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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA
Case No. 08-CIV-22572-COOKE/BANDSTRA
X
In re BankUnited Securities Litigation ECF FILECLASS ALLEGATIONS
THIS DOCUMENT RELATES TO: JURY TRIAL DEMANDEDALL ACTIONS X
PLAINTIFFS' CONSOLIDATED AMENDED CLASS ACTION COMPLAINTFOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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TABLE OF CONTENTS
I. NATURE AND SUMMARY OF THE ACTION 1
II. JURISDICTION AND VENUE 3
III. PARTIES 3
A. Lead Plaintiffs 3
B. Defendants 4
C. Interested Party/Non Defendant 7
IV. PLAINTIFFS' INVESTIGATION AND CONFIDENTIAL SOURCES 8
V. SUBSTANTIVE ALLEGATIONS 10
VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS 21
A. Fourth Quarter 2006 ("4Q 2006") And Full Year 2006 ("FY 2006")Results 21
B. First Quarter 2007 ("1Q 2007") Results 26
C. Second Quarter 2007 ("2Q 2007") Results 30
D. Third Quarter 2007 ("3Q 2007") Results 32
VII. DEFENDANTS' SCHEME TO DEFRAUD BEGINS TO UNFOLD 36
A. Defendants Tout BankUnited's "Conservative UnderwritingStandards" and "Very Tough Appraisals" While The Company'sLoan Loss Provision Explodes 36
1. Fourth Quarter 2007 ("4Q 2007") and Full Year 2007("FY 2007") Results 36
2. The Market Begins To Learn That BankUnited IsUndercapitalized 41
3. First Quarter 2008 ("1Q 2008") Results 42
4. Second Quarter 2008 ("2Q 2008") Results 50
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VIII. THE EXTENT OF DEFENDANTS' FRAUD IS REALIZED 57
A. Defendants Announce A Massive Offering To Raise Approximately$400 Million in Cash 57
B. Post Class Period Announcements Give Further Details RegardingDefendants' Fraudulent Practices During the Class Period 58
C. The Company And Bank Enter Into Cease And Desist Orders WithThe Office of Thrift Supervision 60
D. The Company Collapses And Is Taken Over By Federal Regulators 63
IX. ADDITIONAL SCIENTER ALLEGATIONS 66
A. General Allegations of Scienter 66
B. BankUnited's Efforts To Raise Capital During The Class PeriodDemonstrates That Defendants Acted With Scienter 72
1. Defendants Raise Approximately $178,500,000 ThroughThe HiMEDS Offering During The Class Period 72
2. Defendants Attempt To Raise Approximately $400,000,000Through A Public Offering of Stock 73
C. Additional Facts Establishing That Defendant Camner Acted WithS ci enter 76
1. Executive Compensation 77
2. Insider Stock Sales 79
D. Additional Facts Establishing That Defendant Ortiz Acted WithS ci enter 81
E. Additional Facts Establishing That Defendant Lopez Acted WithS ci enter 82
X. DEFENDANTS' VIOLATIONS OF GENERALLY ACCEPTEDACCOUNTING PRINCIPLES ("GAAP") 83
A. GAAP Overview 84
B. Fraud Risk Factors Applicable To BankUnited 87
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C. Audit Risk Alerts 89
D. Defendants Falsely Represented That The Company's InternalControls Were Effective Throughout The Class Period 91
E. Defendants Misstated BankUnited's Exposure To Loss And FailedTo Provide Disclosure About Risk And Uncertainties 95
F. Additional Fundamental GAAP Violations 97
XI. APPLICABILITY OF PRESUMPTIONOF RELIANCE: FRAUD ON THEMARKET DOCTRINE 100
XII. NO SAFE HARBOR 102
XIII LOSS CAUSATION AND DAMAGES 103
XIV. CLASS ACTION ALLEGATIONS 106
CLAIMS FOR RELIEF 108
COUNT I — FOR VIOLATION OF § 10(b) OF THE EXCHANGE ACTAND RULE 10b-5 PROMULGATED THEREUNDER AGAINSTDEFENDANTS 108
COUNT II— FOR VIOLATION OF § 20(a) OF THE EXCHANGE ACTAGAINST DEFENDANTS 111
PRAYER FOR RELIEF 112
XV. JURY TRIAL DEMANDED
113
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Lead Plaintiffs, Louisiana Municipal Police Employees' Retirement System
("Louisiana Police") and the Oklahoma Police Pension and Retirement System
("Oklahoma Police") (collectively "Lead Plaintiffs" or "Plaintiffs"), on behalf of
themselves and all other persons similarly situated, by their undersigned attorneys, allege
the following based upon personal knowledge as to their own acts, and information and
belief as to all other matters, based upon, inter al/a, the investigation conducted by and
through their attorneys. Counsel's investigation included, among other things: a review
of the publicly available information about and announcements made by Defendants
(defined below), United States Securities and Exchange Commission ("SEC") filings,
wire and press releases published by and regarding BankUnited Financial Corporation
("BankUnited" or the "Company"), advisories about the Company, interviews with
former employees of the Company, and government regulators, and information readily
obtainable on the Internet.
I. NATURE AND SUMMARY OF THE ACTION
1. This is a federal securities class action on behalf of purchasers of Class A
common stock ("stock") of BankUnited (the "Class") between October 24, 2006 and June
19, 2008, inclusive (the "Class Period"), seeking to pursue remedies under the Securities
Exchange Act of 1934 (the "Exchange Act").
2. On May 22, 2009, BankUnited announced that it had commenced
proceedings under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida after its primary subsidiary,
BankUnited FSB (the "Bank"), once the largest banking institution headquartered in
Florida, was seized by government regulators and its operations, deposits and assets were
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sold to a private equity investor group in a federally assisted bailout that will cost the
Federal Deposit Insurance Corp. ("FDIC") almost $5 billion. BankUnited's collapse,
which was the largest bank failure of 2009, had historic dimensions, not only for federal
taxpayers, but also in particular for BankUnited's investors. During the Class Period
alleged herein, in a period of less than twenty (20) months, BankUnited's market
capitalization decreased by approximately $883 million, or about 93%, as the stock fell
from $26.38 per share to $1.90 per share.
3. As alleged in detail below, throughout the Class Period, BankUnited
through its founder, Chairman and Chief Executive Officer, Defendant Alfred R.
Camner; its President and Chief Operating Officer, Defendant Ramiro A. Ortiz; and its
Chief Financial Officer, Defendant Humberto L. Lopez ("Defendants"), issued releases,
statements and reports which misrepresented that the Bank was experiencing continued
successful operations, that the quality of its loans were strong, and that its provision for
possible loan losses and its system of control and review of the Bank's lending activities
were being managed conservatively and prudently. In reality, Defendants had embarked
upon, and implemented, an unlawful strategy for increasing BankUnited's market value
artificially by increasing its asset size and reported profits rapidly through risky "Option
ARM" mortgages. Although, according to Defendants' public statements, BankUnited's
successful operations were achieved because of its "conservative underwriting standards"
and "strong capital position." The Defendants failed to disclose, among other things, the
extent to which the Office of Thrift Supervision ("OTS") had become alarmed with
BankUnited's "unsafe and unsound" lending practices, increasing delinquencies in
BankUnited's Option ARM loan portfolio, and BankUnited's rapidly deteriorating capital
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position, all of which resulted in the May 2, 2009 closure of BankUnited FSB by the OTS
because it was "critically undercapitalized and in an unsafe condition to conduct
business."
II. JURISDICTION AND VENUE
4. The claims asserted herein arise under and pursuant to Sections 10(b) and
20(a) of the Exchange Act, (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 promulgated
thereunder by the SEC (17 C.F.R. § 240.10b-5).
5. This Court has jurisdiction over the subject matter of this action pursuant
to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
6. Venue is proper in this Judicial District pursuant to § 27 of the Exchange
Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b), as the Company is headquartered in this
District and many of the acts complained of, including the preparation and dissemination
of materially false and misleading statements, occurred in this District.
7. In connection with the acts, conduct and other wrongs alleged in this
Complaint, Defendants, directly or indirectly, used the means and instrumentalities of
interstate commerce, including but not limited to, the United States mails, interstate
telephone communications and the facilities of the national securities exchange.
III. PARTIES
A. Lead Plaintiffs
8. The Louisiana Municipal Police Employees' Retirement System is a
public pension fund established for the purpose of providing retirement allowances and
other benefits for full-time municipal police officers and employees in the state of
Louisiana, secretaries to chiefs of police and employees of the retirement system.
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Louisiana Police provides retirement benefits to thousands of members and their
beneficiaries, and has over $1.476 billion in assets under management as of June 30,
2008. As reflected in its Plaintiff Certification that has been previously filed with this
Court (and which is incorporated herein by reference), Louisiana Police suffered a
substantial loss because of its transactions in BankUnited stock during the Class Period.
9. The Oklahoma Police Pension and Retirement System is a public pension
fund established for the benefit of current and retired Oklahoma police officers and
employees of Oklahoma's police departments. Oklahoma Police provides retirement
benefits to thousands of members and their beneficiaries, and has over $1.7 billion in
assets under management. As reflected in its Plaintiff Certification that has been
previously filed with this Court (and which is incorporated herein by reference),
Oklahoma Police suffered a substantial loss because of its transactions in BankUnited
stock during the Class Period.
B. Defendants
10. Defendant Alfred "Fred" R. Camner ("Camner") was BankUnited's
founder. He was also Chairman of the Board and Chief Executive Officer from 1993
through and including October 20, 2008 and served as the Company's President from
1993 to 1998 and then again from 2001 to 2002. In addition, from 2001 to 2002, Camner
served as the Company's Chief Operating Officer. Likewise, he served as the Bank's
Chairman of the Board and Chief Executive Officer from 1984 through October 2008, as
its President from 1984 to 1993, then again from 1994 to 1998, and from 2001 to 2002.
He was also the Bank's Chief Operating Officer from 2001 to 2002. Camner
simultaneously served as the Senior Managing Director of the law firm Camner, Lipsitz
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and PoIler, P. A. (a law firm that received over $12 million in legal fees from BankUnited
from FY 2005-2007) throughout the Class Period.
11. Defendant Ramiro A. Ortiz ("Ortiz") was BankUnited's President and
Chief Operating Officer from August 2002 through October 20, 2008 when he replaced
Camner as Chief Executive Officer of the Company and the Bank (Ortiz was himself
replaced as Chief Executive Officer in May 2009 when the Bank was sold to a
consortium of private equity investors led by John Kanas). In addition, Ortiz served as a
director of the Bank and as its President and Chief Operating Officer during that time.
12. Defendant Humberto "Bert" L. Lopez ("Lopez") is a Certified Public
Accountant ("CPA") and was BankUnited's Senior Executive Vice President and Chief
Financial Officer from 2001 through May 21, 2009. Defendant Lopez was also the
Bank's Chief Financial Officer from 1999 through May 21, 2009.
