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TABLE OF CONTENTSPage No.
INTRODUCTION.............................................................2A.CDOs...........................................................3B.SIVs............................................................41.Non-Prime Market Exposure...................................52.Leveraged Loans............................................53.Auction Rate Securities.......................................64.Alt-A RMBS...............................................65.Solvency...................................................76.Improper Accounting.........................................77.Impact.....................................................8JURISDICTION AND VENUE..................................................8PARTIES....................................................................9A.Plaintiffs.........................................................9B.Defendants......................................................10C.Individual Defendants.............................................12EFFICIENT MARKET ALLEGATIONS: FRAUD ON THE MARKET DOCTRINE......20CLASS ALLEGATIONS.......................................................22I.CDOs: THE MARKET, THE INSTRUMENTS AND CITIGROUP’SACTIVITIES IN IT .....................................................25A.What CDOs Are........................................................26B.Citigroup’s CDOs................................................421.Citigroup’s CDO Exposures: Overview and Categorization..........42a.Plaintiffs’ Investigation and Conclusions..................47 b. Timeline: Citigroup’s CDO Operations and Scheme.........522.Citigroup’s Commercial Paper CDOs...........................553.Citigroup’s Mezzanine CDOs.................................604.Citigroup’s High Grade CDOs.................................715.Citigroup’s Hedged CDOs....................................74II.CDOs: WHAT THE MARKETPLACE KNEW AND BELIEVED ...............83A.The Housing Price Bubble and The Nonprime Mortgages OriginatedUnder Bubble Conditions..........................................88B.The Bubble Bursts in Early 2006 and Housing Prices Fall................103C.Refinancing Becomes Impossible and a Wave of Nonprime
 
iiiDefaults Inevitable...............................................1191.The Mid-2006 Spike in Early Payment Defaults Leads SomeMortgage Originators to Collapse and Leads All MortgageOriginators to Tighten Lending Standards.......................1192. Mortgage Origination Standards Further Constrict Under NewRegulatory Guidance on Mortgage Lending in September 2006and February 2007.........................................1313.The Final Collapse in Early 2007: Subprime Originators areRendered Extinct, Lending Standards Constrict Severely, and thePossibility of Nonprime Refinancing Ends......................139D.What The Marketplace Knew and Believed...........................1481.The Market Understood, Correctly, That CDOs Would be Devastated by Nonprime Mortgage Losses...............................149a.Late 2006: Recognition Emerges........................150 b.February 2007 - March 2007: Market Consensus Solidifies...1592.The Market Believed, Incorrectly, that Banks Such as Citigroup HadSold Off the CDOs They Had Underwritten and Would Thus Be Sparedfrom CDO Losses .........................................1723.Citigroup Knew Best Just How Precarious Its CDOs Were.........175a.Losses Climb the Securitization Ladder from Mortgage toRMBS to CDO......................................175 b.Citigroup’s Degraded “High Grade” CDOs................179c.Citigroup Structured its CDOs so that They Could Only Work Under Boom Scenarios...............................179d.Citigroup Structured its CDOs By “Assuming” thatUnderlying Assets Were Not Highly Correlated, When inFact the Underlying Assets Were Largely Identical andExposed in the Same Way to the Same Degree to theSame Risks.........................................186E.Inside the CDO Market - February to June 2007: Loss and Despair.........1941.UBS – March 2007: UBS Conducts Experiment to Find Price atWhich Subprime-Backed Securities Actually Can Be Sold – AndLearns that Market Value of Subprime-Backed Securities is Only50 Cents on the Dollar......................................1942.Merrill Lynch: Merrill Tries to Conceal Its CDO ExposuresThrough “Parking” Schemes.................................1953.Bear Stearns – March 2007 through June 2007: the CDO-InvestedBSAM Hedge Funds Undergo a Private Crisis and Then a PublicImplosion, Resulting in Investor Losses of 100%.................196III.CDOs: STRATAGEMS, CONTROLS AND DISCLOSURES..................198A.Schemes.......................................................1981.Citigroup’s Commercial Paper CDO “Sales”: How to Make $25 Billion
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