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
K
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 HaninK
ASOWITZ
B
ENSON
T
ORRES
&
F
RIEDMAN
LLP
Attorneys for Defendant HVB Capital Markets, Inc.
Case 1:09-md-02017-LAK Document 439 Filed 07/27/11 Page 1 of 110
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
ARR
&
G
ALLAGHER
LLP
Attorneys for Defendant Ian Lowitt
Robert J. ClearyDietrich L. SnellMark E. DavidsonSeth D. Fier P
ROSKAUER
R
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
Case 1:09-md-02017-LAK Document 439 Filed 07/27/11 Page 2 of 110
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 Standard
..........................................................17
II.Standing
...............................................................20
III.Exchange Act Claims
.....................................................22
A.The Standard
.....................................................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 GAAP
...........................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-Risk
...................................45
c.Liquidity
.............................................46
d.Concentrations of credit risk
.............................51
2.Scienter
...................................................56
a.Motive and opportunity
.................................58
b.Circumstantial evidence of conscious misbehavior or recklessness
....................................................59
(1)Repo 105 Transactions
...........................59
(2)Risk management
................................64
(3)Concentrations of credit risk
.......................66
Case 1:09-md-02017-LAK Document 439 Filed 07/27/11 Page 3 of 110
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