13. Camner, Ortiz, and Lopez are collectively referred to herein as
"Defendants."
14. During the Class Period, Defendants, as senior executive officers of
BankUnited and the Bank, were privy to non-public information concerning the
Company's and the Bank's business, finances, products, markets and present and future
business prospects via access to internal corporate documents (including the Company's
and Bank's operating plans, budgets and forecasts and reports of actual operations
compared thereto), reports of BankUnited's auditors, conversations and connections with
other corporate officers and employees, communications with BankUnited's auditors,
attendance at management and Board of Directors meetings and committees thereof and
via reports and other information provided to them in connection therewith. Specifically,
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among other things, Defendants Camner and Lopez attended weekly executive
management meetings held every Monday in the executive conference room in Coral
Gables. These meetings were conducted, according to Confidential Witness 2, "for the
benefit of the president [Defendant Camner1" and included presentations regarding loan
production and discussions regarding loan loss provisions and the impact any such
provisions would have on the Company's quarterly reports. Because of their possession
of such information, Defendants knowingly or recklessly disregarded the fact that the
Company's financial statements were materially false and misleading throughout the
Class Period.
15. As officers and controlling persons of a publicly-held company whose
securities were registered with the SEC pursuant to the Exchange Act, and were actively
traded on NASDAQ and governed by the provisions of the federal securities laws,
Defendants had a duty to disseminate accurate and truthful information promptly with
respect to the Company's financial condition and performance, growth, operations,
financial statements, business, markets, management, earnings and present and future
business prospects, and to correct any previously-issued statements that had become
materially misleading or untrue, so that the market price of the Company's publicly-
traded securities would be based upon truthful and accurate information. Defendants'
misrepresentations and omissions during the Class Period violated these specific
requirements and obligations.
16. Because of their executive and managerial positions, as well as Camner's
and Ortiz's board memberships, Defendants had access to the adverse undisclosed
information about BankUnited's underwriting and appraisal standards and the inevitable
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losses the Company would incur in the Bank's residential loan portfolio as particularized
herein and knew (or recklessly disregarded) that concealment of these adverse facts
rendered the positive representations made by or about BankUnited and its business
materially false and misleading. Defendants also claim to be knowledgeable about
finance and accounting rules and knew or recklessly disregarded that the Company's
financial statements were prepared in violation of Generally Accepted Accounting
Principles ("GAAP") and its own accounting policies throughout the Class Period.
17. Because of their positions of control and authority as officers of the
Company, Defendants were able to and did control the content of the various SEC filings,
press releases, and other public statements pertaining to the Company during the Class
Period. Defendants participated in the drafting, preparation, and/or approval of the
various public and shareholder and investor reports, press releases, and other
communications complained of herein and were aware of, or recklessly disregarded, the
misstatements contained therein and omissions therefrom, and were aware of their
materially false and misleading nature. Defendants were provided with copies of the
documents alleged herein to be misleading prior to or shortly after their issuance and had
the ability and/or opportunity to prevent their issuance or cause them to be corrected.
Accordingly, Defendants are responsible for the accuracy of the public reports and
releases detailed herein and are therefore primarily liable for the representations
contained therein.
C. Interested Party / Non Defendant
18. BankUnited Financial Corp., which is not a named defendant in this action
based solely on its filing for Chapter 11 bankruptcy protection on May 22, 2009, is the
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holding company for the Bank. At all relevant times, BankUnited's stock was traded on
the NASDAQ under the symbol BKUNA.
IV. PLAINTIFFS' INVESTIGATION AND CONFIDENTIAL SOURCES
19. As noted herein, Plaintiffs' allegations are based upon the investigation of
Lead Counsel which included, among other things: review of BankUnited's public filings
with the SEC; BankUnited press releases; publicly available trading information; articles
in the general and financial press; analyst reports; and a complaint filed with the U.S.
Department of Labor pursuant to the whistleblower protection provisions of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A.
20. Plaintiffs' allegations are also based upon information provided by former
employees of BankUnited with knowledge of the Company's and the Bank's
underwriting, appraisal, lending, accounting, sales, and/or business practices. These
former employees include, but are not limited to, the following:
Confidential Witness 1 is a former BankUnited employee who worked asan in-house appraiser and a post-closing appraisal reviewer at BankUnitedfrom August 2005 through December 2007. Confidential Witness 1reviewed nationwide residential appraisals to determine whether aproperty's originally assigned value, and in turn the Bank's collateral, wasoverstated or otherwise misrepresented, reporting the results of thesereviews to the Risk Management Department at BankUnited. In thesummer of 2006, Confidential Witness 1 had an in-person conversationwith Defendant Camner regarding Confidential Witness 1 's review ofappraisals. Starting in the summer of 2007, Confidential Witness 1 wasmoved to the Quality Assurance Department at BankUnited to reviewpost-closing appraisal data and perform foreclosure analyses. In thatcapacity, Confidential Witness 1 prepared reports on BankUnitedappraisals that were provided to senior management of BankUnited,including Defendant Camner.
Confidential Witness 2 is a former BankUnited employee who served asan Executive Vice President in BankUnited's Residential LendingDepartment from 2002 through February 2008. Confidential Witness 2attended weekly management meetings with BankUnited's seniormanagement, including Defendants Camner, Ortiz, and Lopez. Based on
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Confidential Witness 2's position in the Company, Confidential Witness 2was personally aware that the OTS was concerned about BankUnited'sOption ARM lending practices as early as the summer of 2007 and thatsenior management at BankUnited was aware of these concerns at thattime. Confidential Witness 2 is also aware that Defendants Camner, Ortiz,and Lopez became aware of concerns about the inadequacy ofBankUnited's loan loss reserves in the late 2007-early 2008 time period.
Confidential Witness 3 is a former BankUnited employee who worked inseveral positions between 1999 and June 2008. Confidential Witness 3began as a credit analyst at BankUnited and was promoted several timesbefore ultimately becoming a supervising senior manager for financialanalysis. Confidential Witness 3 attended regular meetings with seniormanagement, including Defendants Camner, Ortiz, and Lopez, and wasaware of senior management's role in determining loan losses and relatedaccruals. Through Confidential Witness 3's position, ConfidentialWitness 3 became aware that the OTS was concerned about BankUnited'scapitalization no later than early 2008.
Confidential Witness 4 is a former BankUnited employee and CPA whoserved as a financial reporting manager from 2005 through March 2008.Among other duties, Confidential Witness 4 was involved in thepreparation of BankUnited's SEC filings. Confidential Witness 4 wasaware of BankUnited's decisions with respect to loan loss reserves whenloan losses were increasing in approximately mid-2007. ConfidentialWitness 4 was also aware that an OTS Examination commenced atBankUnited sometime between November 2007 and January 2008 throughdiscussions with OTS personnel at the time. Prior to resigning fromBankUnited, Confidential Witness 4 was contacted by the SEC inconnection with an investigation of BankUnited.
Confidential Witness 5 is a former BankUnited employee who worked asa financial analyst from February 2007 through the summer of 2008.Confidential Witness 5 performed analyses on loan losses in early 2007and was aware of BankUnited's decisions to limit reserves for loan losses.
Confidential Witness 6 is a former BankUnited employee who served asan account executive and in other sales positions on BankUnited'swholesale sales staff from 2003 through December 2008. ConfidentialWitness 6 is personally aware of BankUnited's mortgage loan salespolicies and practices including its use of stated income, no-documentation, or other limited documentation loans, BankUnited'spreferences for selling Option ARM mortgages, and the incentives used byBankUnited to disproportionately reward mortgage brokers who soldOption ARM mortgages as opposed to fix rate mortgages.
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Confidential Witness 7 is a former BankUnited employee who served asan Assistant Vice President in the Finance Department and the RegulatoryReporting and Analysis Group from March 2007 through May 2008. Inaddition to analyzing BankUnited foreclosures and loan losses,Confidential Witness 7 saw OTS regulators onsite at BankUnited's CoralGables headquarters on a daily basis from November or December 2007through the time that Confidential Witness 7 left BankUnited in May2008.
Confidential Witness 8 is a former BankUnited employee who served as aSenior Vice President of Retail Lending from February 2007 throughNovember 2008. Confidential Witness 8 is personally aware ofBankUnited's wholesale lending practices and BankUnited management'spreference for Option ARM lending.
V. SUBSTANTIVE ALLEGATIONS
21. This is a case about a purportedly conservative mortgage lender that,
without disclosure to its investors about the true nature and risk of its lending,
underwriting, appraisal, and accounting practices, aggressively embarked on a business
plan to sell increasingly large volumes of risky "Option ARM" mortgages. Despite
repeatedly portraying BankUnited throughout the Class Period as a lender with "an
unrelenting focus on credit quality" that applied "stringent credit standards," "vigorous
underwriting" and "very tough appraisal" practices in its mortgage lending business,
Defendants knowingly used business and accounting practices that, in fact, disregarded
borrowers' credit quality, prudent underwriting standards, industry-standard appraisal
practices, and Generally Accepted Accounting Principles so as to inflate the Company's
short-term net income and earnings. Until BankUnited's house of cards began to
collapse, Defendants' scheme appeared to have been immensely successful:
BankUnited's reported net income exploded more than threefold: from $27.5 million in
fiscal year 2005 ("FY 2005") to $83.9 million for fiscal year 2006 ("FY 2006"), to $81.4
million for fiscal year 2007 ("FY 2007").
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22. BankUnited's meteoric growth was directly attributable to its reliance on
low-quality mortgages that were overwhelmingly made without fully verifying
borrowers' income, assets, and/or creditworthiness. As BankUnited disclosed in May
2008, only 17.4% of all loans in its residential mortgage portfolio as of March 31, 2008
were made on a "full documentation employment verified" ("full documentation") basis.
The remaining 82.6% of BankUnited's loan portfolio consisted of either "stated income
verified assets and employment," or "reduced documentation employment verified"
("limited documentation") loans (73.6% of the portfolio) or no-documentation (9% of the
portfolio) loans. For risky Option ARM loans, which made up more than three-quarters
of all of BankUnited's mortgages, the picture was even more troubling: Only 12.4% of
BankUnited's Option ARM mortgages as of March 31, 2008 were full documentation
loans, 56.3% were limited documentation loans, and a shocking 31.3% of its portfolio —
worth nearly $2.3 billion — consisted of no-documentation loans. According to
BankUnited disclosures made to the SEC in April 2008, the percentages of full
documentation loans in BankUnited's entire mortgage portfolio fell by almost half from
FY 2005 to FY 2007, while the percentages of no-documentation loans in the entire
portfolio nearly doubled over that same period.
