This is a securities fraud class action filed on behalf of a class of persons and entities that purchased or acquired the securities of Ambac Financial Group, Inc. (“Ambac” or the “Company”) from October 25, 2006 through April 22, 2008 (the “Class Period”). On May 9, 2008, the Hon. Naomi Reice Buchwald appointed BLB&G clients Public School Teachers’ Pension and Retirement Fund of Chicago and Arkansas Teachers’ Retirement System, along with the Public Employees’ Retirement System of Mississippi, as Lead Plaintiffs and BLB&G as co-Lead Counsel for the Class.
Lead Plaintiffs Secure $33 Million Cash Settlement with Ambac and Seven Underwriter Defendants
On December 15, 2010, Lead Plaintiffs reached an agreement with Ambac and certain of its officer and directors, as well as seven underwriter defendant banks, to settle all claims arising from the Company's early 2008 announcement of billions of dollars in write-downs and impairments related to its portfolio exposure to residential mortgage-backed securities "(RMBS") and collateralized debt obligations ("CDOs"). The underwriter defendants include Citigroup Global Markets Inc., UBS Securities LLC, Goldman Sachs & Col., J.P. Morgan Securities Inc., HSBC Securities (USA) Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Wachovia Capital Markets, LLC.
Under the proposed settlement, Ambac agreed to pay $27.1 million in cash, while the underwriter defendants agreed to pay an additional $5.9 million for their involvement in a 2007 securities offering, bringing the total settlement value to $33 million. The settlement is subject to approval by the Court.
Background
Lead Plaintiffs allege that Ambac, one of the country's largest bond insurers, secretly lowered its underwriting standards to allow the guarantee of billions of dollars of high risk mortgage-related securities without adequately disclosing the acceptance of greater risk than Ambac had insured in the past. As America's real estate market plummeted throughout late 2006 and 2007, Ambac affirmatively misrepresented its deteriorating portfolio risk by consistently posting small reserves and “mark-to-market” write-downs that strongly indicated a healthy portfolio. In fact, the mortgage-backed securities were showing significant delinquencies and risk of loss that would cripple its capital base. This exposure not only caused the Company enormous losses but also caused Ambac to lose its prized triple-A credit rating.
On January 16, 2008, Ambac announced a loss of $32-per-share, stunning investors by disclosing (a) a $5.4 billion “mark-to-market” write-down on its $29 billion exposure to mortgage-related collateralized debt obligations; (b) $1.1 billion of actual impairments; (c) a near-tripling of its loss reserves; (d) a 67% reduction in dividend payments; and (e) the resignation of the Company’s CEO. These disclosures caused a 70% drop in Ambac’s stock price over two days. In March 2008, Ambac raised $1.5 billion in equity capital. This influx of capital did little to help the beleaguered company. Ambac's stock declined from a high of $96 per share in May 2007 to a low of $6.24 following the January 2008 disclosure. By the end of March 2008, the stock had further dropped to $5.75 per share. By the end of the Class Period, Ambac’s stock was trading at $3.46 per share.
On August 22, 2008, Lead Plaintiffs filed a Consolidated Amended Class Action Complaint alleging claims under both the Exchange Act of 1934 and the Securities Act of 1933. On October 21, 2008, Defendants filed their motions to dismiss the Complaint. On February 22, 2010, Judge Buchwald denied in large part Defendants’ motions to dismiss the Complaint, sustaining all of Lead Plaintiffs’ Exchange Act claims and Lead Plaintiffs’ Securities Act claims with respect to a February 2007 DISCS Offering. The Court dismissed Securities Act claims with respect to a March 2008 Offering.
