This is a securities class action lawsuit against Ambac Financial Group, Inc. and certain of its officers and directors alleging violations of the Securities Exchange Act of 1934. Ambac is a holding company whose subsidiaries provide financial guarantee products and other financial services to clients in both the public and private sectors around the world. This class action lawsuit alleges that Ambac misrepresented its exposure to the subprime mortgage market.
Ambac built itself into a financial powerhouse in the 1970s by pioneering municipal bond insurance and earning a AAA credit rating. According to the plaintiffs, Ambac traditionally focused on conservative municipal bond offerings but changed course in recent yearns. Ambac began to seek higher profits by insuring certain financial instruments that relied on mortgage-backed securities. As the mortgage crisis descended on Wall Street in the summer of 2007. Ambac disclosed that it suffered large losses due to its exposure to the subprime mortgage market. More losses were revealed in the fall of 2007 and, as a result, various rating agencies began to re- examine Ambac's AAA rating.
Ambac disclosed further information about its exposure to the subprime mortgage crisis and Ambac's stock dropped significantly as ratings agencies and analysts inspected Ambac and the financial instruments that it insured. Specifically, the complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company's business and financial results related to its insurance coverage on collateralized debt obligations ("CDO") contracts. According to the complaint, the true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows:
(i) that Ambac lacked requisite internal controls to ensure that Ambac's underwriting standards and its internal rating system for its CDO contracts were adequate, and, as a result, Ambac's projections and reported results issued during the Class Period were based upon defective assumptions and/or manipulated facts;
(ii) that Ambac's financial statements were materially misstated due to its failure to properly account for its mark-to-market losses;
(iii) that, given the deterioration and the increased volatility in the mortgage market, Ambac would be forced to tighten its underwriting standards related to its asset-backed securities, which would have a direct material negative impact on its premium production going forward;
(iv) that Ambac had far greater exposure to anticipated losses and defaults related to its CDO contracts containing subprime loans, including even highly rated CDOs, than it had previously disclosed;
(v) that Ambac had far greater exposure to a potential ratings downgrade from one of the credit ratings agencies than it had previously disclosed; and
(vi) that defendants' Class Period statements about Ambac's selective underwriting practices during the 2005 through 2007 timeframe related to its CDOs backed by subprime assets were patently false; as Ambac's underwriting standards were at best aggressive and at a minimum were completely inadequate.
As the truth began to be disclosed, shares of Ambac common stock plummeted, causing substantial losses to investors.
Name (Stock Symbol)
Ambac Financial Group, Inc. (ABK)
Ambac Financial Group, Inc. is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambacs principal operating subsidiary is Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations.
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