Third Amended Complaint - Lehman Brothers Securities Litigation

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the 1Q07 10-Q and 1Q07 8-K, which were signed by O’Meara, contained untrue statements ofmaterial fact or omissions of material fact and were materially misleading as follows:a. The 1Q07 10-Q and 1Q07 8-K reported Lehman’s net leverage ratio of 15.4,which was materially misleading because it failed to disclose at least $22 billion in Repo 105 assetsthat were temporarily removed from Lehman’s financial statements. Had the assets that were thesubject of the Repo 105 transactions been included, Lehman’s net leverage ratio would have been16.4, representing an increase 10 times greater than Lehman’s own materiality threshold of a changein net leverage of 0.1.b. The 1Q07 10-Q reported $153.332 billion in securities sold under agreementsto repurchase. This statement was materially false and misleading because it excluded at least $22billion in Repo 105 assets that Lehman had temporarily removed from its balance sheet, whichLehman had agreed to repurchase days after the end of the quarter.c. In the 1Q07 10-Q, Lehman represented that “[m]anagement’s FinanceCommittee oversees compliance with policies and limits,” that “[w]e … ensure that appropriate riskmitigants are in place,” and that “[d]ecisions on approving transactions . . . take into account . . .importantly, the impact any particular transactions under consideration would have on our overallrisk appetite.” These statements were materially false and misleading for the reasons set forth at 70-80.d. The 1Q07 10-Q also represented that “[w]e apply analytical proceduresoverlaid with sound practical judgment and work proactively with business areas beforetransactions occur to ensure appropriate risk mitigants are in place.” This statement was materiallyfalse and misleading for the reasons set forth at 81-84.e. The 1Q07 10-Q contained an Interim Report signed by E&Y stating thatbased on its review of Lehman’s consolidated financial statements and in accordance with thestandards of the PCAOB, “we are not aware of any material modifications that should be made tothe consolidated financial statements referred to above for them to be in conformity with U.S.-38-
generally accepted accounting principles.” This statement was materially false and misleadingbecause Lehman’s 1Q07 financial statements did not conform with GAAP.118. In addition to the untrue statements and omitted facts that are common to all of theLehman/UBS Structured Products, the Offering Materials for the PPNs contained other untruestatements of material fact or omissions of material fact and were materially misleading as follows:a. Each PPN pricing supplement included “100% Principal Protection” or“Partial Protection” in the title of the security offered thereby. Each of the “100% PrincipalProtection” pricing supplements also stated that the PPN offered “100% Principal Protection [if/when] the Notes are held to maturity,” and included one or more of the following statements: “Atmaturity, you will receive a cash payment equal to at least 100% of your principal”; “You willreceive at least the minimum payment of 100% of the principal amount of your Notes if you holdyour Notes to maturity”; and “Although the Notes are principal-protected if held to maturity, sellingthis or any other fixed income security prior to maturity may result in a dollar price less than 100%of the applicable principal amount of Notes sold.” Each of the “Partial Protection” pricingsupplements contained the phrase “partial principal protection,” as well as one or more of thefollowing statements: “partial principal protection when the Notes are held to maturity,”“protection, at maturity of the Notes, of a percentage of your principal,” “At maturity, [investors /you] will receive a cash payment equal to at least [percentage]% of [their / your] investedprincipal”; and “At maturity, investors will receive a cash payment equal to at least the applicableProtection Percentage multiplied by the principal amount.” These and other similar statementsabout principal protection contained in each PPN pricing supplement were false or misleadingbecause:i. Investors in the PPNs had no interest in any instruments used by Lehman tohedge its obligations under the PPNs;ii.There was no security interest or collateral supporting the PPNs; and-39-
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 and 44: Lehman had already committed to fin
Page 45: derivative component of the investm
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
Page 95 and 96: on behalf of Plaintiffs and other m
Page 97 and 98:
involvement in the day-to-day opera
Page 99:
(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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