23. In stark contrast to the reckless, high-risk, limited scrutiny lending that
BankUnited employed to fuel its rapid growth, Defendants consistently touted
BankUnited's "historically conservative," "high quality" lending practices that employed
"strict" underwriting and appraisal standards and focused on customers with "strong"
credit quality. For example, in drawing contrasts with other mortgage lenders that were
experiencing significant economic crises, Defendant Alfred Camner stated that
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BankUnited was different because "[c]redit quality has been the hallmark of our
Company from the beginning" and that "[t]he reason that we are not reporting what
[BankUnited's competitors] are reporting [in terms of skyrocketing reported loan losses]
is because . .. our underwriting was much stricter from the get go."
24. Beyond the issues with Defendants' misrepresentation of the credit quality
of BankUnited's borrowers, there was a further issue of fundamental undisclosed risk
with the Option ARM mortgage. Option ARM mortgages are adjustable rate mortgages
that typically permit borrowers to select from among a wide range of monthly payment
choices, which include, from high to low amounts: a payment based on a mortgage that is
fully amortized over a particular number of years (i.e., a standard 30-year fixed
mortgage); an "interest only" payment that does not include any principal paydown; and
a set "minimum monthly payment" that does not cover either the principal amount or the
full amount of interest owed on the loan. These loans are sometimes referred to as "pick
a payment" or "pay option" ARM loans. The substantial risk with these minimum
monthly payment loans is that borrowers begin a process of "negative amortization" in
which the unpaid interest amounts are added to the outstanding principal amount owed;
thus, increasing the overall loan balance. When monthly payments are periodically reset
to take into account increasing loan balances from negative amortization and/or
increasing interest rates, monthly payments can increase substantially, creating a so-
called "payment shock."
25. Defendants, however, preferred to issue Option ARM mortgages because
accounting rules permitted BankUnited to recognize as immediate period income the
amount of the expected, higher rate interest payments that were scheduled to come due
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on its Option ARM mortgages at a later date, not just the low introductory payments
being paid by borrowers. The same accounting rules, however, also required BankUnited
to reserve for the reasonably expected losses from these Option ARM loans, including
determining the likelihood of whether a borrower would eventually make future
payments at the higher rate. As otherwise discussed herein, BankUnited failed to
adequately reserve for the losses in its portfolio of risky Option ARM loans, which
inflated both BankUnited's reported loan revenues as well as stockholders' equity.
26. During the Class Period, investors listened to and relied upon Defendants'
repeated, specific assurances concerning BankUnited's "conservative" and "strict" credit
quality, underwriting, and appraisal standards that purportedly differentiated it from other
mortgage lenders. Indeed, analysts tracking BankUnited during the Class Period
frequently based their ratings on Defendants' statements regarding the Company's "solid
underwriting," "conservative underwriting standards," underwriting that purportedly
required borrowers to "demonstrate their capacity to pay back that larger amount
[negatively amortized loans] at the fully indexed rate," and general "conservative"
lending practices. For example, on December 21, 2006, analyst Jennifer Thompson,
reiterating Oppenheimer's "buy" rating and dismissed concerns about BankUnited's
Option ARM exposure, stating: "[c]oncern over the Company's Option ARM exposure
is likely overdone given a conservative underwriting culture."
27. Plaintiffs' investigation reveals, however, that BankUnited's true focus
during the Class Period could not have been further from the "conservative" and "high
quality" lending mantra that Defendants consistently professed. Rather, according to
Confidential Witnesses 2, 6, and 8, Defendants placed BankUnited on a path where
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pushing large volumes of Option ARM loans to risky borrowers without verifying their
creditworthiness (primarily through its "wholesale" division staffed by non-employee
mortgage brokers) became an almost monomaniacal mission during the Class Period. In
pushing to maximize the volume of Option ARM loans sold, BankUnited's credit quality
and underwriting slipped to the point where limited and no-documentation loans — what
Confidential Witness 6 called "liar's loans" — made up an increasingly dominant part of
BankUnited's residential portfolio. In fact, mortgage broker compensation and incentives
were changed so that BankUnited basically took away the incentives for brokers to sell
any product other than Option ARMs because, as Confidential Witness 6 noted,
management wanted the short term benefit from "smoke and mirrors" accounting that
supposedly allowed BankUnited to immediately "claim[] income from the deferred
[interest payment] stream." Confidential Witness 2 confirmed that Defendants Camner
and Ortiz were particularly interested pushing the use of Option ARM loans at
BankUnited, stating, "the truth is the ex-Chairman [Camner] liked the product and didn't
want diversification [away from Option ARMs]." This remained the case even after, as
Confidential Witness 2 explained, Defendants "all knew in the summer of 2007 that
regulators were getting concerned [about BankUnited's Option ARM lending]. They
[Defendants] were talking about it and reacting to it."
28. Beyond lowering its credit quality and loan documentation standards,
Defendants also routinely failed to adhere to the Company's stated "strict policies for
outside appraisals" and "strong appraisal review process." In fact, the appraisal review
process was treated as a nuisance that could be manipulated or circumvented by loan
sales personnel for the purpose of meeting sales targets, and the appraisal department at
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BankUnited was chronically understaffed so as to prevent diligent and timely review of
all appraisal data. Confidential Witness 1 confirms that there was "extreme pressure to
hit numbers" from the loan production staff and consequently, "pressure to pass on deals
without diligent review" starting in early 2006 and continuing throughout Confidential
Witness 1 's tenure at BankUnited. The routine failure of BankUnited's appraisal
practices failed to conform to industry-standards set forth in the Uniform Standards of
Professional Appraisal Practice ("USPAP") and as required by the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). Confidential Witness 1
also confirms that Defendant Camner was personally involved in intervening to loosen
the appraisal review process to keep the flow of loans moving through the pipeline
without proper scrutiny, telling Confidential Witness 1 that when reviewing inappropriate
appraisals, "cut them, but not too many."
29. The appraisal review process at BankUnited was consistently undermined
and/or circumvented for the purpose of meeting aggressive loan production targets set by
Defendants. Confidential Witness 1, who documented close to 500 incidents of
overstated property values and other inappropriate appraisal practices, describes specific
instances in which mortgages were issued by BankUnited at amounts that were known to
exceed the actual value of the subject properties given the pressures on BankUnited's
loan production operation by Defendants and their company policies, including the
following examples.
30. On November 28, 2006, Confidential Witness 1 reported to Stephen
Cooperman (Vice President Operations Manager) and William Turner (Senior Vice
President of Risk Management) that Loan No. 511340-2 had a "significantly overstated
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value by not using more current sales" data to determine the proper appraised value of the
property being financed. While Mr. Turner replied that an "intentionally overstated"
assignment must be reported to the Company's Quality Assurance department and a
Suspicious Activity Report ("SARs") would need to be filed with the Department of
Treasury (unless BankUnited conducted a second appraisal), BankUnited did neither.
31. In December 2006, Confidential Witness 1 ordered an additional appraisal
review in connection with mortgage Loan No. 511921-9 given that he suspected that the
original appraisal value was intentionally overstated. Bowing to pressure from
BankUnited's production staff, Confidential Witness l's supervisor, Richard Leali, the
Vice President National Appraisal Manager, overrode Confidential Witness l's decision,
authorizing BankUnited to make the loan.
32. As described in a February 9, 2007 e-mail message from William Turner
to William Schneider (Vice President of Quality Assurance) and Bob Brecht (Vice
President Chief Appraiser), Loan No. 4725354 was issued despite an appraisal that
overstated the property's value. The e-mail explains that the underwriter ignored
Confidential Witness 1 's appraisal review recommendation that significantly cut the
property's assigned value, but rather sought a rubber-stamp review from a third-party
vendor that supported the original, overstated appraisal. The property owner later
defaulted on the mortgage and BankUnited foreclosed on the property. After the
foreclosure, Confidential Witness 1 renewed his concern that the loan was made based on
a deliberately overstated value to BankUnited's Risk Management department, but the
Company took no corrective action against the personnel responsible for issuing Loan
4725354.
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33. In addition to BankUnited's failure to conform to its stated underwriting
and appraisal practices, Defendants also failed to take into account the extreme risk with
these lending practices by adequately reserving for increasingly likely loan losses, thus
overstating BankUnited's net income throughout the Class Period. Defendants made
assurances that BankUnited's loan loss reserves were adequate and otherwise stated that
BankUnited's financial statements conformed to GAAP. Some analysts nonetheless
questioned BankUnited's reserve policies during the Class Period as being inadequate
and below those of its direct competitors. For example, on October 25, 2006, James
Record of Sterne Agee noted BankUnited's substantially lower reserve ratios than
Downey Financial and First Fed Financial, and stated that, "[w]hile the company's peers
have been increasing reserves and slowing volume in the face of a significantly riskier
real estate market, BankUnited has continued to report record loan originations and hold
reserves at very thin levels." However, Defendants continued to deny that there were
deficiencies in its loan loss reserves, stating, for example, on February 26, 2007 that
BankUnited's "Moan Loss Reserves reflect conservatively underwritten, real estate
collateralized loans."
34. Defendants were aware of analyses throughout the Class Period showing
that delinquencies and defaults were rising sharply in BankUnited's loan portfolios — as
Confidential Witnesses 2, 4, and 5 confirm — yet did not respond by sufficiently
increasing BankUnited's reserve levels. Despite mounting evidence suggesting that
BankUnited's mortgage portfolio was considerably worse than disclosed; and despite
concerns articulated by the OTS in the summer of 2007 (when, according to Confidential
Witness 2, the OTS had been pressuring BankUnited to "perhaps limit Option ARMs"),
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Defendants took insufficient steps to establish reserves to cover the inevitable losses that
led to the ultimate collapse of the Company.
35. During the Class Period Defendants also failed to disclose to investors that
the OTS had expressed grave concerns about BankUnited's "unsafe and unsound"
lending practices that were leading to rising defaults and delinquencies in BankUnited's
Option ARM loan portfolio and that, in turn, were putting BankUnited in an
"unsatisfactory position" and threatening its "well capitalized" status. As confirmed by
Confidential Witnesses 4 and 7, OTS examiners began to take a much closer look at
BankUnited starting in approximately November 2007 when they arrived at
BankUnited's Coral Gables headquarters as part of the OTS's periodic examination.
Confidential Witness 7 states that, as someone who had worked all his adult life in banks,
the number of OTS examiners at BankUnited was "unusual" in that it was double what he
was accustomed to seeing during a typical examination. Similarly, the fact that the
examiners were onsite through May 2008 suggested "this was an extraordinary situation."
36. Net capital, the value of a firm's assets less the value of its liabilities, is at
the core of any bank's operations. The more net capital a firm has, the better equipped it
is to cover any unexpected losses. Capital requirements are one way of ensuring that
banks hold sufficient net capital at all times to meet unexpected losses. The principal
sources of loss are market risks, credit risks and operational risks. Capital requirements
provide that a certain amount be set aside to cover potential risk for each kind of loss.
