Third Amended Complaint - Lehman Brothers Securities Litigation

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TABLE OF CONTENTSI. NATURE OF ACTION ...................................................................................................... 1II. JURISDICTION AND VENUE .......................................................................................... 2III. PARTIES AND RELEVANT NON-PARTIES .................................................................. 3A. Plaintiffs .................................................................................................................. 3B. Relevant Non-Parties ............................................................................................... 3C. Defendants ............................................................................................................... 4IV. CLASS ACTION ALLEGATIONS APPLICABLE TO ALL CLAIMS ........................... 5V. VIOLATIONS OF THE SECURITIES ACT ..................................................................... 7A. The Offering Materials Were Materially False And Misleading ............................ 8VI. CAUSES OF ACTION UNDER THE SECURITIES ACT ............................................. 41-i-Page1. The Offering Materials Failed To Disclose Lehman’s Repo105 Transactions ......................................................................................... 8a. Additional Material Misstatements AndOmissions Relating To Repo 105 .................................................. 15b. GAAP Violations Relating To Repo 105 ...................................... 182. The Offering Materials Misrepresented Lehman’s RiskManagement Practices ............................................................................... 203. The Offering Materials Contained Untrue StatementsRegarding Lehman’s Liquidity Risk And Risk Of Bankruptcy ................ 274. The Offering Materials Overstated The Value Of Lehman’sCommercial Real Estate Holdings ............................................................ 28a. Archstone Valuations .................................................................... 29b. PTG Asset Valuations ................................................................... 30c. Additional Facts Showing That Lehman’sCommercial Real Estate Holdings WereOvervalued .................................................................................... 325. The Offering Materials Failed To Disclose Lehman’s RiskConcentrations ........................................................................................... 33B. The Lehman/UBS Structured Product Offerings .................................................. 36
COUNT I Violations Of Section 11 Of The Securities Act Against TheSecurities Act Defendants ..................................................................................... 41COUNT II Violations Of Section 12(a)(2) Of The Securities Act AgainstDefendant UBS ..................................................................................................... 44COUNT III Violations Of Section 15 Of The Securities Act AgainstDefendants Fuld, O’Meara, Callan, Gregory And Lowitt ..................................... 45VII. VIOLATIONS OF THE EXCHANGE ACT .................................................................... 46A. Repo 105 Transactions .......................................................................................... 471. Lehman Utilized Repo 105 For A Fraudulent Purpose ............................. 472. Lehman Utilized Repo 105 To Avoid Recording Losses OnIlliquid Or “Sticky” Assets While Creating The FalseAppearance Of Deleveraging .................................................................... 50B. Liquidity Risk And Overstated Liquidity Pool ..................................................... 52C. Risk Management .................................................................................................. 52D. The Insider Defendants’ False And Misleading Statements DuringThe Class Period .................................................................................................... 55E. Additional Evidence Of Scienter ........................................................................... 671. The Insider Defendants Knew Of Repo 105 And The ArtificialBalance Sheet Manipulation ...................................................................... 672. Insider Defendants Knew Of Lehman’s Disregard Of RisksAnd Its Liquidity Problems ....................................................................... 71F. Section 10(b) Allegations Against E&Y ............................................................... 761. Material Misstatements By E&Y .............................................................. 762. E&Y’s Scienter ......................................................................................... 773. E&Y’s Violation Of Auditing Standards .................................................. 80G. Loss Causation ...................................................................................................... 83VIII. CAUSES OF ACTION UNDER THE EXCHANGE ACT .............................................. 86COUNT IV Violations Of Section 10(b) Of The Exchange Act And Rule10b-5 Promulgated Thereunder Against The Insider Defendants AndE&Y ...................................................................................................................... 86COUNT V Violations Of Section 20(a) Of The Exchange Act Against TheInsider Defendants ................................................................................................. 88-ii-
Page 4 and 5: COUNT VI Violations Of Section 20A
Page 6 and 7: CEO:CFO:CLO:CMBS:Commercial Portfol
Page 8 and 9: SFAS 133:SFAS 140:SFAS 157:Financia
Page 10 and 11: disclose that (i) it simultaneously
Page 12 and 13: C. Defendants8. At all relevant tim
Page 14 and 15: can only be ascertained through app
Page 16 and 17: A. The Offering Materials Were Mate
Page 18 and 19: 105 transactions, “[c]onsequently
Page 20 and 21: Table 3 - Repo 105 Transactions and
Page 22 and 23: financial condition and operations
Page 24 and 25: were temporarily removed from Lehma
Page 27 and 28: purpose to the transactions. Indeed
Page 29 and 30: management policies and systems ena
Page 31 and 32: 76. Indeed, in order to engage in r
Page 33 and 34: Lehman’s stress tests “meaningl
Page 35 and 36: 3. The Offering Materials Contained
Page 37 and 38: with regard to Level 3 inputs, SFAS
Page 39 and 40: and other boom markets, focused on
Page 41 and 42: specifically carved out “all [of
Page 43 and 44: Lehman had already committed to fin
Page 45 and 46: derivative component of the investm
Page 47 and 48: generally accepted accounting princ
Page 49 and 50: 119. After Lehman’s bankruptcy, i
Page 51 and 52: misleading. The Securities Act Defe
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138. Plaintiffs and other members o
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A. Repo 105 Transactions1. Lehman U
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our governments businesses around t
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154. As the Examiner stated with re
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162. The Insider Defendants knew an
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169. Rather than disclose to the in
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setting of risk limits.” These st
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exceeded its risk appetite limits b
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most part that are in-the-money”
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y the Company on June 9, Callan sta
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198. The 2Q08 10-Q reported that th
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cover lending positions. Jane Buyer
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upon their conversation, McDade und
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(e) Lehman was motivated to manage
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c. On July 20, 2007, Nagioff emaile
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sell assets, and that the distresse
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accordance with the standards of th
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E&Y’s contemporaneous notes demon
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obligations when auditing and revie
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240. AU §§ 336 and 9336 address a
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A delinquencies and loss expectatio
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on behalf of Plaintiffs and other m
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involvement in the day-to-day opera
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(b)(c)(d)(e)(f)Awarding Plaintiffs
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APPENDIX ACOMMON STOCK/PREFERRED ST
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APPENDIX AISSUE DATEApril 4, 2008(t
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APPENDIX AISSUE DATEAugust 1, 2007A
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APPENDIX AISSUE DATEDecember 21,200
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APPENDIX AISSUE DATEFebruary 27,200
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APPENDIX AISSUE DATEMay 9, 2008May
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APPENDIX B
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APPENDIX BISSUE DATESECURITY(CUSIP)
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APPENDIX C1. CW1, an underwriter in
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7. CW7 and CW8, investigators in Au
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Third Amended Complaint - Lehman Brothers Securities Litigation

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