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Judge Kaplan's Ruling in Lehman Brothers Litigation

Judge Kaplan's Ruling in Lehman Brothers Litigation

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Published by DealBook

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Categories:Business/Law
Published by: DealBook on Jul 27, 2011
Copyright:Attribution Non-commercial

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07/10/2013

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xIn re:LEHMAN BROTHERS SECURITIES ANDERISA LITIGATIONThis document applies to:09 MD 2017 (LAK)
 In re Lehman Brothers Equity/Debt Securities Litigation
, 08 Civ. 5523 (LAK)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
OPINION
Appearances:Max W. Berger Steven B. Singer Boaz A. WeinsteinDavid R. StickneyElizabeth P. LinJon F. WormB
ERNSTEIN
L
ITOWITZ
B
ERGER 
&
 
G
ROSSMAN
LLPDavid Kessler John A. KehoeBenjamin J. HinerfeldJohn J. GrossRichard A. Russo, Jr. Nichole BrowningB
ARROWAY
T
OPAZ
ESSLER 
M
ELTZER 
&C
HECK 
,
 
LLP
Co-Lead Counsel for Plaintiffs
Patricia M. HynesTodd FishmanA
LLEN
&
 
O
VERY
LLP
 Attorneys for Defendant Richard S. Fuld, Jr.
David R. BoydJonathan P. KrisberghB
OISE
,
 
S
CHILLER 
&
 
F
LEXNER 
LLP
 Attorneys for Defendant Incapital LLC 
Audrey StraussIsrael DavidF
RIED
F
RANK 
H
ARRIS
S
HRIVER 
&
 
J
ACOBSON
LLP
 Attorneys for Defendant Joseph M. Gregory
Mark P. Ressler Michael Hanin
ASOWITZ
B
ENSON
T
ORRES
&
 
F
RIEDMAN
LLP
 Attorneys for Defendant HVB Capital  Markets, Inc.
 
Michael J. ChepigaMary Elizabeth McGarryErika Burk Bryce A. Pashler S
IMPSON
T
HACHER 
&
 
B
ARTLETT
LLP
 Attorneys for Defendants Christopher M.O’Meara and Joseph M. Gregory
Mitchell A. LowenthalMeredith E. Kotler Victor L. HouC
LEARY
G
OTTLIEB
S
TEEN
&
 
H
AMILTON
LLP
 Attorneys for All Underwriter Defendants Except HVB Capital Markets, Inc. and  Incapital LLC 
Marshall R. KingOliver M. Olanoff Julie I. SmithG
IBSON
,
 
D
UNN
&
 
C
RUTCHER 
LLP
 Attorneys for Defendant UBS Financial Services, Inc.
Kelly M. HnattW
ILLKIE
F
AR
&
 
G
ALLAGHER 
LLP
 Attorneys for Defendant Ian Lowitt 
Robert J. ClearyDietrich L. SnellMark E. DavidsonSeth D. Fier P
ROSKAUER 
OSE
LLP
 Attorneys for Defendant Erin Callan
Andrew J. Levander Kathleen N. MasseyAdam J. WassermanD
ECHERT
LLP
 Attorneys for Defendants Michael L. Ainslie, John F. Akers, Roger S. Berlind, Thomas H.Cruikshank, Marsha Johnson Evans, Sir Christopher Gent, Roland A. Hernandez, Henry Kaufman, and John D. Macomber 
Miles N. RuthbergJamie L. WineKevin H. MetzPeter A. WaldL
ATHAM
&
 
W
ATKINS
LLP
 Attorneys for Defendant Ernst & Young LLP 
 
Table of Contents
 Facts
.........................................................................2
 Parties
.................................................................2
 Plaintiffs
..........................................................2
 Defendants
........................................................3
 Relevant Non-Party
.................................................5
 Prior Proceedings
........................................................5
The TAC 
................................................................6
 Repo 105
...............................................................9
 Allegedly Misleading Statements
............................................12
 Net Leverage Ratio
................................................12
“Securities Sold Under Agreements to Repurchase”
......................13
 Risk Approach
....................................................13
 Liquidity
.........................................................15
 Accounting Practices
...............................................17
 Discussion
...................................................................17
 I.Legal Standar
..........................................................17
 II.Standin
...............................................................20
 III.Exchange Act Claims
.....................................................22
 A.The Standar
.....................................................22
 B.Individual Defendants
..............................................24
1.Existence of materially false and misleading statements or omissions
...24
a.Repo 105 and net leverage
...............................25
(1)SFAS 140
......................................27
(2)Compliance with GAA
...........................30
(3)Treating Repo 105 transactions as sales
..............35
(4)Failure to disclose Repo 105 transactions
.............37
b.Risk management policies
...............................39
(1)Exceeding risk limits
.............................40
(2)Adequacy of mitigants
............................42
(3)Stress tests
.....................................43
(4)Value-at-Ris
...................................45
c.Liquidity
.............................................46
d.Concentrations of credit ris
.............................51
2.Sciente
...................................................56
a.Motive and opportunity
.................................58
b.Circumstantial evidence of conscious misbehavior or recklessness
....................................................59
(1)Repo 105 Transactions
...........................59
(2)Risk managemen
................................64
(3)Concentrations of credit ris
.......................66

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