These amounts, taken together with adjustments for hedging or diversification, are called
capital charges. If the total capital charge is greater than the firm's minimum required net
capital, the firm needs either to raise more capital or reduce some of its risk.
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37. Throughout the Class Period, Defendants, in BankUnited's quarterly
earnings releases and other public statements described herein, consistently touted
BankUnited's "well-capitalized" status and/or otherwise stated that BankUnited
"continue[d] to maintain its strong capital position in excess of regulatory requirements."
These statements were, however, materially false and misleading. In fact, during the
Class Period, while BankUnited offered regulators data showing that it purportedly met
the OTS's minimum capital requirements to maintain its well-capitalized status, the
Company was only able to achieve this result by repeatedly violating regulatory
requirements relating to the appropriate calculation of net capital by understating the
known true risk of its mortgage loan portfolio.
38. The OTS defines a "well capitalized" institution based on a statutory and
regulatory framework that takes into account specific capital ratios. A "well capitalized"
institution must have "Total Risk-Based" capital of 10% or greater, a "Tier 1/Risk-
Based" capital of 6% or greater, and "Tier 1/Leverage" of 5% or greater.
39. The OTS ultimately documented — in its Stipulations and Consent to
Issuance of Orders to Cease and Desist with the Company and the Bank — what
Defendants had known throughout the Class Period, that BankUnited was, in fact, grossly
undercapitalized and in an "unsatisfactory condition primarily due to the rising
delinquencies and defaults in its payment option arm loan portfolio, a significant portion
of which was originated on a 'stated income' basis. The deterioration in this portfolio has
resulted in the need for greater levels of capital and allowance for loan and lease losses."
40. Moreover, the Company eventually conceded in a post-Class Period
disclosure, after months of public scrutiny following disclosure of the OTS 's regulatory
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actions and the spotlight shone on its inadequate reserving for loan losses, that
BankUnited failed to meet the definition of a "well-capitalized" institution, admitting
that, "[biased upon a preliminary fourth quarter loss of $607 million [in 20081, the
Bank's Tier I Core Capital ratio was 3.4% and total risk-Based Capital ratio was 7.1%."
41. The examiners began to meet frequently with Defendants Camner and
Lopez during the November 2007 -- January 2008 timeframe (and continued to do so
throughout the remainder of the Class Period), and Defendants had frequent discussions
with the examiners and were intimately aware of the examiners' concerns and findings
throughout the course of the examination. Nonetheless, Defendants failed to disclose the
OTS's concerns and actively concealed the existence and results of the OTS examination
from investors until after the Class Period. Indeed in an April 11, 2008 correspondence
with the SEC, Defendant Lopez falsely denied the existence of the OTS examination in
response to direct questioning from the SEC with respect to regulatory concerns about
any "operational difficulties" at BankUnited, the existence of "agreements or
understandings" with the OTS, or "any regulatory actions or [whether BankUnitedi
received any recommendations [from its] financial regulators." Lopez falsely wrote that
there were no "agreements or understandings, written or oral" with the OTS and that
despite the ongoing examination, "[wie have not been subject to any regulatory actions or
received any recommendations from our financial regulators."
42. Defendants' cover-up of the OTS examination and the examiners' related
findings that BankUnited required a capital infusion of at least $400 million was
particularly disingenuous given that BankUnited took steps throughout calendar year
2008 to prepare itself for a $400 million offering without disclosing the real reason for
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that offering — that the regulators were requiring BankUnited to raise exactly $400
million to maintain its "well capitalized status." Indeed, it is the announcement of the
$400 million offering, after the market closed on June 18, 2008, and the fallout therefrom
to BankUnited's stock price, that ends the Class Period on June 19, 2008.
43. Based on the false and misleading statements alleged herein, the
Company's share price hit a Class Period intra-day high of $28.79 per share on January 3,
2007 and then fell to a Class Period low of $1.90 per share on June 19, 2008 once the full
truth regarding the extent of Defendants' fraud was disclosed.
VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS
A.
Fourth Quarter 2006 ("4Q 2006") And Full Year 2006 ("FY 2006")Results
44. The Class Period begins on October 24, 2006. On that day, BankUnited
issued a press release and announced "record" financial results for its 4Q 2006 and FY
2006 ended September 30, 2006. More specifically, the Company stated that its net
income was $83.9 million for the FY 2006 with earnings per share of $2.43 per share.
The Company's FY 2006 loan loss provision was $10.4 million. Moreover, BankUnited
noted that the Bank "continues to maintain its strong capital position in excess of
regulatory requirements."
45. In commenting on these so-called "record" results, Defendant Camner
falsely stated that Defendants were "proud to report another quarter and a year of record
earnings. . W e've kept an unrelentin g quality, which is evident in the
16-basis point non-performing asset level." 1 Defendant Camner continued by falsely
1 Unless otherwise noted, emphasis has been added by Counsel throughout theComplaint.
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assuring investors that the Company had "stringent credit standards" that "will position
[BankUnited] well for the future."
46. On the same day, October 24, 2006, Defendants hosted a conference call
to further discuss the Company's 4Q 2006 and FY 2006 financial results. During the
conference call, Defendant Camner noted that the Company's "record" FY 2006 results
were achieved with "foresight and discipline to not waver in [the Company's] credit
standards or internal lending guidelines." In fact, according to Canner, " c reditalit
is a hallmark of [BankUnited]. . ." Thus, according to Camner, "[the decrease in
unemployment] coupled with [the Company's] credit standards gives us confidence in the
integrity of our mortgage loan portfolio." Similarly, Camner made clear that he did not
believe the Company's non-performing assets ("NPAs") and non-performing loans
("NPLs") would increase, stating: "we do not anticipate that our numbers relating to non-
performings will necessarily get any higher . . . [You're going to have some ups and
downs . . . [but we don't foresee much in the way of any losses."
47. Not surprisingly, Defendant Lopez agreed with Camner's statements and
falsely stated that the Company's "mortgage products continue to meet the needs of
educated borrowers while adhering to federal guidelines and maintaining our strict
underwriting and credit quality standards."
48. On this news, the Company's share price rose from $26.38 per share on
October 24, 2006 to close at $27.78 per share on October 25, 2006 on extremely high
volume.
49. On November 2, 2006, BankUnited filed a Form 8-K with the SEC which
attached an investor presentation dated November 2006 (the "2006 Investor
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Presentation"). In the 2006 Investor Presentation, Defendants falsely claimed that the
Company focused on a "fhligh quality credit culture" and that BankUnited's
"[u]nderwriting is performed at the fully-indexed rate." 2 Moreover, the Company
claimed to have " ILL1c.i.b-prime loans." As for its underwriting processes, BankUnited
again falsely claimed to have a Isitrict process from start to finish" which included a
Isitrict appraisal process."
50. On December 14, 2006, BankUnited filed a materially false and
misleading Form 10-K for the year ended September 30, 2006 (the "2006 Form 10-K"),
which was signed by Defendants. In addition to repeating many of the false and
misleading statements identified in the October 24, 2006 press release and 2006 Investor
Presentation, the Company also falsely stated that its financial statements were prepared
in accordance with GAAP. Also, in regards to the Company's underwriting principles,
Defendants again gave the misleading impression that the Company's underwriting was
strong because it was "performed internally" and "aims to limit risk by: [(1)] analyzing
the borrower's repayment ability at the fully indexed rate[; (2)1 not allowing financing of
the down payment through other loans at BankUnitedk (3)1 requiring private mortgage
insurance (PMI) on loans where the loan to value would exceed 80% without the
insurance[; and (4)1 utilizing in-house appraisers to review external appraisals."
Similarly, Defendants made the following false and misleading statements regarding its
loan loss reserve accounting practices:
2 In saying that "[underwriting is performed at the fully indexed rate," Defendants areclaiming that borrowers were approved assuming qualification for loans including bothfull interest (not a discounted or "teaser" rate) and principal. Thus, despite the fact that asof December 31, 2007, more than 75% of the Company's customers were only makingthe minimum monthly payment — i.e., the loans were negatively amortizing — customerswere allegedly approved based on full principal and interest payment assumptions.
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We evaluate the collectibility [sic] of our loan portfolio and provide anallowance for loan losses that we believe is adequate based upon suchfactors as:
• the risk characteristics of various classifications of loans;
• previous loan loss experience;
• specific loans that have loss potential;
• delinquency trends;
• estimated fair market value of the collateral;
• the views of our regulators; and
• geographic and industry loan concentrations.
51. The Form 10-K also included Sarbanes-Oxley Act ("SOX") certifications
which were signed by Defendants Camner and Lopez. The certifications falsely stated, in
part, that the Form 10-K: (1) "does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading;" (2) that the
financial statements "fairly present in all material respects the financial condition, results
of operations and cash flows" of BankUnited; and (3) that "kill significant deficiencies
and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably to adversely affect [BankUnited'sl ability to record
process, summarize and report financial information" were "disclosed".
52. On this news, the Company's share price rose from $26.78 per share on
December 14, 2006 to close at $27.13 per share on December 15, 2006.
53. The statements set forth in fi44 through 47 and 48 through 51 above
concerning BankUnited's earnings and income (including its "record" results), appraisal
and underwriting practices (including stating that "underwriting is performed at the fully-
indexed rate"), borrowers' credit quality (including stating that BankUnited had no "sub-
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prime" loans), and compliance with GAAP are false and misleading because throughout
the Class Period, Defendants knowingly or recklessly:
a) Overstated BankUnited's earnings and net income by taking advantage of
"smoke and mirrors" accounting rules to claim as period income deferred interest
payments on negatively amortizing Option ARM loans that Defendants knew
BankUnited would not and could not ever collect;
b) Overstated BankUnited's earnings and net income by failing to adequately
reserve for known and/or inevitable loan losses in its Option ARM loan portfolio;
c) Misrepresented the quality of BankUnited's underwriting, borrowers'
credit quality, and/or other credit standards as being "conservative," "strong," "stringent,"
and/or otherwise sound because BankUnited engaged in "unsafe and unsound" lending
practices that relied on the extensive use of limited documentation and no-documentation
"liar's loans" including mortgages issued based upon stated yet never verified levels of
borrowers' incomes, assets, and/or complete and accurate credit history;
d) Misrepresented the quality of BankUnited's underwriting and/or appraisal
standards because BankUnited, with the specific knowledge and personal involvement of
Defendant Camner during the Class Period, routinely ignored appraisers' professional
obligations, statutory requirements, and corporate policies governing outside appraisals
and the internal review of such appraisal values;
e) Misrepresented the Bank's capital position, including by making
statements that the Bank had a "strong capital position in excess of regulatory
requirements" because the Bank was, in fact, facing a severe capitalization crisis due to
escalating loan losses; and
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0 Failed to prepare and present its financial statements in accordance with
GAAP.
