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: 9 of 36 PAGEID #: 9the agent for SERS and owed fiduciary duties to SERS. Among other things, Wachovia’sfiduciary duties to SERS required Wachovia to inform SERS of all material informationthat Wachovia knew or should have known about investments that Wachoviarecommended for SERS cash collateral account.C. The Sigma Finance Investment.30. On or about October 23, 2006, Wachovia invested $25 million of the cashcollateral obtained from lending securities held by SERS in Sigma Finance Corporationmedium term notes (“MTNs”) with a scheduled maturity date of October 23, 2008.Wachovia took this step without consulting with SERS or advising SERS of the potentialrisks associated with the Sigma investment.31. Although it is unique and in its own category, Sigma is closest in form to astructured investment vehicle (“SIV”). SIVs acquire asset-backed securities and otherinstruments, using funds raised primarily by issuing or guaranteeing MTNs andrepurchase agreements (“repo agreements”). Repo agreements involve the sale of assetsto a party, usually a bank, with the intent to repurchase those assets at a later date.However, if the value of the assets decreases, the bank may demand additional assets – amargin call.32. Unlike most SIVs, that were tied to banks and could obtain liquidity fromthose banks in times of low cash flow, Sigma was a stand-alone investment vehicle.When Sigma began to experience financial difficulties in 2007, it began selling assetsoutright and under repo agreements. The repo agreements resulted in margin calls whenthe value of the assets to be repurchased fell below an agreed level. In September 2008,Sigma received margin calls that it did not honor and on September 30, 2008, its board9