Documentos de Académico
Documentos de Profesional
Documentos de Cultura
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
10
COUNTY OF LOS ANGELES
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12
MBIA Insurance Corporation, a New York CASE NO. BC417572
13 corporation,
Plaintiff,
14 FIRST AMENDED COMPLAINT
vs. FOR:
15
Bank of America Corporation, a Delaware (1) VIOLATIONS OF CALIFORNIA
16 corporation, Countrywide Financial CORPORATIONS CODE §§ 25401
Corporation, a Delaware corporation, AND 25501;
17 (2) VIOLATIONS OF CALIFORNIA
Countrywide Home Loans, Inc., a New CORPORATIONS CODE ^ 2SSO4;
i8 York corporation, Countrywide Securities (3) VIOLATIONS OF CALIFORNIA
Carp., a Delaware corporation, CWHEQ, CORPORATIONS CODE § 25504.1;
19 Inc., a Delaware corporation, CWABS, (4) COMMON-LAW FRAUD;
(5} NEGLIGENT
20 Inc., a Delaware corporation, CWABS MISREPRESENTATION; AND
Revolving Home Equity Trust, Series (G} DECLARATORY RELIEF
21 2004-I, a Delaware statutory trust,
CWABS Revolving Home Equity Loan
22 JURY TRIAL DEMANDED
Trust, Series 2004-P, a Delaware statutory
23 trust, CWHEQ Revolving Home Equity Judge: Hon. Anthony J. Mohr
Loan Trust, Series 2005-A, a Delaware Department: 309
24 statutory trust, CWHEQ Revolving Home
Complaint Filed: July 10, 2009
25 Equity Loan Trust, Series 2005-E, a
.Delaware statutory trust, CWHEQ
26 Revolving Home Equity Loan Trust, Series
2005-1, a Delaware statutory trust,
27
CWHEQ Revolving Home Equity Loan
28 Series 2005-M, a Delaware
b 1592!3182612.1
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23
24
25
26
27
28
15 2006-510, CWHEQ Revolving Home Equity Loan Trust, Series 2007-E, CWHEQ Home
16 Equity Loan Trust, Series 2006-58, CWHEQ Hame Equity Laan Trust, Series 2007-51,
17 CWHEQ Home Equity Loan Trust, Series 2007-S2, and CWHEQ Home Equity Laan
i8 Trust, Series 2407-53 {the Revolving Home Equity Loan Trusts and the Home Equity
19 Loan Trusts collectively are referred to as "the Trusts" or "the Trust Defendants"),
20 Greenwich Capital Markets, Inc. ("Greenwich Capital"), HSBC Securities (USA} Inc.
21 ("HSBC"}, and UBS Securities LLC ("UBS") (Greenwich Capital, HSBC, and UBS are
22 referred to collectively as "the Underwriters" ar "the Underwriter Defendants"), Angela
23 Mazilo, David Sambol, Eric Sieracki, Ran^it Kripalani, Jennifer Sandefur and Stanford
24 Kurland (collectively, "the Individual Defendants"}, and John and Jane Does 1-100, hereby
25 alleges as follows:
26 NATURE OF ACTION
27 1. This action arises out of Countrywide's extensive fraudulent
28 misrepresentations and omissions of material facts related to its sale of certain residential
6159213182b12.1 -9.. __ _
FIRST AMENDED COMPLAINT
mortgage-backed securities. Countrywide, once the largest residential mortgage originator
and servicer in the country, originated and sold (or otherwise conveyed) pools of mortgage
loans to trusts. The trusts in turn securitized the underlying mortgage loans and issued
4 residential mortgage-backed securities ("RMBS Notes" or "Notes"} which were then sold
19 knowingly loaned billions of dollars to borrowers who could not afford to repay the loans,
z0 or who Countrywide personnel knew or should have known were including misstatements
21 in their loan applications, often with the assistance and encouragement of Countrywide's
22 employees and brokers, or who otherwise did not satisfy the basic risk criteria far prudent
23 and responsible lending that Countrywide claimed to use.
24 3. Countrywide's failure to abide by its much-touted and publicly available
2S underwriting guidelines fundamentally changed the risk profile of the mortgage loans
26 underlying the RMBS Notes from what was publicly represented by Countrywide.
27 Countrywide's abandonment of its stated underwriting practices dramatically increased the
28 risks of delinquency and default associated with the mortgage loans backing the Notes that
5 ] 59213182612.1
6 thousands of the mortgage loans underlying the securitizations are in default and/or
7 foreclosure, events that would not have occurred if Countrywide had followed its stated
8 loan-origination practices. But far MBIA's provision of financial guaranty insurance, the
9 holders of the RMBS Notes would have been deprived of payments on the Notes.
10 Moreover, as a direct result of Countrywide's wrongdoing, the value of the RMBS Notes
11 today is dramatically impaired. The purchasers of the RMBS Notes did not have
12 knowledge of any significant delinquencies or defaults an the underlying mortgage Ioans
13 until November 2007 at the earliest, when the Trusts' trustees began making claims to
14 MB1A for missed principal and interest payments.
15 4. The allegations herein are confirmed and bolstered in great detail by the
16 SEC's detailed June 4, 2009 Complaint filed in the U.S. District Court for the Central
17 -District of California (the "SEC Complaint") levying civil fraud charges against
18 Countrywide Financial's three mast senior executives, Angelo Mozilo, David Sambol and
19 Eric Sieracki. SEC v. fingelo Mozilo, David Sambol, and Eric Sieracki, CV 09-03994
20 (VBF), The SEC Complaint, attached hereto as Exhibit A and incorporated in full herein
21 by reference, details numerous examples of specific evidence demonstrating both the
22 falsity of Defendants' representations, and Defendants' knowledge that their
23 representations and omissions were materially false and misleading.
24 5. As the Attorney General for the State of California concluded:
25 Countrywide's deceptive scheme had one primary goal to
supply the secondary market with as many Ioans as passible,
26 ideally loans that would earn the highest premiums. Over a
27 period of several years, Defendants constantly expanded
Countrywide's share of the consumer market for mortgage
28 loans through a wide variety of deceptive practices, undertaken
5E592r31826i2.1
6! 592!3! 82612.
3 through its subsidiaries, is engaged in mortgage lending and other real estate finance-
4 related businesses , including mortgage banking, securities dealing, and insurance
5 ^ underwriting.
6 i 1. Defendant Countrywide Home Loans, awholly-owned subsidiary of
7 Countrywide Financial, is a New York corporation with its principal place of business in
8 Calabasas, California. Countrywide Home Loans originates and services residential home
9 mortgage loans.
10 12. Defendant Countrywide Securities, a whalIy-owned subsidiary of
12 Calabasas, California and in New York, New York. Countrywide Securities is a registered
13 broker-dealer and underwrites offerings ofmortgage-backed securities.
16 California. CWHEQ was the depositor in thirteen of the relevant securitizations, collecting
17 and securitizing mortgage loans and overseeing the securitization process.
1$ 14. Defendant CWABS is a Delaware Corporation and alimited-purpose
20 California. CWABS was the depositor in two of the relevant securitizations, collecting
23 Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to
24 investors pursuant to a registration statement and prospectus f led with the SEC.
25 16. Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-P is a
25 Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to
27 investors pursuant to a registration statement and prospectus filed with the SEC.
zg
6i59213i82512.i II _ _
FIRST AMENDED COMPLAINT
l i7. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-A is a
2 Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to
3 investors pursuant to a registration statement and prospectus filed with the SEC.
4 18. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-E is a
5 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors
6 pursuant to a registration statement and prospectus filed with the SEC.
7 19. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-1 is a
8 Delaware trust, organized by Countrywide for the purpose of issuing Hates to investors
9 pursuant to a registration statement and prospectus filed with the SEC.
10 20. Defendant CWHEQ Revaluing Home Equity Loan Trust, Series 2005-M is a
ii Delaware trust, organized by Countrywide for the purpose of issuing notes to investors
I2 pursuant to a registration statement and prospectus filed with the SEC.
13 21. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2006-E is a
i4 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors
i5 pursuant to a registration statement and prospectus filed with the SEC.
16 22. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2006-G is a
17 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors
23 24. Defendant CWHEQ Home Equity Loan Trust, Series 2006-59 is a common
24 law trust farmed under the laws of the State of New York, by Countrywide for the purpose
25 of issuing notes to investors pursuant to a registration statement and prospectus filed with
26 the SEC.
27 25. Defendant CWHEQ Home Equity Loan Trust, Series 2006-510 is a common
28 law trust formed under the laws of the State of New York, by Countrywide for the purpose
61592/3182612.1
2 the SEC.
3 26. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2007-E is a
4 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors
5 pursuant to a registration statement and prospectus filed with the SEC.
6 27. Defendant CWHEQ Home Equity Loan Trust, Series 2007-51 is a common
7 iaw trust formed under the laws of the State of New York by Countrywide for the purpose
of issuing notes to investors pursuant to a registration statement and prospectus filed with
9 the SEC.
la 28. Defendant CWHEQ Home Equity Loan Trust, Series 2007-52 is a common
11 law trust formed under the laws of the State of New York by Countrywide for the purpose
12 of issuing notes to investors pursuant to a registration statement and prospectus filed with
13 the SEC.
14 29. Defendant CWHEQ Home Equity Loan Trust, Series 2007 - 53 is a common
15 law trust formed under the laws of the State of New York by Countrywide for the purpose
i
16' of issuing notes to investors pursuant to a registration statement and prospectus filed with
17i the SEC.
18 30. Defendant Greenwich Capital, a Delaware corporation, is an investment
19 bank and acted as an underwriter with respect to several Nate offerings relevant to this
i
20 action. Greenwich Capital's headquarters are located in Greenwich, Connecticut.
i
21' 31. Defendant HSBC, a Delaware corporation, is an investment bank and acted
22 as an underwriter with respect to several Note offerings relevant to this action. HSBC's
25 which acted as underwriter with respect to a Note offering relevant to this action. UBS's
i
26^ U.S. headquarters are located in New York, New York.