54. The statements alleged in fi44 through 47 and 49 through 51 above are
further false and misleading because, throughout the Class Period, Defendants knowingly
or recklessly misrepresented that BankUnited had strong and/or effective internal controls
whereas, in reality, BankUnited's internal controls were not effective and BankUnited
had an insufficient complement of personnel with a level of accounting knowledge,
experience and training in the application of GAAP related to its residential loan
portfolio, including the allowance for loan losses and the identification of troubled debt
restructuring.
B. First Quarter 2007 ("1Q 2007") Results
55. On January 22, 2007, the Company issued a press release announcing its
"record" 1Q 2007 financial results for the period ended December 31, 2006. The
Company stated that its net income was $27.4 million (up 69.2% from the first quarter
2006 ("1Q 2006")) with earnings per share of $0.75 (up from $0.53 for the 1Q 2006).
The Company also disclosed that its provision for loan losses totaled $4.0 million for the
1Q 2007 and that the Bank "continues to maintain its strong capital position in excess of
regulatory requirements."
56. Defendant Camner also reassured investors that the ongoing turmoil in the
housing market, especially in Florida, would not dramatically affect BankUnited. For
example, Camner noted that the Company has "not changed our goal of growing the
company, even though our industry is experiencing a cyclical downturn, particularly in
the housing markets, which will cause decreasing asset production and rising levels of
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non-performing assets. . ." and " w hile we exSect the level of non- .erformin • assets to
increase, we do not anticipate that they will exceed levels that we have experienced in the
past several cycles. We expect that our historically conservative credit standards and
relatively low loan to values will keep our loss experience well below industry averages. .
. [and we will] maintaial our strong credit standards."
57. That day, January 22, 2007, Defendants hosted a conference call to discuss
the Company's IQ 2007 financial results. During the conference call, Defendant Camner
confirmed that he "personally got involved" with how the Company "treat[s] . . .
delinquencies[] [and] how we adjust the rates or foreclosures. . ." and again falsely stated
that while Defendants "expect delinquencies to rise . . . the historically conservative
underwriting process and loan-to-value standards should keep our loss experience well
below industry averages. We do not expect nonperforming assets to exceed the highs we
have experienced in the past several cycles." In fact, Camner noted that Defendants
"don't see anything right now, in our estimation of what has been coming through in the
foreclosure — and I've reviewed this quite a bit — that would indicate that we will have
losses of any great significance." As for the Company's underwriting standards, Camner
falsely stated that "everybody has to remember that we have continuously tightened our
standards as we have gone through the year. I can assure you, in the last four or five
months, we have even tightened [our underwriting standards] more."
58. Defendant Lopez similarly agreed that the Company had "conservative
underwriting standards" and also stated that the Company's "mortgage offerings meet the
needs of educated borrowers while maintaining our strict underwriting standards." In
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fact, according to Lopez, Defendants have no "concern" about "ultimate losses"La_1,.use
as we said, [the losses] shouldn't be significantly higher than where we are today."
59. On February 7, 2007, BankUnited filed a materially false and misleading
Form 10-Q for the 1Q 2007, signed by Defendant Lopez. In addition to repeating many
of the false and misleading statements identified in the January 22, 2007 press release, the
Company falsely stated that lais of December 31, 2006, the weighted average FICO
score for BankUnited's option ARM loans was 710." In addition, the Company falsely
stated that "[during the quarter ended December 31, 2006, management performed an
evaluation of delinquency trends in its residential portfolio . . . Based on its review of
portfolio quality, management increased the allowance for loan losses to a level it
believes to be appropriate given the composition of its loan portfolio.. ."
60. The Form 10-Q also included SOX certifications which were signed by
Defendants Camner and Lopez. The certifications were substantially similar to the
certifications identified inlf51 above.
61. On or about February 26, 2007, Defendants made a presentation regarding
the Company's 1Q 2007 results at an analyst conference. The presentation materials
were also filed as an attachment to a Form 8-K which was filed with the SEC on
February 26, 2007. During the presentation, under the heading "Credit Policy",
Defendants stated that the Company's Risk Management Group Ipirovides daily,
weekly, monthly etc. reporting to officers, lending managers, committees, executive
officers and Board of Directors." In addition, Defendants falsely claimed that the
Company had the "[ability to grow production without sacrificing credit quality" and
was "fclommitted to responsible growth without sacrificing credit quality."
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62. Similarly, Defendant Lopez noted that the Company had a "LIflc
asset profile with over 90% of assets backed by real estate collateral."
63. Indeed, under the "Summary Points — Credit Quality" section of the
presentation, Defendants specifically noted, in part, the following:
A focus on Credit Quality is a core discipline of BankUnited's Strategy.
• A strong history of properly managing risk
• Vigorous underwriting standards which are constantly evaluated and refined
• Loan Loss Reserves reflect conservatively underwritten, real estate collateralized loans
• Provisions have far exceeded charge-offs (3.5x in Q1)
A focus on Credit Quality is a core tenet of BankUnited's strategy
• NPA ratio expected to be 60bps at March 2007, possibly80bps at September 2007
• Given residential real estate collateral, losses are notexpected to substantially increase
64. The statements set forth in tf55 through 63 above concerning
BankUnited's capital position, earnings and net income, expected loan losses,
underwriting practices, borrowers' credit quality, loan loss reserves, and internal controls
are false and misleading because, as set forth above in tf53 and 54, Defendants
knowingly or recklessly overstated BankUnited's earnings and net income by, among
other things, improper use of accepted accounting principles; failing to properly reserve
for loan losses on Option ARM loans, engaging in unsafe and unsound lending practices;
and ignoring escalating loan losses. The statements alleged in tf55 through 63 above are
further false and misleading because Defendants knowingly or recklessly misrepresented
the quality of BankUnited's loan portfolio by touting undefined "weighted average"
FICO scores because FICO scores alone were of virtually no value given the extensive
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material deficiencies in BankUnited's appraisal, underwriting, and other lending
practices.
C. Second Quarter 2007 ("2Q 2007") Results
65. On April 18, 2007, BankUnited issued a press release announcing its
"record" financial results for the 2Q 2007, ended March 31, 2007. The Company stated
that its net income was $24.4 million (up 24% from the second quarter 2006 ("2Q 2006")
with earnings per share of $0.67 (up from $0.57 per share for 2Q 2006). The Company
also disclosed that its provision for loan losses totaled $4.0 million for the 2Q 2007 and
that the Bank "continues to maintain its strong capital position in excess of regulatory
requirements."
66. Commenting on these results, Defendant Camner stated that the "credit
quality [of BankUnited's customers] remains strong" and that the Company's "history
shows that [BankUnited has] been able to maintain a low level of net charge-offs even
when non-performing assets have increased." In fact, according to Camner, this was
accomplished "because of 'BankUnited's] conservative underwriting" and non-reliance
on "subprime lending." Similarly, according to Camner, the Company has "high-touch
underwriting processes, in-house appraisers in each market and well-trained, experienced
underwriters. We have always underwritten our option-ARM loans at the fully indexed
rate, long before the release of the inter-agency federal guidelines." In addition, Canner
falsely stated that "Thlased on extensive reviews of our portfolios, we do not at this time,
anticipate significant losses." Knowing that the housing market was in steep decline —
especially in Florida, where BankUnited had a high concentration of loans — Camner
reassured investors that BankUnited was different from other lenders and wanted to
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"address the concerns over a possible spillover from the subprime market into the
reduced documentation market. Our reduced documentation loans are counterbalanced by
stringent requirements for other underwriting criteria, including lower loan-to-value
ratios, higher FICO scores, credit enhancements such as mortgage insurance and lower
debt-to-income ratios. Our experience has been that these loans when properly
underwritten, perform as well if not better than, our full documentation loans." As done
throughout the Class Period, Camner also stated that the "average FICO score of the
entire residential portfolio at March 31, 2007, was 710. . ." Finally, Camner explained
that the "average FICO score of the option-ARM portfolio at March 31, 2007, was 709..."
67. Similarly, according to Defendant Lopez, the Company's "option ARM
loans continue to be well received due to our credit quality and low prepayment rates."
Indeed, according to Lopez, the Company "expect[s] third and fourth quarter loan loss
provisions will be recorded at a rate similar to the first two quarters of fiscal 2007."
68. The next day, April 19, 2007, Defendants hosted an analyst conference
call to discuss the Company's 2Q 2007 financial results. In addition to saying that
"massive declines" in Florida's real estate market were "enormous [ly] exaggerate [dr and
that Defendants "do not believe [the Company] will have any truly significant losses in
our portfolio as we go through this cyclical period", Camner noted that "[t]he so-called
payment shock [that] has always been reported in the media has been rarely a factor in
our situation. Probably because of not only our strong underwriting but in particular
because we have always underwritten our loans at the fully indexed rate." This was,
according to Camner, because the Company's "reduced documentation loans are
counterbalanced by stringent requirements for other underwriting criteria including lower
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loan to value ratios, higher credit scores, and lower debt to income ratios. Historically it
has been our experience that reduced documentation loans perform as well if not better
than full document loans."
69. Defendant Lopez again agreed with Camner and stated that the
Company's "charge-offs have always been very low because of the quality of our
borrowers and our underwriting standards."
70. On May 10, 2007, the Company filed its Form 10-Q for the 2Q 2007. The
2Q 2007 Form 10-Q was signed by Defendant Lopez and included SOX certifications
signed by himself and Defendant Camner which were substantially similar to the SOX
certifications discussed at ¶51 above. The Form 10-Q also repeated many of the false and
misleading statements discussed in the April 18, 2007 press release.
71. The statements set forth in tf65 through 70 above concerning
BankUnited's earnings and net income, expected loan losses, underwriting practices,
capital position, borrowers' credit quality, and internal controls were false and misleading
because, as set forth in ilf53 and 54 above, Defendants knowingly or recklessly
overstated BankUnited's earnings and net income by, among other things, improper use
of accepted accounting principles; failing to properly reserve for loan losses on Option
ARM loans; engaging in unsafe and unsound lending practices; and ignoring escalating
loan losses.
D. Third Quarter 2007 ("3Q 2007") Results
72. On July 12, 2007, BankUnited issued a press release announcing its
interim financial results for the 3Q 2007, the period ended June 30, 2007. In the release,
the Company announced that it expected its diluted earnings to be approximately $0.62
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per share. Moreover, the Company announced that it "continues to experience low net-
charge offs. . . [and that] ftlhe company continues to believe that losses will not be
significantly higher than historical levels."
73. Then, on July 26, 2007, Defendants announced BankUnited's "record"
financial results. More specifically, for the 3Q 2007, the Company announced net
income of $23.2 million (down from $23.8 million for the third quarter 2006 ("3Q
2006"), earnings per share of $0.65, and a loan loss provision of $4.4 million (compared
to $1.2 million for the 3Q 2006). In addition, Defendants stated that the Bank
"maintain[ed] its strong capital position in excess of regulatory requirements."
