misstatements and omissions and a portion of the losses plaintiffs sustained.,,).4Plaintiffs respectfully submit that the Court's findings in the EID Class Action andCalifornia Actions should apply to this case, and that Defendants' motions to dismiss should bedenied and a discovery schedule should be fixed as soon as possible.4 The Individual Defendants do not challenge that Plaintiffs have adequately alleged control for purposes of Section20(a). Since Plaintiffs have pled facts sufficient to state a Section lOeb) claim, ~91, the control person claimsagainst the Individual Defendants should also be sustained. The Defendants' motion to dismiss Plaintiffs' commonlaw claim for fraud should also be denied for the reasons set forth herein and in Plaintiffs' previous briefing.4

Case 1:09-md-02017-LAK-GWG Document 1047 Filed 11/13/12 Page 6 of 6Dated: November 13, 2012Respectfully submitted,ABBEY SPANIER RODD& ABRAMS, LLPBy: /s/ Stephen T. RoddStephen T. Rodd, Esq.Richard B. Margolies, Esq.212 East 39 th StreetNew York, NY 10016Tel.: 212-889-3700Fax: 212-684-5191Attorneys for Plaintiffs Fifty-NinthStreet Investors LLC,Arthur N Abbey, Avi Schron andAdina Schron, JTWROS5