28 Chairman of Countrywide Pinancial's Board of Directors starting in March 1999 and Chief
b159213182612.1 _
3 34. Defendant David Sambol was Countrywide Financial's President and Chief
4 Operating Officer ("COO") From September 2006 through mid-200$, when he retired.
5 Beginning in 2407, Sambol was both Chairman and CEO of Countrywide Home Loans
6 and a member of its Board of Directors. From 2004 to 2005, Sambol was President and
7 COO of Countrywide Home Loans. Upon information and belief, Sambol resides in the
8 County of Los Angeles.
9 35. Defendant Eric Sieracki was at all relevant times Executive Vice President,
10 Chief Financial Officer ("CFO"}, Treasurer and member ofthe Board of Directors of
11 CWHEQ. Upon information and belief, Sieracki resides in the County of Los Angeles.
12 36. Defendant Ranjit Kripalani was at all relevant times a member of the Board
13 of Directors of CWHEQ. Upon information and belief, Kripalani resides in the County of
14 Los Angeles.
15 37. Defendant Jennifer Sandefur was at all relevant times a member of the Board
16 of Directors of CWHEQ. Upon information and belief, Sandefur resides in the County of
17 Las Angeles.
18 38. Defendant Stanford Kurland was at all relevant times CEO, President and
19 Chairman of the Board of CWABS. Upon information and belief, Kurland resides in the
23 action. Lehman Brothers is not named as a Defendant in this Complaint due to the petition
24 for bankruptcy protection under Section 11 of the Bankruptcy Code filed by Lehman
25 Brothers Holdings Inc. on September 15, 2008 and the Order Commencing Liquidation
26 entered on September 19, 2008 in Securities Investor Protection Corp. v. Lehman Brothers
27 Inc., No. 08 Civ. 8119 (GEL) (S.D.N.Y.}. But for this bankruptcy petition and Order
28 Commencing Litigation, Lehman Brothers would be a named Defendant in this action.
61542^3182612. i _^_
I
I^ FIRST AMENDED COMPLAINT
1 40. MBIA does not know the true names and capacities of the defendants sued
2 herein as John and Jane Doss i-100, inclusive , and therefore sues these defendants by
3 fictitious names pursuant to California Code of Civil Procedure Section 474. These
4 defendants are the employees , agents, affiliates , affiliated persons, professional
5 practitioners , alter egos and/or professional consultants of the named defendants , and the
s attorneys who had knowledge or reason to know that the named defendants' misconduct
7 would cause those who purchased the Notes substantial injury. MBIA will amend this
8 Complaint to allege the true names and capacities of these defendants when ascertained.
9 Each of the fictitiously named defendants caused , participated in, or aided and abetted the
10 wrongful acts alleged in the causes of action set forth below.
11
12 JURISDICTION AND VENUE
13 41. Subject matter jurisdiction is appropriate in this Court because the amount in
14 controversy exceeds this Court's jurisdictional minimum. Venue is appropriate in Los
15 Angeles County because a substantial part of the events giving rise to the claims far relief
16 occurred in Los Angeles County and Defendants' conduct caused injury in Los Angeles
17 County. This Court also has personal jurisdiction over all Defendants.
18 42. This action is not removable under the Class Action Fairness Act ("CAFA"}
19 ^ because it does not seek damages on behalf of at least one hundred persons,
20 2$ U.S.C. § 1332 (d}(11 }(B}(i}, and if it did , it would nevertheless fall within the securities
21 and/or home-state exceptions to CAFA. 2S U.S.C. § 1332 (d)(3}, (d)(4)( B}, (d}(9}.
22 43. This action is not removable under the Securities Litigation Uniform
23 Standards Act {"SLUSA") because SLUSA only allows removal of "covered " class actions
24 alleging misrepresentations " in connection with the purchase or sale of a covered security"
25 and seeking damages on behalf of more than fifty persons . 15 U_S.C. § 77bb(f}. This
26 action does not involve a "covered security" and it does not seek damages on behalf of
27 more than fifty persons or on a representative basis . Further, this action "seeks to enforce
28
6159?13E826E2.1
7 decades an industry leader in the residential mortgage lending industry. As the SEC noted,
S "^b]y 2005, Countrywide was the largest U.S. mortgage lender in the United States,
9 originating over $490 billion in mortgage loans in 2005, aver $4S0 billian in 2006, and
10 over $408 billion in 2007." SEC Complaint at 7. By March 31, 2008, Countrywide was
11 the largest originator and servicer of residential mortgage loans in the country. In the first
12 quarter of 2008 alone, despite a sharp decline in residential home sales, Countrywide
13 originated $73 billion in mortgage loans. During that same quarter, Countrywide serviced
14 and administered approximately $ i.5 trillion of residential loans originated by itself and
15 other Ienders, generating $1.4 billion in revenues.
17 Countrywide, itself or through affiliates, purchased and sold mortgage loans, provided loan
1$ closing services, provided residential real estate and home appraisal services in connection
19 with loan origination and servicing, managed a captive mortgage reinsurance company,
20 packaged and arranged securitizations of pools of mortgage loans, and underwrote public
21 offerings ofmortgage-backed securities in the secondary market.
23 mortgage loans that Countrywide originated each year were traditional long term, fixed-
24 rate, first lien mortgage loans to prime borrowers that met the guidelines for sale to the
25 Federal National Mortgage Association ("Fannie Mae"} or the Federal Home Loan
26 Mortgage Corporation ("Freddie Mac"). Fannie Mae and Freddie Mac are authorized to
27 purchase only mortgage loans that conform to specific regulatory guidelines (known in the
28 industry as "conforming loans"}. Conforming loans, if properly underwritten and serviced,
61592!3182612.] - ^ -
12 49. In or around 2003, there was rising de^^and on Wall Street for "private label"
13 securitizations ofnon-conforming loans. Private Iabel securitizations are arranged and
l4 .underwritten by private firms (i.e., not government-sponsored entities) and are comprised
15 of non-conforming loans that cannot be purchased by Fannie Mae and Freddie Mac.
16 Because they nay be comprised of riskier Ioans than those meeting Fannie Mae and
17 Freddie Mac's criteria, private Iabel securitizations generate higher returns for investors, as
1$ well as greater revenues For originators.
25 interest--only loans, Pay Option ARMS (an adjustable rate mortgage loan that allows a
26 borrower to make initial minimum monthly payments less than monthly accrued interest),
27 closed-end second liens ("CES"}, and home equity lines of credit ("HELOCs"}, with a
28 much broader base of potential borrowers. A HELOC is a variable-rate second lien on
61592C31$ ^612.I
2 The borrower's equity in the property {i.e., the value of the property above the amount of
3 the first lien) cailateralizes a specified line of credit that may be drawn dawn by the
4 borrower similar to a credit card. ACES is also collateralized by the borrower's equity,
5 but the loan is of a fixed amount. Because both are second liens, HELOCs and CESs are
b junior in priority to the first lien. By their terms, if the property is foreclosed on, the
7 proceeds from the sale of the property must be used to fully satisfy the first lien before the
8 second-lien HELOCs and CESs are paid.
9 S2. At the same time as it was expanding its origination of riskier second-lien
2s
61542f3182612. I _^^_
5 54. At issue in this action are f fteen securitizations issued by the Trusts between
6 October 29, 2004 and March 30, 2007: CWABS 2004-1, CWABS 2004-P, CWHEQ 2005-
7 A, CWHEQ 2005-E, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ
19 securitization. Countrywide Home Loans then conveyed pools of these mortgage loans to
20 a depositor, also a Countrywide entity, in exchange for cash. The depositor in turn
21 conveyed the pools of mortgage loans to the Countrywide-created Trusts for the purposes
22 of using the mortgage Ioans as collateral for asset--backed securities that would be sold to
23 investors. The Countrywide-created Trusts then worked with the underwriter, to price and
24 sell the RMBS Notes to investors.
25 56. Countrywide Securities and Greenwich Capital acted as underwriters for the
26 offering of the CWABS 2004-P, CWHEQ 2406-58, CWHEQ 2006-59, CWHEQ 2406-
27 S 10, CWHEQ 2007-5 1, CWHEQ 2007-52 and C WHEQ 2007-53 Notes. Countrywide
28 Securities and UBS acted as underwriters for the offering of the CWHEQ 2005-A Notes.
6159213182612 .1 ^ ^ ^ - " . _ _.
_._..
FIRST AMENDED COMPLAINT
I(
1 Countrywide Securities acted as underwriter for the offering of the CWABS 2004-I,
2 CWHEQ 2045-E, CWHEQ 2445-I, CWHEQ 2006-E, CWHEQ 2406-G, and CWHEQ
3 2407-E Notes. Countrywide Securities, Lehman Brothers , and HSBC acted as
7 5$. The cashflows from the pooled loans {payments of interest and principal)
8 were used to pay obligations on the RMBS Notes . The purchase of each Note was thus the
9 purchase of a right to participate in the cashflows generated by the pool of mortgages.
I4 Because the mortgages were the only collateral supporting the Notes, their credit quality
11 was, and continues to be, of critical importance to any Noteholder.
12 59. Countrywide arranged and securitized each of the fifteen RN1BS Note
13 securitizations through substantially similar contracts and transaction documents. Each
1 ^- securitization included: (a} a Purchase Agreement that provided for the sale of mortgage
15 loans to a depositor, a Countrywide affiliate created to effect the securitizations; {b) a Sale
lb and Servicing Agreement or a Pooling and Servicing Agreement that transferred the
17 mortgage loans to a single purpose trust, and confirmed the terms of Countrywide's
18 engagement by the trust to service the mortgage loans; and (c) a Trust Indenture ar a
19 Pooling and Servicing Agreement, which, among other things, established the rights of
20 holders of securities and the obligations of the trustee (collectively, the "Transaction
21 Documents").
22 64. Each Trust also filed a Prospectus and Supplement Prospectus, which
24 61. Countrywide Home Loans, each Trust and MB1A entered into an Insurance
25 Agreement that provided the terms for the issuance of an MBIA financial Note Guaranty
26 Insurance Policy that would be issued to the ^C'rust. In each transaction, the Insurance
27 Agreement incorporated the representations and the obligations of the parties in the
28 Transaction Documents.
6E592/3k82b12 .1 jl ,^4_
3 paid for their work only if the particular offering was completed and the Notes were
4 offered for sale. The Underwriter Defendants were less likely to be re-hired by
Countrywide to underwrite future RMBS Note offerings if they were unable to bring Note
i^ offerings to the public for sale.
6 i
7 63. Typically, the fee paid to the Underwriter Defendants on a securitization was
a certain percentage of the value of the deal The Underwriter Defendants generally were
paid a higher percentage if riskier loans were included in the securitization. Thus, the
9
Underwriter Defendants had significant financial incentive to finalize and close risky
10
securitizations and to bring the Notes to the public for sale.
11
64. As part of their responsibilities in connection with the securitizations and the
12
sale of the Notes, Countrywide Securities, the Underwriter Defendants or the issuers
13
retained due diligence firms, ostensibly to assess whether the underlying mortgage loans
14
complied with Countrywide`s stated underwriting guidelines.
15
65. Part of the due diligence firms' assessment included evaluation of a sample
i6
of the loans underlying each securitization. The loans from which the sample was drawn
17
were selected by Countrywide Securities andlor the Underwriter Defendants. This process
18
included culling out mortgage Ioans that were non-compliant with Countrywide's
19
underwriting guidelines.
2Q
66. Loans that did not comply with the underwriting guidelines were flagged by
21
the due diligence firm and brought to the attention of Countrywide Securities andlor the
22
Underwriter Defendants. Countrywide Securities andlor the Underwriter Defendants
23
determined whether the deviation was permissible or could be cured. If Countrywide
24
Securities andlor the Underwriter Defendants determined that the deviation was
25 per>issible or curable, the noncompliant mortgage loan would remain in the pool of loans
26 underlying the securitization. If Countrywide Securities andlor the Underwriter
27 Defendants determined that the deviation was material and could not be cured, they were
28 then supposed to remove the non-compliant loan from the pool of loans underlying the
6159213132612.1 ^^ _
FIiZST AMENDED COMPLAMT
securitization. If a significant number ofnon-compliant loans were discovered,
3 another sample from the pool for the due diligence firm to analyze. Frequently in practice,
4 however, a second sample was not reviewed because it would delay the sale of the Notes
i
and increase the expenses associated with the offering.