74. Commenting on these results, Defendant Camner falsely stated that
"[although market conditions are challenging, we continue to produce strong results . . .
We do not expect our loan losses in the coming months to be significantly higher than
levels we experienced in comparable periods in the past, although we expect that non-
performing assets will increase. These expectations are based, in part, on BankUnited's
avoidance of subprime lending, our employment of well-trained and experienced
underwriters and appraisers and the continual enhancement of our collections process."
And again, Camner attempted to reassure the market that BankUnited was different from
the other failing banks throughout the country and noted that "unlike many in the
industry, we have always underwritten our loans at the fully indexed rate and have not
engaged in home equity piggyback lending."
75. On the same day, July 26, 2007, Defendants hosted an analyst conference
call to discuss the Company's 3Q 2007 financial results. Knowing that the real estate
market was declining dramatically — especially in Florida — Defendants again specifically
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reassured the market that BankUnited was different than all of the other mortgage
lenders. For example, in discussing differences between BankUnited and its competitors,
Camner continued to falsely claim that BankUnited "do[es] not engage in sub prime
lending", that the Company's " c r&Luality has been the hallmark of our Company
since the beginning" and that It -the reason that we are not reporting what [the
Company's competitors] are reporting [in terms of increased non-performing assets and
char . e-offs is because . . . our underwritin • was much stricter from the • et • o. . ." In
fact, Camner tried to convince analysts that the "spike" in the Company's non-
performing loans related to "property taxes and insurance increases [in Floridar and that
Defendants actually felt "pretty ood thattheC=ar e-offsifi be relatively
low and certainly a lot lower than a lot of companies right now." Finally, Camner stated,
in part, the following:
I know a lot of emphasis is on the residential [loan portfolio]. I canunderstand it in terms of this market. I know a lot of people keep puttingemphasis on the monthly option ARM; that's been a very declining part ofour overall situation. And otherwise, we have historically had very conservative underwriting. We don't feel we've gotten away from that. Wefeel that that is going to bring us through. Some other people, some otherentities very well-known in the market have been popping up and suddenly reporting things. We feel we've been giving you our story all along just as it is. And you know, we look to have moderate growth thisyear.. . We believe that. .. we are extraordinarily undervalued right now.
76. Defendant Ortiz agreed with Camner's comments and specifically stated
that the Company "do[esl not nor haveweel.edinsubrielendi " and the
Company is "not hiding anything. . . Our credit culture has been a conservative one on all
lines of business, and I got to tell you, [if the Company had an increase in charge-offs of]
40 basis point[s,] I think everybody around here would be drop dead shocked."
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77. Defendant Lopez also touted the Company's underwriting practices and
stated that Defendants "anticipate that [non-performing assets] will trend up, but again,
the way our loans are underwritten we do not expect a significant increase in losses."
78. On this news, the Company's share price rose from $16.54 per share on
July 26, 2007 to close at $17.23 per share on July 27, 2007.
79. On August 9, 2007, BankUnited filed a materially false and misleading
Form 10-Q for the 3Q 2007, which was signed by Defendant Lopez, and included SOX
certifications signed by himself and Defendant Camner, which were substantially similar
to the SOX certifications discussed atlf51 above.
80. In addition to repeating many of the false and misleading statements
identified in the July 13, 2007 and July 26, 2007 press releases, the Company's 3Q 2007
Form 10-Q also stated that Defendants "do[] not expect loan losses in the coming months
to be significantly higher than levels experienced in comparable periods in the past,
although non-performing assets are expected to increase." According to Defendants,
these expectations are based, in part, on the Company's "avoidance of sub-prime
lending", "employment of well-trained and experienced underwriters and appraisers",
and because of BankUnited's "underwriting [of] loans at the fully indexed rate which is
the banks historical practice although many in the industry did not follow this practice."
81. On this news, the Company's share price rose from $15.94 per share on
August 9, 2007 to close at $16.36 per share on August 10, 2007.
82. The statements set forth in tf72 through 77 and 79 through 80 above
concerning BankUnited's earnings and net income, underwriting and appraisal practices,
borrowers' credit quality, expected loan losses, capital position, and internal controls are
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false and misleading because, as set forth in ¶J53 and 54 above, Defendants knowingly or
recklessly overstated BankUnited's earnings and net income by, among other things,
improper use of accepted accounting principles; failing to properly reserve for loan losses
on Option ARM loans; engaging in unsafe and unsound lending practices; and ignoring
escalating loan losses. In fact, according to Confidential Witness 2, by the summer of
2007, the OTS had expressed concerns with BankUnited's Option ARM lending,
questioning whether BankUnited should "perhaps limit Option ARMs" at that time.
VII. DEFENDANTS' SCHEME TO DEFRAUD BEGINS TO UNFOLD
A. Defendants Tout BankUnited's "Conservative UnderwritingStandards" and "Very Tough Appraisals" While The Company'sLoan Loss Provision Explodes
1. Fourth Quarter 2007 ("40 2007") and Full Year 2007 ("FY 2007") Results
83. In a series of partial corrective disclosures, Defendants began to admit that
BankUnited's financial results were deteriorating. For example, on October 3, 2007,
Defendants issued a press release announcing BankUnited's interim financial results for
FY 2007, ended September 30, 2007. The Company stated that it expected operating
earnings of between $0.41 and $0.46 per diluted share for the 4Q 2007. Furthermore, the
Company announced that it expected its loan loss provision to (at least) double — from
$4.4 million for the 3Q 2007 to between approximately $8 million to $10 million for 4Q
2007. Moreover, the Company stated that its net charge-offs related to its residential
portfolio were expected to total $3 million. In order to reassure the market, however,
BankUnited again noted that the Bank "continues to maintain its strong capital position in
excess of regulatory requirements."
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84. These results were well short of Wall Street expectations, which
expectations had been fueled by the Defendants' false statements as to BankUnited's
earnings. On this news, the Company's share price fell from $16.08 at the close of
trading on October 2, 2007 to close at $15.59 on October 3, 2007, and from $15.59 per
share at the close of trading on October 3, 2007 to close at $14.28 per share on October 4,
2007, on trading volume of 2,464,737 shares, a two-day decline of 11.45%.
85. This earnings warning clearly surprised the market, as evidenced by the
11.45% stock drop on October 3 and 4, 2007. However, as the analysts following
BankUnited prepared reports — and downgrades — on BankUnited's stock, the market
continued to lower its valuation of BankUnited as a concern for the quality of the loan
portfolio set in. On October 15, 2007, for example, J.P. Morgan Securities downgraded
its rating on BankUnited causing the stock price to fall from $12.75 to $11.58, on volume
of over 2 million shares, a 9.2% drop. This was followed by a Friedman Billings Ramsey
downgrade later in the week which caused the stock price to further decline from $10.88
on October 18, 2007 to $10.24 on October 19, 2007, a 5.9% drop, on volume of nearly
1.5 million shares.
86. As also stated in the October 3, 2007 press release, Defendant Camner
also continued to call the Company's loan portfolio "very strong" and further stated that
BankUnited's lower earnings were not a result of its poor lending and underwriting
practices, but instead because of "extremely aggressive pricing strategies by large major
competitors, which affected our [loan] production."
87. Then, on October 23, 2007, Defendants issued a press release announcing
the Company's final 4Q 2007 and FY 2007 financial results. More specifically,
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Defendants announced net income of $6.4 million for 4Q 2007 and diluted earnings per
share of $0.17. For FY 2007, the Company disclosed net income of $81.4 million and
diluted earnings per share of $2.14. However, the Company also announced its loan loss
provision for the 40 2007 totaled $19.1 million — i.e. approximately 200% higher than
the estimate it reported less than three weeks prior, and over 400% higher than the
previous quarter.
88. However, Defendants continued to boast that the Bank "continues to
maintain its strong capital position in excess of regulatory requirements" with core and
risk-based capital ratios of 7.8% and 15.4%, respectively, at September 30, 2007. As for
asset quality, the Company announced residential net charge-offs for the 4Q 2007 were
$2.9 million (net of $1.2 million in mortgage insurance proceeds). For FY 2007, net
charge-offs related to the residential portfolio were $4.0 million (net of $1.2 million in
estimated recoveries from mortgage insurance).
89. While Camner conceded that management was "disappointed" with
BankUnited's 4Q 2007 results, he also noted that they were "pleased" with the FY 2007
earnings. In addition, Canner stated that is clear that this difficult economic climate
will continue.... However, we do have several things in our favor: our capital position is
strong, we are a Florida-based banking franchise, and our net charge-offs remain
manageable."
90. On the same day, October 23, 2007, Defendants hosted an analyst
conference call to discuss the Company's 4Q 2007 and FY 2007 results. During the
conference call, Defendant Canner tried to reassure the market that despite the
Company's "45% drop in residential mortgage originations", BankUnited's "conservative
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credit guidelines . . . [andi history gives [Defendantsl confidence in the integrity of [the
Company's] mortgage loan portfolio." Similarly, Camner stated that BankUnited's
competitors were "reporting much higher [non-performing asset] numbers than [the
Company] reported for the same quarter" in large part because the Company "didn't do
sub prime, . .. originated [loans at the] fully indexed rate, and. . . applied reasonable tests
to our stated income situation." According to Camner, the other factor that distinguished
BankUnited from its competitors was the "very tough appraisals" the Company was using
in valuing its collateral. Likewise, Camner noted that BankUnited was "ultimately a lot
different" from its competitors that already had to make large write-downs in their
residential portfolio. Clearly skeptical, Matthew Kelly (an analyst for Sterne, Agee)
asked Defendants if there would be "any kind of one-time large provision to bring [the
Company] more in line with some of the other peers such as Downey, Fed, WaMu, et
cetera?" In response, Camner stated Defendants "we are doing everything we can to try
to find the inherent losses in the portfolio" and given his "belieff,1 . . . [and] the numbers
that m what is happening to them that the
Company's co etitors have a__p_ligm much larger. problem than we have."
91. Defendant Lopez agreed with Camner's comments and even added that
"we can't lose sight of the fact that compare us to peers, compare us to others in the
industry, we have very low rates of charge-offs." This was accomplished, according to
Lopez, because of the "underwriting that [the Company has] done in the past. . ."
92. Because of Defendants' false assurances regarding the Company's
underwriting and appraisal processes, the Company's share price fell only modestly from
$10.49 per share on October 23, 2007 to close at $10.41 per share on October 24, 2007.
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93. On November 29, 2007, Defendants filed the Company's Form 10-K with
the SEC. The Form 10-K was signed by Defendants and included SOX certifications
signed by defendants Camner and Lopez which were substantially similar to the SOX
certifications discussed at ¶51 above.
