Ambac Financial Group Inc. Case 01/16/2008

AUGUST 2011 - According to the Notice:

Description of the Litigation and the Class: This Notice relates to the pendency and proposed settlements of a class action lawsuit against (i) Ambac Financial Group, Inc. (“Ambac” or the “Company”); (ii) certain present or former officers or directors of Ambac; and (iii) Citigroup Global Markets, Inc., UBS Securities LLC, Goldman, Sachs & Co., J.P. Morgan Securities Inc., HSBC Securities (USA) Inc., Merrill Lynch, Pierce, Fenner, & Smith Incorporated, and Wachovia Capital Markets,
LLC, now known as Wells Fargo Securities, LLC (collectively, the “Underwriter Defendants”). Also covered by the settlements are nineteen individuals who are named in the Action or one or more related securities or derivative actions. The Ambac Defendants and the Underwriter Defendants are collectively referred to as the “Settling Defendants.” Plaintiffs and the Settling Defendants are collectively referred to herein as the “Settling Parties.” The proposed Settlements, if approved by the Court, will settle certain claims of all persons and entities who purchased or otherwise acquired Ambac Securities from October 19, 2005, through and including July 18, 2009 (the “Class Period”).

The “Class” consists of all persons who purchased or otherwise acquired any Ambac Securities in the period from October 19, 2005, through and including July 18, 2009.

The “Underwriter Class” means all persons or entities who purchased or acquired Ambac securities in or traceable to the February 2007 Directly‐Issued Subordinated Capital Securities offering. The “Underwriter Class” is included in the Class and unless otherwise indicated herein, “Class” refers to both the Class and the Underwriter Class. Excluded from the Class are: (a) Ambac; (b) the Defendants; (c) members of the immediate families of any Defendant; and (d) the legal representatives, heirs, successors, or assigns of any of the foregoing excluded persons or entities. Also excluded from the Class are any persons who exclude themselves by filing a timely and valid request for exclusion in accordance with the requirements set forth in the Notice.

Breakdown of Settlements: Subject to Court approval and, as described more fully below, Plaintiffs, on behalf of the Class, have agreed to settle all claims related to the purchase or other acquisition of Ambac Securities that were or could have been asserted against the Settling Defendants and other Released Parties in the Action in exchange for settlement payments totaling $33,000,000 to be deposited into an interest‐bearing escrow account (the “Settlement Fund”).

The Settlement Fund will consist of the following sub‐funds: (1) a $27,100,000 settlement fund established pursuant to the settlement with the Ambac Defendants (the “Ambac Settlement Fund”);5 and (2) a $5,900,000 settlement fund established pursuant to the settlement with the Underwriter Defendants (the “Underwriter Settlement Fund”), with any interest income allocated proportionately between the sub‐funds.

The $27,100,000 Ambac Settlement Fund will be paid as follows: certain Directors’ and Officers’ insurance carriers (“D&O Insurers”) shall pay $24,600,000 and, subject to Bankruptcy Court approval, Ambac will pay the additional $2,500,000. If approved by the Bankruptcy Court, the entire $2,500,000 paid by Ambac will be used to compensate Authorized Claimants with respect to any Class Period purchases or other acquisitions of Ambac Debt Securities.7 Further, 25% of the $24,600,000 paid by Ambac’s insurance carriers, or $6,150,000, will be used to compensate Authorized Claimants with respect to any Class Period purchases or other acquisitions of Ambac Debt Securities. The $2,500,000 paid by Ambac, if approved, and the $6,150,000 paid by the insurers, or a total of $8,650,000, shall be the “Ambac Debt Securities Settlement Fund”. The remaining 75% of the $24,600,000 paid by the insurers, or $18,450,000, plus any interest earned thereon, shall be the “Ambac Common Stock Fund,” and will be used to compensate Authorized Claimants with respect to any purchases or other acquisitions of Ambac Common Stock and/or Ambac Call Options during the Class Period and/or any Ambac Put Options written during the Class Period.

The Underwriter Settlement Fund will be used to compensate Authorized Claimants with respect to their purchases or other acquisitions of Ambac DISCS either in the initial offering of the security or in the open market from February 12, 2007 to July 18, 2009.

JANUARY 2008 - In the lawsuit against Ambac Financial Group, Inc. in the United States District Court for the Southern District of New York on behalf of shareholders who purchased or otherwise acquired Ambac Financial Group common stock (NYSE: ABK) from October 19, 2005 through January 15th, 2008, a lead plaintiff has been appointed in the litigation, but no representatives of purchasers of Directly-Issued Subordinated Capital Securities (DISCS) issued 2/7/07 and due 2/7/87 seeking remedies under the Securities Act of 1933 or Securities Exchange Act of 1934 have stepped forward.

According to the complaint during the Class Period from October 19, 2005 through January 15, 2008, the Company issued materially false and misleading statements about Ambac’s business and financial results and materially misrepresented. The lawsuits accuses that defendants failed to mark down the Company’s collateralized debt obligations and other mortgage-backed security assets in a timely manner, which resulted in an artificial inflated stock price and that certain executives of the Company reaped millions of dollars in proceeds from the sale of Ambac shares during the Class Period. Then on January 16th, 2008, when Ambac announced its preliminary fourth quarter 2007 results which included an estimated net loss of $3.4 billion for the fourth quarter, including an approximate $1.1 billion loss that was attributed to collateralized debt obligations backed by sub-prime mortgages, the price of Ambac stock decreased 38% from the prior day close, so the complaint. Reportedly on the same day, DISCS dropped $12 per DISCS, or 18.75% from the previous day close and declined further on January 17, 2008 to close at $39.125, with a total two-day drop of 38.86%.

JANUARY 2008 - According to a press release dated January 16, 2008, the complaint charges Ambac and certain of its officers and directors with 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. The Company and its subsidiaries operate in two segments: financial guarantee and financial services.

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 the Company lacked requisite internal controls to ensure that the Company’s underwriting standards and its internal rating system for its CDO contracts were adequate, and, as a result, the Company’s projections and reported results issued during the Class Period were based upon defective assumptions and/or manipulated facts; (ii) that the Company’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, the Company 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 the Company 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 the Company 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 the Company’s selective underwriting practices during the 2005 through 2007 timeframe related to its CDOs backed by subprime assets were patently false; as the Company’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.