5
6 67. On information and belief, Countrywide Securities and the Underwriter
7 Defendants failed to disclose the true risk profile of the underlying mortgage loans
adequately. They classified non-compliant loans flagged by the third-party due diligence
8
firms as permissible by pointing to so-called "compensating factors" or by classifying
9
breaches of underwriting guidelines as curable when they were not. If adequate
10
disclosures had been made, the credit rating firms rating the Notes would have viewed the
11
Notes as riskier investments, the ratings would have been materially lower, and the Note
i2
Purchasers would not have purchased the Notes.
13
58. On information and belief, in addition to their failure to disclose adequately
14
the true level ofnon-compliance with Countrywide's underwriting guidelines,
15
Countrywide Securities and the Underwriter Defendants knew or should have known that
lb
the third-party due diligence firms retained to review the quality of the underlying
17
mortgages either were not capable of performing andlor had built-in incentives not to
i8 perform a thorough review of the loan files. Countrywide Securities, the Underwriter
19 Defendants and the due diligence firms they supervised were under pressure to handle
za numerous securifiizations across multiple issuers in very short time frames. Countrywide
zl Securities and the Underwriter Defendants knew that only superficial due diligence, at
22 best, could be and was being undertaken.
2b underlying the securitizations. The result was inadequate due diligence andlor disregard
27 and non-disclosure of the true risk prof le of the underlying loans, leading^to an alarmingly
28 high number ofnon-compliant loans being included in each of the securitizations.
G159213182G12.1
-lh- _^ __
FIRST AMENDED COMPLAINT
1 B. A Sample RMBS Securitization
2 70. The manner in which the CWHEQ 2005-E securitization was created,
3 marketed and sold, is described in greater detail below. Each of the other transactions is
4 substantially similar in every material respect.
5 {a} The Purchase Agreement
6 71. On or about August 30, 2005, Countrywide Home Loans entered into the
7 Purchase Agreement with its affiliate CWHEQ for the CWHEQ 2005-E transaction, in
8 which Countrywide Home Loans agreed to soil the pool of mortgage loans to CWHEQ.
9 {b} The Sale and Servicing Agreement
IO 72. On or about August 30, 2005, CWHEQ, Cauntry^vide Home Loans, .
11 CWHEQ Revolving Home Equity Loan Trust, Series 2005-E and rPMargan Chase Bank,
12 N.A. (the "Indenture Trustee"} entered into the Sale and Servicing Agreement. For CES
13 securitizations, the terms covered in the Sale and Servicing Agreement are included in
I4 Pooling and Servicing Agreements.l
15 73. Through these documents, CWHEQ agreed to convey all right, title and
16 interest in the mortgage loans to the Trust for the purpose of using the mortgage loans as
17 collateral for Notes to be sold to investors.
18 (c) The Prospectus
19 74. The Prospectus for the CWHEQ Revolving Home Equity Loan Trust, Series
20 2005-E, issued on August 4, 2005, described Countrywide' s business and operations. The
24 assist in determining whether the prospective borrower has sufficient monthly income
2S available to support the payments of principal and interest on the mortgage loan in addition
26
27 ' In some instances Countrywide Home Loans Servicing L.P. instead of Countrywide
Home Loans is a party to the Sale and Servicing or Pooling and Servicing Agreements.
28
6^592131$26E2 .1 ^ _ -
-t 7-
FIRST AMENDED COMPLAINT
1 to other monthly credit obligations." It also described the mortgage Ioans, and advised that
2 a Supplemental Prospectus would be f led with the SEC at the time of each offering of the
3 Notes.
4 (d) The Supplemental Prospectus
5 7S. The Supplemental Prospectus for CWHEQ Revolving Home Equity Loan
6 Trust, Series 2005-E, issued on August 2b, 2005, provided more specific information about
7 the mortgage loans backing the Notes, including representations that each mortgage loan
9 For example, the Supplemental Prospectus reiterated that the underwriting procedures
10 customarily employed with respect to home equity loans included "a debt-to-income ratio
11 to assist in determining whether the prospective borrower has sufficient monthly income
12 available to support the payments on the home equity loan," and that "If]ull appraisals are
13 generally performed on all home equity loans ....determined on the basis of a sponsor-
14 approved, independent third-party, fee-based appraisal completed on forms approved by
IS Fannie Mae or Freddie Mac."
16 (e) The Insurance Policies
17 76. On or about August 30, 2005, MBIA executed the Note Guaranty Insurance
I $ Policy, which provided that "MBIA . ^.. , in consideration of the payment of the premium
I9 and subject to the terms of this Note Guaranty Insurance Policy ... ,hereby
ZO unconditionally and irrevocably guarantees to any Owner that an amount equal to each full
21 and complete Credit Enhancement, Draw Amount will be received from the Insurer by
22 dPMorgan Chase Bank, N.A.... as indenture trustee for the Owners ... on behalf of the
23 Owners for distribution by the Indenture Trustee to each Owner of each Owner's
28 Revolving Home Equity Loan Trust, Series 2005-E transaction. The Insurance Agreement
61592!3 3 82612. [
4 78. Like CWHEQ 2005-E, the other fourteen transactions (CWABS 2004-I,
5 CWABS 2004-P, CWHEQ 2005-A, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E,
6 CWHEQ 2006-G, CWHEQ 2006-5$, CWHEQ 2006-59, CWHEQ 2006-510, CWHEQ
7 2007-E, CWHEQ 2007-S1, CWHEQ 2007-52, and CWHEQ 2007-53) were securitized
8 through the use of virtually identical agreements and Transaction Documents containing
9 identical terms, representations, and/or obligations. In addition, Countrywide, the Trust,
10 and MBIA entered into identical Insurance Agreements and META issued identical Note
11 Guaranty Insurance Policies. Therefore, this Complaint will not set forth in detail the
12 Transaction Documents for all the subsequent transactions. The dates of the remaining
13 fourteen transactions are as follows:
14 CWABS 2004-I September 29, 2004
1S CWABS 2044-P October 29 2004
16 CWHEQ 2005-A February 24, 2005
17 CWHEQ 2005-1 December 28, 2005
1$ CWHEQ 2005-M December 29, 2005
19 CWHEQ 2006-E .Tune 29, 2006
2a cwHEQ 2oo6 -G August 30, 2006
21 CWHEQ 2006 -58 December 28, 2006
22 CWHEQ 2006-59 December 29, 2006
23 CWHEQ 2006-5 l 0 December 29, 2006
28 ^I
3 reputation for disciplined underwriting standards, its commitment to high quality mortgage
4 loans to prime borrowers, and its comprehensive credit policy. Defendants intentionally
5 induced the Note Purchasers to believe that the same commitment, expertise and practices,
6 and specifically the disciplined application of Countrywide's credit policy, would be
7 applied to the mortgage loans underlying the Notes. In so doing, Defendants made
$ misrepresentations and omitted material facts in the offering documents and in relevant
10 {a) Each of the Trust Defendants issued the Notes pursuant to the
11 Prospectuses and Supplements and was identified as the issuer on the Prospectuses and
12 Supplements. Accordingly, the Trusts are responsible for the content of the Prospectuses
15 offered and sold the Notes pursuant to the Prospectuses and the Supplements and were
lb responsible for the content of the Prospectuses and Supplements and the representations
17 and material omissions therein. Countrywide Securities and the Underwriter Defendants
l 8 were responsible through their supervision of the due diligence firms to ensure that the
19 loans included in the securitizations complied with Countrywide's stated underwriting
20 guidelines. Given the financial incentives to get the securitizations to the market quickly,
21 the short turn-around time to conclude the due diligence process, and the large number of
22 loans to be reviewed, Countrywide Securities and the Underwriter Defendants knew or
23 should have known that adequate due diligence was not being performed.
24
2^
2h
27
28
3 offerings . Specifically, Defendant David Sambol signed CWHEQ ' s January 10, 2007,
4 March 2, 2007 and April 17, 2007 Registration Statements. Defendant Eric Sieracki
5 signed CWHEQ's July 21 , 2005, August 4, 2005, March 13, 2006, April 12 , 2006, April
6 17, 2007 and May 22 , 2007 Registration Statements. Defendant Ranjit Kripalani signed
7 CWHEQ's May 22, 2007 Registration Statement . Defendant Jennifer Sandefur signed
8 CWHEQ's May 22, 2007 Registration Statement . Defendant Stanford Kurland signed
9 CWABS' October 1 S, 2004 Registration Statement.
10 (d) CWHEQ oversaw the securitization process far the CWHEQ
11 Revolving Home Equity Loan Trust , Series 2005 -A, CWHEQ Revolving Home Equity
12 Loan Trust, Series 2005 -E, CWHEQ Revolving Home Equity Loan Trust, Series 2005-T,
13 CWHEQ Revolving Hame Equity Loan Trust , Series 2005 -M, CWHEQ Revolving Home
14 Equity Loan Trust, Series 2006 -E, CWHEQ Revolving Home Equity Loan Trust, Series
15 2006-G, CWHEQ Home Equity Loan Trust , Series 2006- 5$, CWHEQ Home Equity Loan
16 Trust, Series 2006- 59, CWHEQ Home Equity Loan Trust, Series 2006-510, CWHEQ
17 Revolving Home Equity Loan Trust, Series 2007-E, CWHEQ Home Equity Loan Trust,
18 Series 2007- 51, CWHEQ Home Equity Loan Trust , Series 2007 -52, and CWHEQ Home
19 Equity Loan Trust, Series 2007-53 Notes . Each of these Nate offerings was sold pursuant
22 Revolving Home Equity Loan Trust , Series 2004-1 Notes and CWABS Revolving Home
23 Equity Loan Trust, Series 2004-P Notes . These Note offerings were also sold pursuant to
24 the Prospectuses and Supplements as described herein.
25 80 . The June 4, 2009 SEC Complaint sets Earth haw the Countrywide
26 Defendants misled investors in at least six different material ways "by failing to disclose
27 substantial negative information regarding Countrywide ' s loan products." SEC Complaint
28 at 4 . For example , as the SEC Complaint asserts , "[alt]hough Countrywide proclaimed in
6159213!82612 ,1 ^) __ -21
4
Id. at 12-13 {emphasis in original).
5
A. MisrePresen #a#ions Regarding Coun#rywide's Underwri#ing S#andards
b
$1. Each Prospectus issued in connection with the Note offerings touted
7
Countrywide's "underwriting standards." lior example, the Prospectus stated:
However, the depositor will not include any Ioan in the trust
9 fund for any series of securities if anything has come to the
depositor's attention that would cause it to believe that the
10 representations and warranties of a seller will not be accurate
and complete in all material respects in respect of the loan as of
the date of initial issuance of the related series^of securities.
12
$2. Each Prospectus also Hated:
13!