94. In addition to repeating many of the false and misleading statements
identified in the October 3, 2007 and October 23, 2007 press releases, the Form 10-K also
falsely stated that "the Bank was a well capitalized institution" and has a "strong" capital
position. Likewise, the Company continued to falsely claim to "have never been a
subprime lender" and that its borrowers had an average FICO score of 709. As for the
Company's underwriting standards, BankUnited falsely claimed that:
Our underwriting is performed internally and aims to limit risk by:
• qualifying the borrowers by analyzing their ability to make a fullyamortizing repayment at the fully indexed loan rate
• not allowing financing of the down payment through other loans atBankUnited
• requiring mortgage insurance (MI) on loans where the loan tovalue exceeds 80% without the insurance
• utilizing in-house appraisers to review external appraisals.
95. The statements set forth in fi83, 86 through 91 and 93 through 94 above
concerning BankUnited's earnings and net income, expected loan losses, borrowers'
credit quality, underwriting and appraisal practices, and capital position are false and
misleading because, as set forth in tf53 and 54 above, Defendants knowingly or
recklessly overstated BankUnited's earnings and net income by, among other things,
improper use of accepted accounting principles; failing to properly reserve for loan losses
on Option ARM loans; engaging in unsafe and unsound lending practices; and ignoring
escalating loan losses. In addition, the statements set forth in fi83, 86 through 91 and 93
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through 94 above were materially misleading in that they did not disclose the fact that, as
indicated by Confidential Witnesses 4 and 7, the OTS examiners were on site at
BankUnited's headquarters in November 2007 to begin the OTS's examination of
BankUnited. Furthermore, the statements set forth in fi83, 86 through 91 and 93 through
94 above are materially misleading in that they omit the fact, as stated by Confidential
Witness 2, that the OTS was concerned about BankUnited's Option ARM lending
practices as early as the summer of 2007, notably that the OTS had been pressuring
BankUnited to "perhaps limit Option AMRs." Confidential Witness 2 understood that
senior management at BankUnited was aware of the OTS's concerns at that time, stating,
"They [Camner, Ortiz and Lopez] all knew in the summer of 2007 that the regulators
were getting concerned. They were talking about it and reacting to it." Similarly,
Confidential Witness 2 stated that senior management was also aware of the OTS's
concerns about the adequacy of BankUnited's loan loss reserves at that time.
2. The Market Bepins To Learn That BankUnited Is Undercapitalized
96. On January 3, 2008, BankUnited announced for the first time that it may
need to raise up to $400 million in capital. The Company filed a shelf registration with
the SEC on January 2, 2008 to allow it to raise up to $400 million. The filing did not
specify the type of offering that was contemplated, indicating that it could consist of
common stock, debt securities, stock purchase contracts, stock purchase units, preferred
stock, or warrants.
97. The market recognized that the announcement of the shelf registration was
a sign of BankUnited's need to raise capital. On January 3, 2008, BankUnited's stock
fell from $6.64 to $6.10, a drop of 8.1% on volume of over 1.3 million shares, and on the
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following day, the stock fell another $0.52 per share, or 8.5% on volume of over 1.8
million shares. This two-day drop of nearly 17% in the stock price was due to the
realization that BankUnited was undercapitalized due to its deteriorating loan portfolio.
98. On January 9, 2008, the American Banker ran a story discussing the recent
announcement of a shelf registration and tying it to the Company's "sizable portfolio of
option adjustable-rate mortgages." In response, the stock price fell another 15.3% to
$4.24 on volume of over 3.7 million shares.
99. While the Defendants would continue to misrepresent the quality of
BankUnited's loan portfolio, the announcement of the shelf registration was the first
disclosure of the extent to which BankUnited was now undercapitalized as a result of its
deteriorating loan portfolio.
3. First Quarter 2008 ("1Q 2008") Results
100. On January 24, 2008, Defendants announced the Company's financial
results for 1Q 2008, which ended December 31, 2007. The Company reported a net loss
of $25.5 million, or $0.73 per diluted share, and recorded a $65 million provision for loan
losses — more than 300% larger than its 40 2007 loan loss provision.
101. In order to reassure the market, however, the Company stated that its
Inlet charge-offs . . . remained low at $6.0 million. . . compared to $5.6 million. . . for
the quarter ended Sept. 30, 2007." Similarly, residential and consumer residential net-
charge offs for 1Q 2008 "were $5.4 million net of $2.2 million in estimated recoveries
from mortgage insurance." The Company also noted that its allowance for loan losses
had ballooned to $117.7 million. Defendants also disclosed that the Company was
"significantly" reducing its wholesale residential mortgage business.
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102. According to Defendant Camner, " t his loal-mision together
with actions we are taking now, should better position and strengthen the company for
the future." In addition, he continued to tout the Company's "well-capitalized business
model" and the Bank's "strong capital position in excess of regulatory requirements", and
even noted that management believed BankUnited's "liquidity and strong capital
structure should be more than sufficient to carry the company through this difficult
economic environment." As for underwriting, Camner continued to reassure the market
that BankUnited "adhered to conservative underwriting standards . . ." and noted that the
Company was "not a subprime lender . . . kind, unlike others in the industry, we have
underwritten to the fully indexed rate and followed strict policies for outside appraisals
combined with internal appraisal reviews conducted by our own staff." As for the
Company's so-called reduced documentation loans, Camner falsely stated that they
"undergo a reasonableness test on income." He also noted that the Company was already
"very proactive in addressing the rise in non-performing assets and have strengthened our
risk management programs accordingly."
103. On the same day, January 24, 2008, the Company attached a presentation
it had made to a Form 8-K which was filed with the SEC. The presentation was
conducted by each of the Defendants and repeated the false and misleading statements
discussed in the Company's January 24, 2008 press release. In addition, Defendants
continued to tout that the Bank was "maintaining a strong capital position" and also
"maintaining capital levels in excess of the regulatory well capitalized level." As for the
Company's "conservative underwriting standards" Camner noted that the Company had
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"[n]o subprime lending", had a " s trict appraisaliew process," and that all "Moans
[were] underwritten at the fully indexed rate."
104. Defendants also hosted an analyst conference call that same day to discuss
the Company's 1Q 2008 financial results. Camner touted that the Company did not
engage in "subprime lending" and that its "stringent underwriting leads [Defendants] to
believe the charge-offs will remain moderate." Moreover, while Camner readily
admitted that BankUnited "ha[s] been impacted by the downturn in the housing markets
and overall instability in the economy," he also claimed that Defendants "expect loss
revenues in the wholesale division to be more than made up by gains in other business
areas" including the "significant[] downsiz[ing1" of the wholesale division. As for the
Company's capital position, Camner falsely stated that the Bank would "remain at capital
levels well above the FDICIA's well-capitalized range." In fact, according to Camner, as
the Company "shrink[s] the balance sheet . . . [its] need[] for capital will drop
measurably. Our current levels of capital are more than sufficient to carry us through this
cycle however if the opportunity presents itself we may raise additional capital." As for
the updating of BankUnited's shelf registration in January 2008, Camner falsely stated
that "there seems to be a misperception out there about the shelf offering that we recently
filed. Many companies have shelves and we needed to bring ours current. The amount
stated is not indicative of any near-term transaction."
105. However, analysts continued to question the reasonableness of the
Company's reserves as they were significantly lower than BankUnited's direct
competitors and also below many analyst consensus estimates. More specifically,
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Defendants Camner and Lopez had the following exchange with analysts regarding the
appropriateness of the Company's reserves:
IJAMES SHANAHAN (Wachovia)]: I want to get comfortable with the$118 million now in reserve, granted a lot higher now but then so are non-performers and real estate owned. .
ICAMNER]: . . . Our losses, though, continue to remain pretty low. Whatis going into MTA has about 38% of those loans have mortgage insuranceand that compares obviously favorably to the 18% in the portfolio. We areseeing the higher LTV loans drop into the non-performing category and ahigher percentage of those are insured. So that is one of the reasons we'vebeen able to keep our charge-offs low. Our loss rates on the loans areaveraging between those with MI and without MI about 11%, so again stillvery low. Those severity factors are low compared to the industry andcompared to our peers.
So when we put everything back together, the MTA levels . . . we feel we've got it pretty well covered with the reserve levels that we've set.Obviously we keep looking at them, we look at them every quarter, and ifMTAs continue to go up we'll see an increase in our reserve goingforward. But we thought this was a prudent level given the level ofinherent losses that we were able to determine in our portfolio.
[JOHN PANCARI (JP Morgan)]: Yeah. And I'm not looking for exactnumbers, just coming off of [Defendant Lopez's] comments just a minuteago had indicated that if MTAs continually show the rate of increase, thatthere could warrant an increase to the reserve again. So that's why I'mtrying to understand a magnitude that you think you've got coming yourway, particularly seeing the signs you're seeing this quarter.
[CAMNER]: The only [answer] I can give you is we do not anticipate areserve increase of this magnitude this next quarter.
* * *
IMATTHEW KELLEY] (Sterne, Agee)]: . . . You know, when you lookat the increase in MTAs it's really pretty shocking, and then rapid. And Ithink that's really the bulk of the concern. I think that the crux of yourargument that your reserves are adequate now really rest in the assumption that while severity will remain modest when you look at what Standard& Poor's], for example, is forecasting for loss severity for the option ARM product it's up in the 30% range and you guys are in the 11% range. And so help us understand why you think loss severity is going to remain undercontrol for the next couple of quarters as MTAs continue to move higheras you've indicated.
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[LOPEZ]: Matt, I think it all goes back to when the loan was originated. Ithink our underwriting standards are probably some of the strongest in the industry. Again, we never dabbled in the subprime, we don't dopiggybacks, we have low LTVs -- we start at about 74% LTV -- FICO isat 709. So it's a good quality portfolio. And, yes, obviously there's been some price depreciation and devaluations; but again, starting with thatlower LTV, we have a lot more cushion to absorb that. It's kind of like notevery MTA is created equally. If we were sitting with an original of 90%and then had appreciation we'd be looking at maybe the severity rate thatyou mentioned of 30%, but we haven't. So I thin[k] it all goes down to thebeginning, of when the loan was originated and the underwriting criteriathat we used.
* * *
[CAMNERJ: . . . I can't speak for Standard & Poor's and I don't reallyknow what their numbers are coming to, but given that they're the onesthat originally rated the bonds that were involved in the first place thateverybody has, that we're not really particularly involved in, I wouldn'tgive any more accuracy to that number then any other number they've everproduced. So from my viewpoint, you've got to look at what we are, andwhat we didn't do is what a lot of major lenders did. ..Now that's just a joke, okay? So, if that's the joke, the joke wasn't one thatwe adopted, and obviously has spilled over to all of us in some sensebecause it's hurt the markets in general and hurt the mortgage markets ingeneral, but we avoided that type of underwriting. We also . . . required larger and larger portions of our loans to have an in-house appraisal review as it was processed through; because we were concerned aboutappraisals starting to have some question marks. So that also protected us in the end. We had a lot of turn-down loans that other people made, that we didn't make because we didn't think the appraisals were any good.
