Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business

Ambac Financial Group Inc. (ABKFQ), a number of its bank underwriters, and its insurers will pay $33 million to settle securities lawsuits accusing the bond insurer of concealing the risks it engaged in when it guaranteed risky mortgage debt. Ambac will pay $2.5 million, four insurance companies will pay $24.5 million, and the banks that will pay $5.9 million include Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), UBS AG (UBS), J.P. Morgan Chase & Co. (JPM), Merrill Lynch Pierce Fenner & Smith Inc. (now part of Bank of America Corp. (BAC)), HSBC Holdings PLC (HBC), and the former Wachovia, (now part of Wells Fargo & Co. ( WFC)). A federal court has to approve the proposed settlement. The lead plaintiffs of the securities fraud case are The Public Employees’ Retirement System of Mississippi, the Public School Teachers’ Pension and Retirement Fund of Chicago, and the Arkansas Teachers Retirement System. The investors covered those that purchased Ambac stock and bonds between October 25, 2006 and April 22, 2008.

It was in 2008 that the housing market crisis revealed the trouble that Ambac, an insurer of instruments related to risky mortgages, was in. Investors had accused Ambac of both giving misleading information to the market to inflate the prices of its securities and concealing the full scope of its involvement in the subprime loan debacle. They claim that the bond insurer and its officials made it appear as if the company was only insuring the transactions that were “safest,” when it was actually looking to profit by guaranteeing billions in high risk collateralized debt obligations and residential mortgage debt, as well as writing credit default swaps to protect investors in the debt against default.

Documents filed in the US Bankruptcy Court in Manhattan reports that the holding company in bankruptcy has $1.6 billion in unresolved debts. Financial guarantee insurer Ambac Assurance Corp., which is its chief asset, has $300 billion in potential exposure.

Related Web Resources:
Ambac, banks settle investor suits for $33 mln, Reuters, May 6, 2011
Ambac Financial In $27.1M Deal To Settle Securities Lawsuits, Dow Jones, May 9, 2011
The Public Employees’ Retirement System of Mississippi

Public School Teachers’ Pension and Retirement Fund of Chicago

Arkansas Teachers Retirement System

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SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Institutional Investor Securities Blog, February 9, 2011
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011
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