Underwriting standards are applied by or on behalf of a lender
14^ to evaluate the borrower's credit standing and repayment
ability, and the value and adequacy of the related Property as
15
collateral. In general, a prospective borrower applying for a
16 loan is required to f 11 out a detailed application designed to
provide to the underwriting officer pertinent credit information,
I7 including the principal balance and payment history with
respect to any senior mortgage, if any. The applicable
I$
prospectus supplement may specify whether that credit
19 information will be verified by the seller or originator, but if it
does not, the credit information supplied by the borrower will
20 be verif ed by the related seller or originator. As part of the
description of the borrower's f nancial condition, the borrower
21 generally is required to provide a current list of assets and
22 liabilities and a statement of income and expenses, as well as
an authorization to apply for a credit report which summarizes
23 the borrower's credit history with local merchants and lenders
and any record of bankruptcy.
24
$3. The Supplements represented that each mortgage Ioan was underwritten in
25
accordance with Countrywide's traditional underwriting process:
26
The underwriting process is intended to assess the applicant`s
27 credit standing and repayment ability, and the value and
adequacy of the real property security as collateral for the
2$ proposed Ioan. Exceptions to the sponsor's underwriting
6159213182612, I
17 guidelines and credit risk management process were false. Under the direction of Mozila
18 and Sambol, Countrywide had adopted a new "corporate culture" of writing as many
19 mortgage loans as possible-and at the highest interest rates and fees possible-regardless
20 of the creditworthiness or even obvious fraud of the borrower. Once Mozilo and Sambol
21 had determined that profit growth through securitizations required accelerating loan
22 origination, Countrywide motivated its loan officers and external brokers to drive up loan
24 86. Countrywide also adopted policies and practices that reduced the relevance
6I 592/3! 82612, ! J^ - -
3 to justify any rejections. This created an incentive not to review loans thoroughly but
4 instead simply to rubber-stamp them approved. Senior management expanded the
5 authority of undertivriters and other employees to grant exceptions to mortgage loans that
6 failed to meet Countrywide's underwriting standards, which made it easier to accept a
7 risky mortgage loan and move on.
8 87. On information and belief, Mozilo and Samboi authorized the establishment
9 of the exception-based Structured Loan Desk in Plano, Texas, which was created
10 specifically to grant exceptions from Countrywide's stated underwriting guidelines.
11 According to the California Attorney General's complaint against Countrywide and
12 Mozilo, based on information provided by a former Countrywide employee, during 2006,
13 the Structured Loan Desk processed 15,000 to 20,000 mortgage loan applications a month,
14 which represented approximately 7.5% to 10% of all mortgage loans actually originated.
IS 88. Cauntrywide's deteriorating underwriting practices facilitated. and
20 its own stated underwriting guidelines made the Underwriter Defendants' related
21 representations regarding the mortgage loans , and thus the represented safe risk prof le
2z attendant to the Notes, materially false and misleading.
23 89. In fact, loan review by MB1A has revealed that approximately 91% ofthe
24 defaulted or delinquent loans in the Countrywide securitizations show material
25 discrepancies from the underwriting guidelines that Countrytivide represented it would
26 I, follow. The high level of material discrepancies demonstrates Countrywide's deliberate or
27 ^^, reckless disregard of the very underwriting guidelines it touted while it was selling the
28 ^I Notes at issue in this case. The tight correlation beriveen material discrepancies and
6 1 5 9213 1 825 1 2,1
2 ^ substantial and direct cause of the non-performance of the mortgage loans underlying the
3 ! Notes.
4 B. Failure to Disclose the Extent to Which Countrywide Was Processing
5 Fraudulent Applications
8 applicant before approving a mortgage loan. The various Prospectuses and Supplements
9 issued in connection with the Note offerings represented that even for loan applications
12 independent source {typically the borrower's employer) [and] which verification reports,
13 among other things, the length of employment with that organization and the borrower's
21 confirm income and assets. Countrywide itself has publicly admitted that it knew that any
22 failure to maintain rigorous standards was likely to result in delinquencies. In a July 2007
23 call with analysts, John McMurray, Countrywide's Chief Risk Officer discussed
24 delinquency trends, and acknowledged that reduced documentation programs will lead to
2s higher delinquencies absent adequate controls: "[D]ocumentation matters. The less
b Countrywide was required pursuant to its own credit policy and the standards in the
8 generally to try to verify employment income that appears suspicious_ A borrower who
9 inflates his income is less likely to be able to repay his Ioan, which Ieads to a higher
14 incidence of delinquencies and defaults in the mortgage loans, to the direct detriment of
11 the Note Purchasers. Despite the prevalence of a substantial number of loan applications
12 that contained highly suspicious reported employment income, Countrywide failed to take
13 sufficient, if any, corrective action.
6159213182b12 .t ^^ -'7-
w^..
'[AST AMENDED COMPLAINT
I home equity loans with credit limits between $100,000 and
2 $250,000, determined by the FICO score of the borrower,
Countrywide inay have the related mortgaged property
appraised electronically. The minimum and maximum loan
3
amounts far home equity loans are generally $7,504 {or, if
4 smaller, the state-allowed maximum} and $1,000,000,
respectively. Borrowers may draw under the ho^x^e equity loans
5 in minimum amounts of $250 and maximum amounts up to the
remaining available credit, in each case after giving effect to all -
b
prior draws and payments on the credit line. The minimum
^ amount for draws does not apply to borrowers that are Access
Card holders.
8
9 96. The representations in the Prospectuses and Supplements that the mortgage
i0 loans were appraised by independent third-parties were also untrue. Countrywide
11 regularly engaged appraisers that were affiliated with Countrywide, including, on
12 information and belief, appraisers that were owned ar controlled by Gountrywide, either
13 directly ar indirectly through interrnediate subsidiaries andlor subject to influence by
14 Countrywide. These misrepresentations caused harm to the Note Purchasers because it
15 created a conflict of interest for Countrywide. As originator aril securitizer ofthe loans,
I b Countrywide had an incentive to inflate the value of properties because doing so would
I7 result in a lower loan to value ratio ("LTV"}. A lower LTV ratio would allow a loan to be
18 approved as compliant with Countrywide's underwriting guidelines when it otherwise
19 would not be. But loans based an inflated appraisals are more likely to default and less
20 likely to produce sufficient assets to repay the second lien holder in foreclosure, both of
21 which directly harm Note Purchasers.
22 D. Misrepresentations and Omissions Regarding How Countrywide Home
23 Loans Was Servicing Its Loans
24 97. The Sale and Servicing Agree>r>;ents for the HELOC securitizations provide
25 that "[t]he Master Servicer shall service and administer the mortgage loans in a manner
2fi consistent with the Terms of this Agreement and with general industry practice." The
27 Pooling and Servicing Agreements far the CES securitizations also provide that "[the
28 Master Servicer shall service and administer the Mortgage Loans in accordance with
61592!31826 i 2. l
5 mortgage loans lagged behind the standards of the industry. The Master Servicer failed to
6 allocate sufficient resources to service and administer the loans, such as personnel to
7 address customer inquiries and to conduct follow-up efforts with delinquent borrowers.
8 The Master Servicer also provided inadequate resources for work-out plans. These failures
9 were exacerbated by the company's breal^-neck origination of loans in disregard of its own
10 underwriting guidelines, which led to an extraordinary increase in delinquencies, defaults,
11 foreclosures, bankruptcies, Iitigation, and other proceedings. The Prospectuses and
12 Supplements misrepresented these practices or failed to disclose them in the Notes'
13 offering documents.
14 99. On information and belief, the Master Servicer has also failed to service its
1S mortgage loans consistently with industry standards, including, for example, by refusing to
16 accept partial payments from borrowers. The Master Servicer also prematurely charged
17 off loans to the direct detriment of the Note Purchasers by charging off loans where the
18 borrower was able to and in fact, made payments after the date of the charge-off. The
19 Prospectuses and Prospectus Supplements misrepresented these practices or failed to
20 disclose them.
21 V. Additional Misrepresentations Made by„the„ Tndiy_idaal Defendants
22 104. Defendants Mozilo and Sambol were among Countrywide's senior
23 management at the time the HELOC and CES mortgages were underwritten, and the
24 securitizations were created and sold to the Note Purchasers. They were closely involved
25 in every aspect of Countrywide's core operations, including its policies and procedures
26 with regard to underwriting loans. Mozilo and Sambol's positions within Countrywide
6159213!82612.[
2 ^ Mozilo and Sambol also had the ability to control the content of Countrywide's public
3 statements, such as its representations to investors during investor forums. In some cases,
4 as cited herein, Mozilo and Sambol spoke on behalf of Countrywide by virtue of their
5 senior positions.
7 Financial , announced that Countrywide, already the industry Ieader with nearly a 15% loan
8 origination i^narket share , planned to double its market share within four years: "Our goal
9 is market dominance , and we are talking 30% origination market share by 2008." Mozilo
10 pledged, however, that Countrywide would target the safest borrowers in this market in
11 order to maintain its commitment to quality . "Going for 30/ mortgage share here is
6 1 59213 1 826 3 2. I
PII^ST AMENDED COMPLAI]VT
originating." (Emphasis added .) Sieracki added that, as to the Countrywide -originated
2^ HELOCs: "The credit quality of our home equities should be emphasized here as well.
3 We are 730 FICO on these home equities, and Chat 's extraordinary throughout the
4 industry." (Emphasis added.)
20 (Emphasis added.)
21 106. As explained above, representations that Cauntrywide' s lending practices
22 were conservative or responsible, that its corporate culture was ethical and characterized
23 by integrity, and that as its market share increased , Countrywide was not compromising its
24 underwriting standards, were patently false.
25 107. In addition to making these public statements, Sambol and Sieracki signed
26 registration statements that incorporated some or all of the Prospectuses and Supplements
27
28
61592131826f2,1
20 increased risk was nat disclosed to investors." Id. (explaining that "[inn 2007, as housing
21 prices declined, Countrywide began to suffer extensive credit problems as the inherent
22 credit risks manifested themselves"}.
23 Countrywide Financial
24 110. Countrywide Financial's underwriting practices also provide strong
25 circumstantial evidence of scienter. Countrywide adopted a new corporate culture under
26 the direction of Moziio and Sa^nbol aftivriting as many mortgage loans as possible-----and at
27 the highest interest rates and fees possible-regardless of the creditworthiness of the
2$ !, borrower. Once Mozilo and Samboi had determined that profit growth through
61 5 9213 1 8 26 12 .1 _'^2_
^I FIRST AMENDED COMPLAINT
1 ^^ securitization required substantially increased levels of loan origination , Countrywide
2 ^^ motivated, and pressured, its loan officers and external brokers to drive up loan volume
3 regardless of material deviations from stated underwriting guidelines. Countrywide and
7 I,^ regard to Countrywide' s underwriting practices, because those statements were at odds
8 with its practice of issuing highly risky mortgage loans to non-creditworthy borrowers,
9 often without requiring adequate documentation to verify the borrowers' income or
10 collateral . The IVew York Times has disclosed multiple internal Countrywide documents
11 showing that the company endorsed the issuance of risky mortgage loans, such as
16' 2008] to stop peddling another risky product, loans that were worth more than 95 percent
171, of a home's appraised value and required no documentation of a borrower's income."
