Third Amended Complaint - Lehman Brothers Securities Litigation

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commitments on its books, and FID was almost $20 billion over its net balance sheet limit. TheOffering Materials failed to disclose this material concentration of risk in leveraged loan deals.109. As a result of the misrepresentations and/or omissions set forth above regardingLehman’s Repo 105 transactions, risk management overrides, liquidity, commercial real estatevaluations and its failure to adequately disclose its concentration of credit risk, the OfferingMaterials were each materially false and misleading when issued.B. The Lehman/UBS Structured Product Offerings110. The plaintiffs identified in Appendix B purchased certain structured products issuedby Lehman and underwritten by UBS (the “Lehman/UBS Structured Products”), and hereby bringclaims arising under the Securities Act, individually and on behalf of all persons and entities, exceptDefendants and their affiliates, who purchased or otherwise acquired any of the Lehman/UBSStructured Products from March 30, 2007 through September 15, 2008 (the “Lehman/UBSStructured Product Class Period”) and who were damaged thereby.111. These Securities Act claims are brought against the Insider Defendants, DirectorDefendants, E&Y and UBS based on the sale of Lehman/UBS Structured Products pursuant tomaterially false or misleading offering materials.112. Plaintiffs specifically and intentionally incorporate by reference all of the allegationspreceding this Section of the Complaint and additionally allege as follows.113. In 2007, UBS implemented an initiative to increase sales of “structured products”through its wealth management unit. Structured products, also known as “structured investments,”traditionally consisted of two components—a fixed income security and a derivative. Thederivative component was often an option linked to the performance of a single security, a basket ofsecurities, an index, a commodity, a debt issuance, a foreign currency or the difference betweencurrency swap rates. The fixed income component was customarily a U.S. Treasury security orother highly rated debt instrument. Because the purchaser of a structured product could look to theunderlying fixed income security for repayment of principle, even if the performance of the-36-
derivative component of the investment proved unfavorable, and the investor was not dependent onthe fortunes of the sponsor of the investment for repayment, structured products were said to offer“principal protection.”114. UBS conducted an auction process each month in which investment banks competedto be selected to issue structured products in accordance with UBS’s specifications. Unliketraditional structured products, the investments offered by UBS were not based on the purchase of afixed income security and a derivative. UBS structured products consisted, instead, of a note issuedby an investment bank. The terms of the note specified the conditions upon which investors couldexpect to receive the return of their principal and any additional amount at maturity. Even thoughUBS did not purchase any debt instrument or other security to protect the investor’s principal, UBSdescribed these securities as offering “principal protection.”115. Lehman was a major issuer of UBS structured products. During the Lehman/UBSStructured Product Class Period, Lehman issued at least $1.24 billion of Lehman/UBS StructuredProducts. The Lehman/UBS Structured Products that purported to offer full or partial principalprotection (the “PPNs”) appear in bold print in Appendix B.116. The Lehman/UBS Structured Product Offering Materials uniformly included, at alltimes throughout the Lehman/UBS Structured Products Class Period, untrue statements of materialfact or omitted to state material facts necessary in order to make the statements, in the light of thecircumstances under which they were made, not misleading. These untrue statements of materialfact and omitted material facts, which are set forth at 26-108 above, are repeated and realleged asif set forth fully here.117. On April 9, 2007, Lehman filed with the SEC its quarterly report on Form 10-Q forthe quarter ended February 28, 2007 (“1Q07 10-Q”) (which largely repeated information that firstappeared in Lehman’s March 14, 2007 press release that was filed as a Form 8-K (“1Q07 8-K”)). Inaddition to the untrue statements of material fact and omitted material facts set forth at 26-108,-37-
Page 2 and 3: TABLE OF CONTENTSI. NATURE OF ACTIO
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: Lehman had already committed to fin
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
Page 53 and 54: 138. Plaintiffs and other members o
Page 55 and 56: A. Repo 105 Transactions1. Lehman U
Page 57 and 58: our governments businesses around t
Page 59 and 60: 154. As the Examiner stated with re
Page 61 and 62: 162. The Insider Defendants knew an
Page 63 and 64: 169. Rather than disclose to the in
Page 65 and 66: setting of risk limits.” These st
Page 67 and 68: exceeded its risk appetite limits b
Page 69 and 70: most part that are in-the-money”
Page 71 and 72: y the Company on June 9, Callan sta
Page 73 and 74: 198. The 2Q08 10-Q reported that th
Page 75 and 76: cover lending positions. Jane Buyer
Page 77 and 78: upon their conversation, McDade und
Page 79 and 80: (e) Lehman was motivated to manage
Page 81 and 82: c. On July 20, 2007, Nagioff emaile
Page 83 and 84: sell assets, and that the distresse
Page 85 and 86: accordance with the standards of th
Page 87 and 88: E&Y’s contemporaneous notes demon
Page 89 and 90: obligations when auditing and revie
Page 91 and 92: 240. AU §§ 336 and 9336 address a
Page 93 and 94: 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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