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Motion by Ex-Lehman Executives Seeking Dismissal of Repo 105 Lawsuit

Motion by Ex-Lehman Executives Seeking Dismissal of Repo 105 Lawsuit

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Published by DealBook
Motion by former Lehman Brothers executives, including ex-C.E.O. Richard S. Fuld Jr., seeking the dismissal of a class-action lawsuit over the defunct investment bank's use of the Repo 105 technique to appear financially healthier than it really was.
Motion by former Lehman Brothers executives, including ex-C.E.O. Richard S. Fuld Jr., seeking the dismissal of a class-action lawsuit over the defunct investment bank's use of the Repo 105 technique to appear financially healthier than it really was.

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Published by: DealBook on Jun 04, 2010
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11/11/2012

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK--------------------------------------------------------------------------In re:LEHMAN BROTHERS SECURITIESAND ERISA LITIGATIONThis Document Applies to:
 In re Lehman Brothers Equity/Debt Securities Litigation,
08 Civ. 5523 (LAK)X:::::::::::Civil Action 09 MD 2017(LAK)--------------------------------------------------------------------------X
DEFENDANTS’ JOINT MEMORANDUM OF LAWIN SUPPORT OF THEIR MOTION TO DISMISS THETHIRD AMENDED CLASS ACTION COMPLAINT
 
 
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Table of ContentsPage
PRELIMINARY STATEMENT.................................................................................................1ARGUMENT.............................................................................................................................1I.THE TAC FAILS TO STATE A SECURITIES ACT CLAIM........................................1A.Plaintiffs Lack Standing To Bring Claims For 48 PPN Offerings...............................1B.The Claims Of All New Plaintiffs And 37 Other Offerings Must Be Dismissed.........2C.The Offering Materials Were Not Actionable............................................................41.Repo 105 Transactions........................................................................................42.Risk Management..............................................................................................133.Liquidity...........................................................................................................174.Valuation Of Commercial Real Estate Assets....................................................195.Concentration Of Risk.......................................................................................22D.The Principal Protection Note Offering Materials Are Not Actionable.....................261.Investors Were Told The PPNs Were Unsecured Obligations Of Lehman..........272.The PPN Offering Materials Explained The Payout Structure Of TheNotes And The ImpactOf Principal Protection Provided By Lehman................283.The PPN Offering Materials Adequately Disclosed That Payment WasSubject To Lehman’s Credit Risk......................................................................29E.Plaintiffs’ Section 11 Claims Against Defendant Callan Should Be Dismissed........31F.The Section 15 Claims Fail As A Matter of Law.....................................................31II.THE EXCHANGE ACT CLAIMS SHOULD BE DISMISSED....................................32A.The Legal Standard.................................................................................................32B.The TAC Fails To Plead Any Material Misstatement Or Omission Under TheExchange Act Claims..............................................................................................321.The TAC Fails To Plead Any Misstatements Against Gregory...........................32
 
ii2.TheTAC Fails To Plead Any Misstatement Against Any OfficerDefendant Regarding Lehman’s Deleveraging...................................................323.The TAC Fails To Plead Any Misstatement Against AnyOfficerDefendant Related To Liquidity.........................................................................34C.The TAC Fails To Plead Scienter............................................................................351.The TAC Fails To Plead Facts Showing Motive And Opportunity.....................362.The TAC Fails To Allege Conscious Misbehavior Or Recklessness...................36a.TAC’s Repo 105-Related Allegations Do Not Plead Scienter.......................37(1)Fuld, Gregory, and Lowitt......................................................................40b.No Facts Are Alleged Giving Rise To A Strong Inference Of ScienterRegarding Risk, Hedging, Or Concentration................................................42(1)Plaintiffs’ Allegations Confirm That The Officer Defendants MadeReasonable Business Decisions When Exceeding Internal Risk Limits....................................................................................................43(2)Allegations Regarding Lehman’s Hedging Strategy And StressTesting Do Not Demonstrate Scienter....................................................45(3)Risk Concentration Allegations Do Not Plead Scienter..........................46c.PlaintiffsLiquidity Allegations Do Not Plead Scienter...............................47D.The TAC Fails To Plead Loss Causation.................................................................501.Market-wide Phenomena Leading To A “Run On The Bank” –NotAlleged Misstatements Caused The Loss........................................................502.Plaintiffs’ New And Strained Loss Causation Theory........................................513.Plaintiffs Do Not Plead A Corrective Disclosure Or Materialization Of AConcealed Risk..................................................................................................53a.The TAC Does Not Plead Corrective Disclosure Of Repo 105Transactions Or Their Alleged Net Leverage Impact...................................54b.The TAC Does Not Plead Corrective Disclosure Revealing “TheTruth” Of Risk And Concentration Limits And Policies...............................57c.The TAC’s Liquidity-Related Allegations Do Not Plead LossCausation.....................................................................................................57

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