18'^. Countrywide Home Loans
191 112. The prof t derived from the misrepresentations, in the form of increased
20^ ^ revenue via the origination, servicing, and sale of the mortgage loans through the
23 compliance with ids stated underwriting guidelines, Countrywide included loans in the
24 securitizations that were far riskier than what it represented to MBIA and the Note
25 Purchasers. Mare specifically, although Countrywide represented to MBIA that the loans
26 underl}ring the securitizations were prime second lien mortgages, the true risk prof le of the
27 loans was far different in that the loans were made to borrowers who could not afford to
28 repay the loans, or who committed fraud in loan applications, or who otherwise did not
61592/3182612 . f ^I ^'^ ^ _
^
FIRST AMENDED COMPLAINT
^^ satisfy the basic risk criteria for prudent and responsible lending that Countrywide claimed
2 to use. Moreover, the riskier the loan, the greater profits it generated for Countrywide
3 Home Loans, because the interest rates on those risky mortgages were higher than rates on
4 I! traditional loans.
3 Cou^ztrywide Securities
6 113. Countrywide Securities knew or should have known that it was selling Notes
7 pursuant to Prospectuses and Supplements that contained material misrepresentations and
8 omissions. Countrywide Securities was motivated to securitiee the mortgage loans and to
9 convince the Note Purchasers and other investors to purchase its securities because the
10 securitizations transferred virtually all of the risk of losses on the loans to the Note
11 Purchasers and other investors.
lz 114. Countrywide Securities was responsible for conducting and overseeing due
13 diligence on samples of the loans included in each of the securitizations. Countrywide
14 Securities knew or should have known that the pressure to get the offerings available for
I5. sale quickly and the sheer number of loans that needed to be reviewed across many deals
lb' for many issuers, made it inevitable that the required due diligence would not be done
171', andlor would not be done properly.
18'^ 115. Given the financial incentives for Countrywide Securities to close each deal
19 quickly and to move on to the next deal, Countrywide Securities turned a blind eye to the
20. non-compliant loans that it knew or should have known were included in the
21 securitizations
22 116. Countrywide Securities knew the quality of the underlying mortgage loans
23 was not as represented in the offering documents and failed adequately to disclose the
24 underlying loans ' true risk prof le. The result was the sale of RMBS Notes that included an
25 alarmingly high number of non-compliant loans, contrary to Defendants' representations.
26 CWHEQ
3 specifically to effectuate the scheme to transfer Cauntrywide's risk an its mortgage loans to
4 investors, knew that the Notes were going to be sold based on material misstatements and
5 omissions.
6 CWABS
7 118. CWABS was an entity formed by Countrywide specifically to act as the
8 depositor in two of the fifteen securitizations. As the depositor, CWABS conveyed the
9 peals of mortgage loans to the Countrywide--created-Trusts after they were conveyed to
14 CWABS by Countrywide Home Loans. CWABS, as a Countrywide entity created
11 specifically to effectuate the scheme to transfer Countrywide's risk on its mortgage loans to
12 investors, knew that the Notes were going to be sold based an material misstatements and
13 omissions.
14 119: The U.S. District Court for the Central District of California concluded in a
15 200$ order in In re Countrywide, 588 F. Supp. 2d 1132, 1156 (C.D. Cal. 2008), that the
16 note purchasers in that action had presented a "cogent and compelling inference of
17 scienter" as to each defendant, based an similar allegations and facts as set forth in this
18 Complaint. The federal court stated that Countrywide's public representations about its
19 loan origination, servicing, and other tapirs "go to scienter because they ...directly
20 contradict the [complaint's] allegations about Countrywide's care operations[, such as the
21 allegation that Countrywide abandoned its underwriting standards]. Yf the [complaint's]
22 allegations are accurate, these statements [by Countrywide] are so objectively out of line
23 with Cauntry^^+ide's practices that they contribute to a strong inference of scienter." Id. at
24 1185.
25 B. The Underwriter Defendants
26 120. The Underwriter Defendants knew or should have known that they sold
27 Notes pursuant to Prospectuses and Supplements that contained material misstatements
28 and omissions.
6ts9zr^iaz6iz.i
FIRST AMENDED COMPt,AINT
1 121. The Underwriter Defendants wore responsible for conducting and overseeing
2 due diligence an samples of the loans included in each of the securitizatians. The
3 Underwriter Defendants knew or should have known that the pressure to get the offerings
4 available for Salo quickly and the sheer number of loans that needed to be reviewed across
5 many deals for many issuers, made it inevitable that the required due diligence would not
8 close each deal quickly and move on to the next deal, the Underwriter Defendants allowed
9 non-compliant loans to be included in the securitizations.
1Q 123. The Underwriter Defendants knew the quality of the underlying mortgage
11 loans was not as represented in the offering documents. The Underwriter Defendants
12 failed adequately to disclose the true risk profile of the underlying loans . The result was
13 the sale of Notes based on securitizations that each included an alarmingly high number of
14 non-compliant loans.
15 C. The Trust Defendants
16 124. The Trust Defendants also knew that the representations in the Prospectuses
17 and Supplements were not true and the omissions therein were materially misleading. The
18 Trust Defendants issued the Notes pursuant to Prospectuses and Supplements. The Trust
19 Defendants were each organized by Countrywide. Each Trust Defendant either is charged
20 with the Countrywide Defendants' knowledge of the above-referenced misstatements and
2I material omissions, or recklessly disregarded the truth. Further, the Trust Defendants were
22 reckless in issuing the Notes pursuant to the Prospectuses and Supplements without any
6154213182fi12 . 1 II _ _3^_
FIRST AMENDED COMPLAINT
'^^ Countrywide executive who has filed suit against Countrywide far wrongful termination,
^ in and around 2006, Countrywide loan officers engaged in a practice known within
Countrywide as "flipping" an application . Loan officers who learned that a loan
^ application submitted under the Full Documentation Program was unlikely to be approved
would " flip" the application far consideration under a reduced documentation application
program. According to Zachary, loan officers would coach applicants on the level of
J employment income needed to qualify For a mortgage loan, and then would accept a
revised loan application containing an inflated reported income. The loan officer would
submit the revised loan application under a reduced documentation program far
10 consideration by the subprime mortgage loan operations unit in Plano , Texas. According
11 to Zachary, he complained to Countrywide ' s regional management about this practice, but
12 his complaints were ignored.
13 126. The SEC Complaint details numerous emails sent and received by Mozilo,
1d Sambol and Sieracki , which demonstrate conclusively that all three of these senior
15 executives knew that the mortgage loans being underwritten by Countrywide were far
16 riskier than what was being publicly disclosed . In several emails by Mozilo, for example,
17 he refers to Countrywide' s aggressive products as "taxis ," " dangerous," or "poison." SEC
18 Complaint at 20, 21. Different internal committees at Countrywide , such as the Risk
19 Management and the Credit Risk Committee, warned Countrywide's senior executives that
20 the aggressive features of Countrywide 's actual underwriting guidelines {e.g., high LTV
21 programs, ARM loans , interest only loans , reduced documentation loans, and loans with
23 Manila, Sambol and Sieracki proceeded to file Cauntrywide's Forms 10-K for 2005, 2006
24 and 2007 , each of which they knew falsely represented that Countrywide " manageCd]
25 credit risk through credit policy , underwriting, quality control and surveillance
26 activities ." Id. at 3 . The 2005 and 2006 Forms 10-K also falsely stated that Countrywide
27 ^ ensured its continuing access to the mortgage backed securities market by "consistently
2$ producing quality mortgages." Id.
6159?13182617, I _^ 7_
3 corporation they led, which personally benef ted them in the form of increased
4 compensation and increased value of their Countrywide investments, among other ways.
5 12$. Mozilo and Sambol were closely involved in the daily management of all
6 aspects of Countrywide's core operations. During a conference call with analysts in 2005,
7 Mozilo stated that "1 do participate every day in originations myself, and it keeps me
$ apprised of what's happening." Mozilo and Sambol were also involved with management
9 committees and the Board of Directors, which kept them apprised of developments in
IO Countrywide's business practices and the mortgage industry. Mozilo and Sambol were
I1 also responsible far making or overseeing many of the public statements issued by
12 Countrywide that contained material misrepresentations.
i3 129. The federal court in In re Countrywide also recognized that Mozilo and
14 Sambol's actions give rise to a strong inference of scienter. The court concluded that
15 "[s]ome of [Mozilo's] public statements appear to demonstrate that he knew others of his
lb statements were false when made." 588 1~. Supp. 2d at 1192. The court highlighted many
19 standards. The court concluded that "[a]ccepting the [Complaint's] extensive allegations
20 regarding Mozilo's understanding of Countrywide's day-to-day operations---his self
21 proclaimed `hands on' approach, his long career with Countrywide, and the detailed loan
22 and exception statistics [that Mozilo presented publicly]-the [Complaint] supports the
23 inference that Mozilo intended his statements to mislead the market ...." Id. at 1193.
24 130. As to Sambol, in light of his senior management position as President and
25 Chief Operating Officer, the court held that ``[t]aken together, Sambol's job positions,
2b duties, and access to corporate reports and information systems give rise to a strong
27 inference of scienter." Cd. at 1192. The same reasoning applies in this case: Mozilo and
28
6i592l3182612 . E ^^ p .`___
-^SZ
FIRST AMENDED COMPLAINT
1 Sambol had the motive and opportunity to commit fraud against the Note Purchasers, as
2 described herein , by virtue of their senior management positions in Countrywide.
6 2005, March 13, 2006, April 12, 2006, April 17, 2007 and May 22, 2007 Registration
7 ^ Statements . Based on his management position , Sieracki knew or should have known that
^ the Registration Statements he signed contained material misrepresentations and
9 omissions.
10 132. There is also circumstantial evidence of Jennifer Sandefur's scienter.
li ^ Sandefur was at all relevant times a member of the Board of Directors of CWHEQ.
12 Sandefur signed CWHEQ's May 22, 2007 Registration SCatement . Based on her
13 management position , Sandefur knew ar should have known that the Registration
14 ^ Statement she signed contained material misrepresentations and omissions.
15 133. There is also circumstantial evidence of Stanford Kurland's scienter.
16 ^ Kurland was at all relevant times CEO , President and Chairman of the Board of CWABS.
17 Kurland signed CWABS' October 18, 2004 Registration Statement . Based on his
18 management position, Kurland knew or should have known that the Registration Statement
19 he signed contained material misrepresentations and omissions.
27 to assure the Note Purchasers that the Notes were sensible investments.
28
2 ^^ caused the Notes to be far riskier-and their rate of payment defaults far higher than
3 ^^ described. The mortgage loans underlying the Notes experienced defaults and
4 ^^ delinquencies at a much higher rate due to Countrywide 's abandonment of its loan-
5 ^ origination guidelines . The missed payments suffered by the Note Purchasers have been
6 much greater than they would have been if the mortgage loans.had been as represented
10 '^,^ the loans underlying the securitizations first became apparent in the late fall of 2007.
