Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 1 of ...

Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 22 of 36 PAGEID #: 22to make recommendations or even discuss the serious financial posture of Sigma withSERS.68. On April 23, 2008, a Wachovia subsidiary, Evergreen Investments,advised Wachovia’s securities lending team of its concerns about Sigma risk exposure:In sum, our Evergreen and SMA exposure is scheduled to mature in < 3weeks. Although we remain anxious, based on available cash, modestback-up bank facilities, and capital cushion available for any necessaryasset sales, we continue to believe we will be paid. However, Sigma’sliquidity condition is clearly becoming increasingly strained. Marketconditions continue to make repo reliance a dangerous game…. Sigma isrunning out of repo eligible assets. As a result Sigma will be increasinglyrelying on asset sales… Finally, committed bank liquidity facilities arebeginning to mature and it’s unlikely that any will be renewed… We thinkMoody’s and S&P will downgrade Sigma from Aaa/AAA very soon.CHS Litigation Deposition Exhibit 216. Accordingly, Wachovia’s securities lendingteam was warned about future downgrades of Sigma and Sigma’s over reliance on repoagreements. Evergreen was “anxious” about its Sigma investments that were to mature inMay 2008. And even though SERS’ Sigma MTNs were not scheduled to mature untilOctober 2008, Wachovia failed to inform SERS of any of the concerns that Evergreenhad clearly conveyed to Wachovia. Again Wachovia failed to act as SERS’ investmentadvisor.69. On July 14, 2008, Moody’s downgraded Sigma from A2 to A3. OnAugust 5, 2008, Citigroup analysts stated that Sigma was “walking a tight rope” byrelying on repo agreements for funding, and that a withdrawal of repo counterpartyfunding would not give Sigma “much room to maneuver.” Again, Wachovia failed tomake recommendations or discuss concerns with SERS. In other words Wachovia failedto act as SERS’ investment advisor.22