11 Because of the number of loan delinquencies and defaults, and subsequent charge-offs, the
l2 total cash flow from the mortgage payments in several of the securitizations was
13 insufficient for the Trusts to meet their payment obligations to holders of the RMBS Notes.
1 ^1 In November 2007, the charge-offs resulting from the deficiencies and defaults caused the
15 Trusts to submit claims on MBIA's Nate Guaranty Insurance Policies, demanding that
16 MBIA cover the shortage of funds. Many of delinquent loans defaulted and were
17 subsequently charged off, increasing MBIA's exposure to even greater claims.
18 137. As default events occurred , MBIA diligently complied with its obligations
19 ^ under the Insurance Agreements and the Note Guaranty Insurance Policies. In November
20 2007, for example, MBIA paid claims of $2.49 million on the CWHEQ 2006-E transaction
2i and $11.3 million on the CWHEQ 2006-G transaction. As of September 2008 , MBIA had
22 paid over $459 million on the Policies issued by MBIA that covered Countrywide's
23 securitizations . As of May 20, 2049, MBIA had paid aver $1 . S billion on the Policies
24 ^ issued by MBIA that covered the securitizations.
26 138. As a result of the facts coming to light in the wake of the above-cited
27 ',^ defaults, Countrywide's market capitalization had declined by more than 90% in just one
28
61542/3i826i2.1
-4f?-
FiRSTAMENDED COMPLAINT
f
1 year, losing $25 biilian in value . Bank of America acquired Countrywide for just 27% of
2 Countrywide ' s stated $ i 5.3 billion book value.
3 139. The scope and breadth of Countrywide ' s fraudulent schemes and other
4 unlawful conduct have prompted a substantial number of public and private inquiries,
5 investigations and actions . The actions are based , in part, upon misconduct by
6 Countrywide and its personnel that was inconsistent with Countrywide 's representations to
7 investors.
8 140. On information and belief, the Department of Justice and the SEC are
9 investigating potential securities fraud by Countrywide and its personnel in the
12 the stock trading price , and allegations of insider trading by Mozilo and Samboi. As
I3 recently as June 4, 2409 , the SEC announced that it has f led civil fraud charges against
i4 Mozila for insider trading, and against Sambol and Sieracki for failing to disclose the
15 firm' s relaxed lending standards in its 2006 Annual Report.
16 141. A number of States and municipalities have announced investigations of
i7 Countrytivide ' s lending practices, and several Nava commenced actions against
18 Countrywide . Bank of America recently paid to restructure certain of Countrywide's
19 home loans , including settling apredatory - lending lawsuit brought by state attorneys
20 general by agreeing to modify up Co 390 , 040 Countrywide loans, an agreement valued at
21 up to $8 .4 billion.
24 Countrywide' s statements in and around the period between 2004 and 2047 , particularly
25 allegations that Countrywide failed to disclose the expansion of its origination of subprime
26 and other higher-risk mortgage loans, and consumer actions challenging Countrywide's
27 lending practices.
28
61592!3182612.!
_^^.,
FIRST AMENDED COMPLAINT
I i
11 X. The Note Purchasers ' Substantial Damages and MBIA's Ri^hts as Subrogee
2 143. Defendants' misconduct has caused substantial harm. Because the mortgage
3 loans failed to live up to the representations made by Countrywide and the Individual
4 Defendants, the loans were more prone to default than they would have been if
i7 146. CWHEQ Revolving Home Equity Loan Trust, Series 2005-E and the
18 Indenture Trustee entered into an Indenture on or about August 30, 2005, which set forth
19 the Note Purchasers' rights and the Trustee's obligations. In the event that defaults in the
2a mortgage loan pool result in a shortfall of funds for the Trust to make required payments
21 on the securities, the Trustee is to submit a claim on the Policy, and MBIA is to fund the
22 shortfall. Indenture Agreement § 8.05(a).
23 147. The Note Guaranty Insurance Policy provided that:
24
25
z Just as each securitization was created, marketed and sold in a substantially similar
26 manner, each securitization had agreements virtually identical to those entered into for the
61592/3183512.1 II
^-
^'IRST AMENDED COMPLAINT
/.
24
25 Pursuant to the Insurance Agreement, "The Master Servicer, the Sponsor, the
Depositor, the Issuer and the Indenture Trustee" agreed that MBIA would "have ali rights
26 of a third-party beneficiary in respect of the rights provided to [it] under the Sale and
27 Servicing Agreement, the Indenture and each other Transaction Document to which i# is
not a signing party." Insurance Agree>.ncnt § 4.04(e).
28
61592131$2612.1
FIRST AMENDED COMPLAINT
1 such subrogation and to perfect the rights of the Insurer to
receive any moneys paid or payable under the Indenture.
2
3 Insurance Agreement § 4.08.
4 150. As a result of Defendants ' conduct, the Trustee has submitted claims on
5 behalf of the Note Purchasers in excess of $1.5 billion based on the Trusts' inability to
6 make required payments on the Notes. MBIA has been forced to pay those shortfalls.
7 1 ^ 1. The delinquencies and defaults the mortgage loans have suffered have
8 greatly reduced the cashflows available to pay Note Purchasers going forward, making
9 further missed principal and interest payments inevitable.
10 Xi. Bank of America Is Liable as aSuccessor-in-Interest
11 152. On July 1, 2008, Bank of America acquired Countrywide Financial through
12 an all-stock transaction involving a Bank of America subsidiary that was created for the
13 sole purpose of facilitating the acquisition of Countrywide Financial.
14 153. Countrywide Financial and its subsidiaries, which include each of the
15 Countrywide Defendants, are now wholly-owned subsidiaries of Bank of America. Bank
lb of America is Iiable for the wrongdoing of the Countrywide Defendants because it is the
17 successor-in-interest to each of the Countrywide Defendants.
18 15^-. Substantially all of Countrywide Financial's and Countrywide Home Loans'
19 assets were transferred to Bank of America on November 7, 2008. Countrywide Financial
20 ceased filing its own financial statements in November 2008, and its assets and liabilities
21 have been included in Bank of America's recent financial statements. Bank of America
22 has paid to restructure certain of Countrywide Financiai's home loans on its behalf,
6 [ 592I3182b 12.1
2 } Country^vide Financial as a merger, and has made clear that it intends to integrate
3 Countrywide into Bank of America fully by the end of 2009.
4 i 56. For example, in a Juiy 2008 Bank of America press release, Barbara Desoer,
5 identified as the head of the "combined mortgage, home equity and insurance businesses"
6 of Bank of America and Countrywide, said: "Now we begin to combine the two companies
7 and prepare to introduce our new name and way of operating." The press release stated
8I that the bank "anticipates substantial cost savings from combining the two companies.
91, Cost reductions wi!! come from a range of sources, including the elimination of positions
101 announced last week, and the reduction of overlapping technology, vendor and marketing
llll expenses. In addition, the company is expected to benefit by leveraging its broad product
12' set to deepen relationships with existing Countrywide customers."
13' 157. In its 2008 Annual Report, Bank of America conf rmed that "[o]n July 1,
14' 200$, we acquired Countrywide," and stated that the merger "significantly improved our
15 ', mortgage originating and servicing capabilities, making us a leading mortgage originator
1611 and servicer." In the Q&A section of the same report, the question was posed: "How do
171 the recent acquisitions of Countrywide and Merrill Lynch fit into your strategy?" Bank of
181 America responded that by acquiring Countrywide it became the "No. 1 provider of both
191 mortgage originations and servicing" and "as a combined company," it would be
20, recognized as a "responsible lender who is committed to helping our customers become
211 successful homeowners." (Emphasis added.)
22 ', 158. Similarly, in a July 1, 2008 Countrywide press release, Defendant Mozilo
23' stated that "the combination of Countrywide and Bank of America will create one of the
25 159. At least some of the Countrywide Defendants have retained their pre-merger
26 corporate names following the merger with Bank of America. However, on April 27,
27 2009, Bank of America announced in a press release that "[t]he Countrywide brand has
28' been retired." Bank of America announced if will operate its borne loan and mortgage
6159213182612, ] { __ _.,. _4 ^^
1 ^'IItST AMENDED COMPLAINT
1 business through a new division named Bank of America Home Loans, which "represents
2 the combined operations of Bank of America's mortgage and home equity business and
3 Countrywide Home Loans." The press release made clear that Bank of America plans to
4 complete its integration of Countrywide Financial into Bank of America "later this year."
5 160. In the interim, according to the Bank of America website, "Countrywide
6 customers ...have access to Bank of America's 6,100 banking centers." The old
7 Countrywide website redirects customers to the mortgage and home loans section of Bank
8 of America's website. According to press reports, Bank of America Home Loans will
9 operate out of Cauntrywide's offices in Calabasas, California with substantially the same
10 employees as the former Countrywide entities.
11 161. Desoer was also interviewed for the May 2009 issue of Housing Wire
12 magazine. The article reported that
13 While the move to shutter the Countrywide name is essentially complete, the
operational effort to integrate across two completely distinct lending and
14 service systems is just getting under way. One of the assets BofA acquired
with Countrywide was a vast technology platform for originating and
15 servicing loans, and Desoer says that the bank will be migrating some
aspects of BafA's mortgage operations over to Countryw^de's platforms.
16
162. Desoer was quoted as follows: "We're done with defining the target, and
1'7'
we're in the middle of doing the development work to prepare us to be able to do the
18
conversion of the part of the portfolio going to the legacy Countrywide platforms." Desoer
19
explained that the conversion would happen in the "late fall" of 2009, and that the
20
integration of the Countrywide and Bank of America platforms was a critical goal.
21
163. Following its merger with Countrywide Financial, Bank of America took
22
steps to expressly and impliedly assume Country^vide's liabilities. Substantially all of
23
Countrywide's assets were transferred to Bank of America on November 7, 2008, "in
2^-
connection with Cauntrywide's integration with Bank of America's other businesses and
25
operations," along with certain of Countrywide's debt securities and related guarantees.
26
Countrywide Financial ceased filing its own f nancial statements in November 2008, and
27
28
6159213182612.1
2 statements.
6 Handling all this litigation won't be cheap, even for Bank of America,
the soon-to-be largest mortgage lender in the country. Nevertheless,
7 the banking giant says that Countrywide's legal expenses were not
overlooked during negotiations. "We bought the company and all of
8 its assets and liabilities, "spokesman Scott Silvestri says. "We are
aware of the claims and potential claims against the company and
9 have factored these into the purchase. "
10 (Emphasis added).
11 In purchasing Countrywide for 27% of its book value, Bank of America was fully aware of
12 the pending claims and potential claims against Countrywide and factored them into the
13 transaction.
14 165. Similarly, Bank of America's former Chairman and Chief Executive Officer
15 Kenneth D. Lewis was recently quoted in a January 23, 2009 New York Times article
16 reporting on the acquisition of Countrywide, in which he acknowledged that Bank of
17 America knew of Countrywide's legs! liabilities and impliedly accepted them as part of the
18 cost of the acquisition:
24 166. Because Bank of America has merged with Countrywide Financial, and
25 acquired substantially all of the assets of all the Countrywide Defendants, it is the
26 successor in liability to Countrywide. Bank of America is jointly and severally liable for
27 the wrongful conduct alleged herein of the Countrywide Defendants.
28
6I592^182612 . ] _Y^ O A
S 176. Under the Indenture Agreements, Indentures and Note Guaranty Insurance
fi Policies, as well as the laws of the State of California, MBIA may bring these claims as the
9 ^ and the Underwriter Defendants violated California Corporations Code Section 25401, and
10 II are liable under California Corporations Code Section 25501 to MBiA as subrogee to the
13 {Against Bank of America , CWHEQ, CWABS, the Individual Defendants , and Does
IS 178. MBIA incorporates by reference and realleges each and every allegation as
IG II set forth above in paragraphs 1 through 177 as if fully set forth herein.
17 i79. CWHEQ, CWABS, the Individual Defendants and Daes 51-I00 are liable
18 for the above-stated violations of Corporations Cade Section 25401 because they were
19 controlling persons of one or more of Countrywide Securities, the Trust Defendants and/or
21 I $0. CWHEQ was at all relevant times the depositor in thirteen of the relevant
2 of Directors starting in March 1999 and CEO starting in February 1998 until he resigned
5 Securities.
6 183. Defendant David Sambol was Countrywide Financiai's President and COO
11 CFO, Treasurer and member of the Board of Directors of CWHEQ, and therefore was a
12 control person of CWHEQ, which in turn controlled thirteen of the fifteen Trust
13 Defendants.
14 185. Defendant Ranjit Kripalani was at ail relevant times a member of the Board
15 of Directors of CWHEQ, and therefore was a control person of CWHEQ, which in turn
18 of Directors of CWHEQ, and therefore was a control person of CWHEQ, which in turn
19 controlled thirteen of the fifteen Trust Defendants.
20 187. Defendant Stanford Kurland was at all relevant times CEO, President and
21 Chairman ofthe Board of CWABS and therefore was a control person of CWABS, which
22 in turn controlled Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-I
23 and Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-P.
26 189. Does 51-100 are officers, directors, agents, affiliated persons, and/or
27 employees of Countrywide Securities, the Trust Defendants and/or the Underwriter
28
61592!3182612.]
--50-
FIRST AMENDED COMPLAINT
1 Defendants, and each of them controlled one or more of Countrywide Securities, the Trust
2 Defendants and/or the Underwvriter Defendants.
3 190. The Note Purchasers suffered damages as a result of the violations of Section
4 25401 by primary violators of which the above Defendants were control persons.
5 191. The Note Purchasers did not know, or in the exercise of due diligence could
6 not have known, of the untruths and omissions.
7 192. Under the Indenture Agreements, Indentures and Note Guaranty Insurance
8 Policies, as well as the laws of the State oFCalifornia, MBIA may bring these claims as the
17 CWHEQ, CWASS, the Trust Defendants, the Underwriter Defendants, and Does )l-
19 194. MBIA incorporates by reference and realleges each and every allegation as
20 set forth above in paragraphs 1 through 193 as if fully set forth herein.
6159213182512.1
8 Corr^rtry3vide Securities
20 Securities knew or should have known, however, that because of the pressure to get the
21 offerings available for sale quickly, the sheer number of loans that needed to be reviewed
z2 across many deals for many issuers, and the short time frames within which to complete
23 the due diligence, the required due diligence could not be done and was not being done
24 properly.
25 203. In addition, given the financial incentives for Countrywide Securities to
26 bring the securitizatians to the market regardless of the quality of the loans included within
27 ^ them, Countrywide Securities allowed non - compliant loaazs to be included in the
28 I securitizations.
6isgzr^ESZSiz.i
FIRS`r AMENDED COMPLAINT
1 204. Countrywide Securities knew the quality of the underlying mortgage loans
2 was not as represented in the offering documents and Countrywide Securities knowingly
3 failed adequately to disclose the true risk profile of the underlying loans.
4 CWHEQ
5 205. Defendant CWHEQ was, at all times herein mentioned, alimited-purpose
6 subsidiary of Countrywide Financial, and the depositor in thirteen of the f fteen relevant
7 securitizations.
8 206. At the ti^r^e of the acts alleged herein, CWHEQ materially assisted
9 Countrywide Securities', the Trust Defendants' and the Underwriter Defendants' violations
14 of California Corporations Code Section 25401 in that it transferred the mortgage loans to
11 the CWHEQ Trusts, which in turn issued the Notes.
12 207. CWHEQ acted with intent to deceive or defraud.
13 CWABS
14 208. Defendant CWABS was, at all times herein mentioned, alimited-purpose
15 subsidiary of Countrywide Financial, and the depositor in two of the relevant
16 securitizations.
17 209. At the time of the acts alleged herein, CWABS materially assisted above-
18 mentioned violations of California Corporations Code Section 25441 in that it transferred
19 the mortgage loans to the CWABS Trusts, which in turn issued the Notes.
20 210. CWABS acted with intent to deceive or defraud.
21 The Trust Defendants
22 21 i . The Trust Defendants were, at all times herein mentioned, trusts formed by
23 Countrywide for the limited purpose of issuing Notes to investors.
24 212. At the time of the acts alleged herein, the Trust Defendants materially
61592f3182612. ]
23 was completed and the Notes were offered for sale. The Underwriter Defendants were
24 paid higher fees if riskier loans were included in the securitizations. Moreover, the
25 Underwriter Defendants knew that Countrywide would not continue to use them to
26 underwrite securitizations if they were unable to offer the Notes for sale quickly and with
27 little alteration to the included loans.
2s
6359213182612. [
3 knowingly Failed adequately to disclose the true risk profile of the underlying loans.
4 Bank of Amerrca
6 Countrywide Securities, CWHEQ, and CWABS, is liable for the wrongdoing and damages
7 caused by Countrywide Home Loans, Countrywide Securities, CWHEQ, and CWABS.
8 Does 1-SO
9 221. Each of Does 1-50 was, at all times herein mentioned, a corporation, a
I3 Countrywide Securities', the Trust Defendants', and the Underwriter Defendants' violation
i4 of California Corporations Code Section 25401.
i5 223. Each of Does 1-50 acted with intent to deceive ar defraud.
1b 224. Under the Indenture Agreements, Indentures and Note Guaranty Insurance
17 Policies, as well as the laws of the State of California, MBIA may bring these claims as the
I8 Note Purchasers' subrogee.
20 Home Loans, Countrywide Securities, CWHEQ, CWABS, each of the Trust Defendants,
21 and each of Does 1-50 materially assisted the violations of California Corporations Code
22 Section 25401, and are jointly and severally liable to MBIA as subrogee under California
24
25
26
27
28
b1592/3182612,i
-55-
Ir IRST AMENDED COMPLAINT
1 FOURTH CAUSE OF ACTION
2 (Against Bank of America, the Countrywide Defendants, the Trust Defendants,
3 Angelo Mozilo, David Sambol , Eric S.ieracki , Ranjit Kripalani , Jennifer Sandefur,
4 Stanford Kurland and Does 1-100 for Common-Law Fraud)
5 226. MBIA incorporates by reference and realleges each and every allegation as
b set forth above in paragraphs 1 through 225 as if fully set forth herein.
7 Countrywide Defendants
227. As set forth in detail above, each of the Countrywide Defendants made
9 ^ fraudulent and false statements of material fact and intentionally omitted material facts in
14 connection with the offer and sale of the Notes.
11 228. Each of the Countrywide Defendants knew that the above-listed
12 ^ representations and omissions were false and/or misleading when made.
13 229. Each of the Countrywide Defendants deliberately made misleading and false
14 I statements with the intent to defraud the Note Purchasers.
15 230. The Note Purchasers j ustifiably relied on the Countrywide Defendants' false
17 231. Had the Nate Purchasers known the true facts regarding the Countrywide
18 Defendants' underwriting practices and quality of the loans making up the securitizations,
25 statements of material fact and intentionally omitted material facts in connection with the
26 offer and sale of the Notes.
27 234. Each of the Trust Defendants knew that the above-listed representations and
61592l318?6f2.1
-5 h-
FIRSTAMENDED COMPLAINT
1 235. Each of the Trust Defendants deliberately made the above-listed misleading
2 and false statements with the intent to defraud the Note Purchasers.
3 236. The Nate Purchasers justifiably relied on the Trust Defendants'
4 representations and false statements.
5 237. Had the Nate Purchasers known the true facts regarding the Trust
6 Defendants' underwriting practices and quality of the loans making up the securitizations,
7 the Note Purchasers would not have purchased the Notes.
$ 23$. As a result of the Trust Defendants' false and misleading statements and
9 omissions, as alleged herein, the Note Purchasers have suffered damages in an amount not
10 yet fully ascertained.
11 Ba^zk of America
22 fraud in the form of increased revenue for the corporation he led, and increased
23 compensation and increased value of his Countrywide investments.
24 243. The Note Purchasers justifiably relied on Mozilo's representations and false
25 statements.
2b 244. Had the Note Purchasers known the true facts regarding Mozilo's false and
27 misleading statements, the Note Purchasers would not have purchased the Notes.
2$
61592/3 i 82612. !
2 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully
3 ascertained.
4 David Sayn6ol
S 246. David Sambol made fraudulent and false statements of material fact and
6 omitted material facts in connection with the offer and sale of the Notes as set forth above.
7 247. Sambol knew that the above-listed statements were false when made. He
8 knew facts or had access to information suggesting that his public statements, and
12 the fraud in the form of increased revenue for the corporation he led, and increased
14 249. The Note Purchasers justifiably relied on Sambol's representations and false
1S statements.
i6 250. Had the Note Purchasers known the true facts regarding Sambol's false and
17 misleading statements, the Note Purchasers would not have purchased the Notes.
19 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully
20 ascertained.
21 Eric Sieracki
22 252. Eric Sieracki made fraudulent and false statements of material fact and
23 omitted material facts in connection with the offer and sale of the Notes as set forth above.
24 253. Sieracki knew that the above-listed statements were false when made. He
2S knew facts or had access to information suggesting that his public statements, and
I 255. The Note Purchasers justifiably relied on Sieracki 's representations and false
2 statements.
3 256. Had the Note Purchasers known the true facts regarding Sieracki 's false and
4 misleading statements, the Note Purchasers would not have purchased the Notes.
5 257. As a result of Sieracki' s false and misleading statements and omissions, as
6 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully
7 ascertained.
8 Ranjif Kripalani
9 25$. Ranjit Kripalani made fraudulent and false statements of materia ! fact and
10 omitted material facts in connection with the offer and sale of the Notes as set forth above.
11 259. Kripalani knew that the above-listed statements were false when made. He
12 knew facts or had access to information suggesting that Countrywide 's statements were
13 untrue and/or materially misleading, but he failed to disclose that information.
14 260. Kripalani intended to defraud the Nate Purchasers.
15 261. The Note Purchasers justifiably relied on Kripaiani 's representations and
16 false statements.
17 262. Had the Note Furchasers known the true facts regarding Kripaiani's false and
1$ misleading statements , the Note Purchasers would not have purchased the Notes.
21 ascertained.
22 Jennifer Sandefur
23 264. rennifer Sandefur made fraudulent and false statements of material fact and
24 omitted material facts in connection with the offer and sale of the Notes as set forth above.
25 265 . Sandefur knew that the above- listed statements were false when made. She
26 knew facts or had access to information suggesting that Countrywide ' s statements were
27 untrue and/or materially misleading, but she failed to disclose that information.
G1592l3182fi12,1
- ^^Q-
}:IRSTAMENDED COMPLAINT
3 J
1 267. The Note Purchasers justifiably relied on Sandefur 's representations and false
2 statements.
3 268 . Had the Note Purchasers known the true facts regarding Sandefur' s false and
4 misleading statements, the Nate Purchasers would not have purchased the Notes.
5 269. As a result of Sandefur' s false and misleading statements and omissions, as
6 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully
7 ascertained.
$ Stanford Kurland
9 270 . Stanford Kurland made fraudulent and false statements of material fact and
10 omitted material facts in connection with the offer and sale of the Notes as set forth above.
11 271. Kurland knew that the abave - listed statements were false when made. He
12 knew facts or had access to information suggesting that Countrywide's statements were
13 untrue and/or materially misleading, but he failed to disclose that information.
14 272. Kurland intended to defraud the Nate Purchasers.
15 273. The Note Purchasers justifiably relied an Kurland 's representations and false
16 statements.
I7 274. Had the Note Purchasers known the true facts regarding Kurland's false and
18 misleading statements , the Note Purchasers would not have purchased the Notes.
l9 275 . As a result of Kurland 's false and misleading statements and omissions, as
20 alleged herein , the Note Purchasers have suffered damages in an amount not yet fully
21 ascertained.
22 Does I--I04
23 276. Each of Does I-100 made fraudulent and false statements of material fact
24 and omitted material facts in connection with the offer and sale of the Notes.
25 277. Each of Does 1-100 knew that the above - listed statements were false when
26 made.
27 27$. Each of Does 1-100 intended to defraud the Note Purchasers.
2$
6159213182612.1 -fj{1-
-- -
I;IRST AMENDED COMPLAINT
1 279. The Note Purchasers justifiably relied on Does 1-100's representations and
2 False statements.
3 280. Had the Note Purchasers known the true facts regarding the false and
4 misleading statements of Does 1-i00, the Note Purchasers would not have purchased the
5 Notes.
6 2$ 1. As a result of Does 1-100's false and misleading statements and omissions,
7 as alleged herein, the Note Purchasers have suffered damages in an amount not yet fully
$ ascertained.
9 282. Under the Indenture Agreements, Indentures and Note Guaranty Insurance
10 Policies, as well as the laws of the State of California, MBIA may bring these claims as the
11 Note Purchasers' subrogee.
12 283. By reason of the foregoing, the Countrywide Defendants, the Trust
13 Defendants, Angelo Mazilo, David Sambol, Eric Sieracki, Ranjit Kripalani, 3ennifer
14 Sandefur, Stanford Kurland and Does 1-100 are liable to MBIA as subrogee far cammon-
15 law fraud.
16 FIFTH CAUSE OF ACTION
17 (Against Bank of America, the Countrywide Defendants, the Trust Defendants, the
18 Underwriter Defendants , the Individual Defendants and Does 1-100 for Negligent
19 Misrepresentation)
20 284. MBIA incorporates by reference and realleges each and every allegation as
21 set forth above in paragraphs 1 through 282 as if fully set forth herein.
22 285. The Countrywide Defendants', the Trust Defendants', the Underwriter
23 Defendants', the Individual Defendants' and Does 1-100's material misrepresentations and
24 omissions set forth above were made without any reasonable ground for believing that the
25 representations were true.
26 286. The Countrywide Defendants, the Trust Defendants, the Underwriter
27 Defendants, the Individual Defendants and Does 1-100 intended that the material
28 misrepresentations and omissions would induce the Note Purchasers to purchase the Notes.
6159213^8^6f2.i
__.. .. -6 3 - _
FIRST AMENDED COMPLAINT
1,
1 287. The Note Purchasers justifiably relied on the material misrepresentations and
2 omissions of the Countrywide Defendants, the Trust Defendants, the Underwriter
3 Defendants, the Individual Defendants and Does 1-100 and were induced to purchase the
4 Notes.
5 288. Had the Note Purchasers known the true facts regarding Countrywide's
b underwriting practices and the quality of the loans making up the securitizations, the Note
I1 ascertained.
I3 liable far the wrongdoing and damages caused by the Countrywide Defendants.
14 291. Under the Indenture Agreements, Indentures and Note Guaranty Insurance
IS Policies, as well as the laws of the State of California, MBIA may bring these claims as
18 Defendants, the Underwriter Defendants, the Individual Defendants and Does 1-100 are
i9 liable to MBIA as subrogee for negligent misrepresentation.
20 SIXTH CAUSE OF ACTION
23 set forth above in paragraphs 1 through 291 as if fully set forth herein.
24 294. An actual controversy has arisen and now exists between MBIA and
25 Defendants concerning their rights and duties under the Note Guaranty Insurance Policies.
26 Specif tally, on information and belief, Defendants contend that MBIA does not have a
27 right as subragee of each Note Purchaser to recover payments due an the Notes from
28 Defendants whenever MBIA has already made payments to the Note Purchasers.
6159213 E 826I 2, k
I:IItST AMENDED COMPLAINT
I
1 295 . Pursuant to California Code of Civil Procedure Section 1060 , MBIA desires
2 a judicial determination of its rights and duties under the Note Guaranty Insurance Policy
3 and a judgment declaring that:
28
6 i 59JJ31$2612.3
--- ---^..__. -h3-
PIFLST AMENDED COMPLAINT
1 6. On the sixth cause of action, for declaratory relief, relief in the farm of a
2 declaration against all Defendants of the parties' rights and obligations with
7
8
9 DATED: November 3, 2009 QUINN EMANUEL URQUHART OLIVER &
HEDGES. LLP
10
11
By
i2 Harry A. Olivar, rr.
Attorneys for Plaintiff MBIA Insurance
13 Corporation
i4
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61592/3 E 82612. ]
-64-
FIRST AMENDED C()MPI.AINT
1 JURY DEMAND
3
4 DATED: November 3, 2009 QUINN EMANUEL URQUHART OLIVER &
HEDGES. LLP
S
6
By
7 Harry A. Olivar, Jr.
Attorneys for PIaintiff MBIA Insurance
8 Corporation
9
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6159213182612.1 ^^ ^^^_
^.
FIRST AMENDED COMPLAINT
PROOF OF SERVICE
2 I am employed in the County of Los Angeles, State of California. i am over the age of
eighteen years and not a party to the within action; my business address is 865 South Figueroa
3 Street, 10th Floor, Los Angeles, California 80017-2543.
4 On November 3, 2009, I served true copies of the following document{s) described as: FIRST
AMENDED COMPLAINT FOR: (Ij VIOLATIONS OF CALIFORNIA CORPORATIONS
5 CODE §§ 25401 AND 25501; (2} VIOLATIONS OF CALIFORNIA CORPORATIONS
CODE § 25504; (3} VIOLATIONS OF CALIFORNIA CORPORATIONS CODE § 25504.1;
6 (4} COMMON^LAW FRAUD; (5) NEGLIGENT MISREPRESENTATION; AND
(6} DECLARATORY RELIEF -- JURY TRIAL DEMANDED
7
on the parties in this action as follows:
8
SEE ATTACHED SERVICE LIST
9
BY MAIL; I am "readily familiar" with the practices of Quinn Emanuel Urquhart Oliver &
la Hedges, LLP for collecting and processing correspondence for mailing with the United States
Postal Service. Under that practice, it would be deposited with the United States Postal Service
11 that same day in the ordinary course of business. I enclosed the foregoing in sealed envelope{s)
addressed as shown above, and such envelope(s) were placed for collection and mailing with
i2 postage thereon fully prepaid at Los Angeles, California, on that same day following ordinary
business practices.
13
I declare under penalty of penury under the laws of the State of California that the
14 foregoing is true and correct.
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1 SERVICE LIST
MBIA INSURANCE CORPORATION v. BANK OF AMERICA CORPORATION, et al.
2 Case Na. BC4i7572
3
A. Matthew Ashley COUNSEL FOR DEFENDANT
4 mashley@irell. com
IRELL & MANELLA LLP
ANGELO MOZILO
1800 Avenue of the Stars, Suite 900
5
Los Angeles, CA 90067
6 Tel: (310.) 203-7004 -
Fax: {310} 203-7199
7
Michael C. Tu COUNSEL FOR DEFENDANT
8 mtu@orrick. corn
ORRICK HERRINGTON &
9 DAVID SAMBOL
SUTCLIFFE LLP
777 South Figueroa, Street, Suite 3200
10 Los Angeles, CA 90017
TeI: (213) 629-2020
i1 Fax: (213} 612-2499
12
Joshua Haanilton COUNSEL FOR DEFENDANTS
13 joshuahamrlton@paulhastings. com
PAUL HASTINGS JANOFSKY &
RANJIT KRIPALANI
14 WALKER LLP and JENNIFER SANDEFUR
515 South FIower Street, 25th Floor
15 Las Angeles, CA 90071
Tel.: (213) 683-6186
16 Fax: (213} 996-31$6
21
Nicolas Morgan COUNSEL FOR DEFENDANT
22 nicalas. morgan@dlapiper. com
DLA PIPER LLP (US)
ERIC SIERACKI
23 1999 Avenue of the Stars , Suite 400
Las Angeles, CA 90067
24 TeI.: (310} 595-3146
Fax: (310} 595-3446
25
26
27
28
10 Bruce A. Erickson
bruce.erickson@pillshurylaw.com COUNSEL FOR DEFENDANTS
I1 PILLSBURY WINTHROP SHAW
PITTMAN LLP
12 50 Prernont Street CWABS Revolving Home Equity Laan Trust,
San Francisco, CA 94105-2228 Series 2004-P; CWHEQ Revolving Horne
13 Tel: (415) 983-1560 Equity Loan Trust, Series 2005-A; CWHEQ
Fax: (415) 983-1200 Revolving Home Equity Loan Trust, Series
14 2005-E; CWHEQ Revolving Hame Equity
Loan Trust, Series 2005-I; CWHEQ Revolving
15 Home Equity Loan Trust, Series 2005-M;
CWHEQ Revolving Home Equity Loan Trust,
16 Series 2006-E; CWHEQ Revolving Home
Equity Loan Trust, Series 2006-G; CWHEQ
17 Home Equity Loan Trust, Series 2006-58;
CWHEQ Home Equity Laan Trust, Series
I8 2006-59; CWHEQ Horne Equity Lawn Trust,
Series 2006-510; CWHEQ Revaluing Home
19 Equity Loan Trust, Series 2007-E; CWHEQ
Home Equity Loan Trust, Series 2007-51;
20 CWHEQ Hame Equity Loan Trust, Series
2007-52; and CWHEQ Home Equity Loan
21 Trust, Series 2007-53
22
23
24
25
26
27
28