So I think -- you know, there's a lot of items we can go through and a lotof differences about underwriting, but we believe that our portfolio's inmuch better shape than a lot of the entities you're talking about.
106. On this news, and Defendants' efforts to downplay the importance thereof,
the Company's share price rose from $5.01 per share on January 24, 2008 to close at
$5.32 per share on January 25, 2008.
107. On February 12, 2008, Defendants filed the Company's Form 10-Q with
the SEC. The Form 10-Q was signed by Defendant Lopez and included SOX
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certifications signed by himself and Defendant Camner which were substantially similar
to the SOX certifications discussed atlf51 above.
108. In addition to repeating many of the false and misleading statements
identified in the Company's January 24, 2008 press release and presentation, the Form
10-Q also falsely stated that "BankUnited has adhered to conservative underwriting
standards... We are not a subprime lender. [and, unlike some lenders in the industry,
we have underwritten to the fully indexed rate and followed strict policies for outside
appraisals combined with internal appraisal reviews conducted by our own staff."
Similarly, the Company falsely claimed that "[r]educed documentation loans undergo a
reasonableness test on income." In fact, according to the Company, "iljhe various risks
of our loan portfolio are mitigated by our underwriting requirements which include
credit qualifications and LTV ratios directly correlated to potential risk." In this regard,
the Company claimed an average borrower FICO score of 708.
109. On April 11, 2008, Defendant Lopez sent a letter to the SEC (the "April
11, 2008 letter") responding to several questions and comments the SEC had regarding
the Company's Form 10-K for FY 2007 and Form 10-Q for the 1Q 2008. Notably, one
of the SEC's comments was, "It appears that you have experienced a decline in your
capital adequacy and liquidity." In response, Defendant Lopez claimed that the Company
had no "agreements or understandings, written or oral, with our regulators, agencies or
their representatives at the present time. We have not been subject to any regulatory
actions or received any recommendations from our financial regulators." In addition, he
admitted that "[a]s of December 31, 2007, approximately 78% of [the Company's]
payment option loan customers were electing to make the minimum payment." In other
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words, approximately 78% of the Company's customers were electing a negative
amortizing loan payment — meaning the balance of the loan was actually increasing with
each passing month. In fact, according to Defendant Lopez, this was the most specific
information BankUnited had because the Company "did not begin to compile information
regarding payment option elections until the quarter ended December 31, 2007."
Moreover, Defendant Lopez provided the following information regarding the
Company's residential loan portfolio (which has been summarized):
The following table provides details of the Company's ENTIRE one-to-four familyresidential loan portfolio by documentation type at September 30, 2007 ($ in thousands):
Full Documentation Limited No DocumentationLoans Documentation Loans Loans
Total Portfolio $1,836,250 $7,352,587 $934,023Percentage of Total 18% 73% 9%PortfolioNon-Performing $20,080 $133,101 $18,400LoansPercentage of Non- 12% 77% 11%Performing Loans
The following table provides details of the Company's PAYMENT OPTION one-to-four family residential loan portfolio by documentation type at September 30, 2007 ($ inthousands):
Full Documentation Limited No DocumentationLoans Documentation Loans Loans
Total Option Arm $972,616 $5,780,012 $842,323PortfolioPercentage of Total 13% 76% 11%Option Arm PortfolioNon -Performing $16,927 $119,691 $13,130LoansPercentage of Non- 11% 80% 9%Performing Loans
The following table provides details of the Company's non-performing loans in itsresidential portfolio that were classified as non-performing for December 31, 2007 ($ inthousands):
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Full Documentatiott limited No DocumentationLoans Documentation Loans Loans
Total Portfolio $1,772,945 $7,341,505 $908,542Percentage of Total 18% 74% 9%PortfolioNon-Performing $40,518 $288,779 $34,227LoansPercentage of Non- 0.40% 2.88% 0.34%Performing Loans
The following table provides details of the Company's non-performing loans in itsresidential portfolio that were classified as non-performing for September 30, 2006 ($ inthousands):
Full Documentattutt Limited No DocuinentanonLoans 13ocumentation Loans Loans
Total Portfolio $1,777,946 $6,249,165 $714,051Percentage of Total 20% 71% 8%PortfolioNon-Performing $4,416 $11,422 $1,534LoansPercentage of Non- 0.05% 0.13% 0.02%Performing Loans
The following table provides details of the Company's non-performing loans in itsresidential portfolio that were classified as non-performing for September 30, 2005 ($ inthousands):
Full L)ocumentation Limited No DocumentationLoans 13ocumentation Loans Loans
Total Portfolio $1,627,491 $3,410,194 $280,063Percentage of Total 31% 64% 5%PortfolioNon-Performing $1,587 $3,880 $1,159LoansPercentage of Non- 0.03% 0.08% 0.02%Performing Loans
110. On this news, the Company s share price fell from $4.05 per share on
April 11, 2008 to close at $3.99 per share on April 12, 2008.
111. The statements set forth in Tlf 100 through 105 and 107 through 109 above
concerning BankUnited's earnings and net income, expected loan losses, borrowers'
credit quality, underwriting and appraisal practices, internal controls and capital position
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are false and misleading because, as set forth in tf53 and 54 above, Defendants
knowingly or recklessly overstated BankUnited's earnings and net income by, among
other things, improper use of accepted accounting principles; failing to properly reserve
for loan losses on Option ARM loans; engaging in unsafe and unsound lending practices;
and ignoring escalating loan losses. The statements alleged in 1f109 above regarding
BankUnited's communications with regulators are further false and misleading because
Defendants had been in substantial discussions with the OTS for several months
concerning BankUnited's "unsafe and unsound" lending practices and its capitalization,
including, among other things, that BankUnited was in an unsatisfactory condition
primarily due to defaults in its Option ARM loan portfolio and that BankUnited required
a significant capital infusion to maintain its "well capitalized" status.
4. Second Quarter 2008 ("2Q 2008") Results
112. On May 12, 2008, the Company issued a press release announcing its 2Q
2008 financial results for the period ended March 31, 2008. More specifically, the
Company reported a net loss of $65.8 million, or $1.88 per diluted share (compared to
earnings of $24.4 million, or $0.64 per diluted share, for the 2Q 2007). The Company
also increased the provision for loan losses to $98.0 million (compared to $65 million for
the 1Q 2008 and $4 million for 2Q 2007) and increased its allowance for loan losses to
$202.2 million (from $117.7 million for the 1Q 2008).
113. Defendants, however, continued to reassure the market that "BankUnited
has adhered to conservative underwriting standards. . . BankUnited is not a subprime
lender. .. and has underwritten to the full indexed rate and followed strict solicies for
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outside appraisals combined with internal appraisal reviews conducted by the company's
own staff."
114. While Defendants acknowledged that the Company's results were
"disappointing," they continued to reassure the market that the Bank "continues to
maintain its strong capital position in excess of regulatory requirements." In fact, when
discussing the Company's allowance for loan loss, Defendant Camner stated that "[w]hen
considered in proportion to [non-performing assets], losses have remained low" and that
"BankUnited maintains core and risked-based capital ratios above FCIDIA's guidelines
for the well-capitalized category."
115. On the same day, May 12, 2008, the Company filed a presentation with
the SEC regarding its financial results for the 2Q 2008. In addition to repeating many of
the false and misleading statements found in BankUnited's 2Q 2008 press release, the
presentation also stated that the Bank was "[maintaining capital levels in excess of the
regulatory well-capitalized level", that BankUnited had "strong underwriting standards"
with a "strong appraisal review process using regionally based appraisers", and did not
engage in "subprime lending."
116. Also on May 12, 2008, Defendants filed the Company's 10-Q with the
SEC. The Form 10-Q was signed by Defendant Lopez and included SOX certifications
signed by himself and Defendant Camner which were substantially similar to the SOX
certifications discussed at 1f51 above.
117. In addition to repeating many of the false and misleading statements in the
May 12, 2008 press release and presentation, the Form 10-Q also falsely stated that the
Bank was "maintain[ing] a strong capital position" and "maintain[ing] capital levels at or
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above the regulatory well-capitalized level." Likewise, the Company continued to falsely
claim that it is "not a subprime lender" and "tublike some lenders in the industry [the
Company has] underwritten to the fully indexed rate . . . and followed strict policies for
outside appraisals combined with internal appraisal reviews" and that the average FICO
score of its borrowers was 709. Moreover, BankUnited claimed that "Itihe various risks
of our loan portfolio are mitigated by our underwriting requirements, which include
credit qualifications and LTV ratios directly correlated to potential risk." Finally, the
Company provided the following information (which has been summarized) regarding its
portfolio as of March 31, 2008 and September 30, 2007:
The following table provides details of the Company's ENTIRE one-to-four familyresidential loan portfolio by documentation type at March 31, 2008 ($ in thousands):
Full Documentation Limited No DocumentationLoans Documentation Loans Loans
Total Portfolio $1,696,877 $7,188,660 $884,828Percentage of Total 17.4% 73.6% 9.1%PortfolioNon-Performing $54,581 $462,868 $49,628LoansPercentage of Non- 9.6% 81.6% 8.8%Performing LoansWeighted Average 703 707-709 719FICO
The following table provides details of the Company's PAYMENT OPTION one-to-four family residential loan portfolio by documentation type at March 31, 2008 ($ inthousands):
Full Documentation Limited No DocumentationLoans Documentation Loans Loans
Total Option Arm $912,637 $6,314,227 $2,293,330PortfolioPercentage of Total 12.4% 56.3%3 31.3%Option Arm Portfolio
3 Due to an apparent reporting error in the 2Q 2008 Form 10-Q, the percentage ofLimited Documentation Loans in BankUnited's Option ARM portfolio as of March 31,2008 was determined by subtracting the combined total percentages of full
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Full Documentation Limited No DocumentationLoans Documentation Loans Loans
Non-Performing $45,165 $423,587 $43,562LoansPercentage of Non- 8.8% 82.7% 8.5%Performing Loans
118. Likewise, on May 12, 2008, Defendants hosted an analyst conference call
regarding the Company's 2Q 2008 financial results. After announcing the large losses
the Company suffered in 2Q 2008, Defendant Camner again attempted to reassure the
market that BankUnited was very different than the other failing banks. For example,
Camner stated that BankUnited's "underwriting standards [are] extraordinarily different
than many of' the failing banks and that the Company's loans "were always underwritten
to fully index rate[s]." In addition, Camner stressed the Company's "strong appraisal
review process including in-house reviews when needed based on our underwriter's
judgment and experience." As for BankUnited's credit standards, Camner stated that the
"bottom line" is that the Company "took a very different approach to underwriting our
residential loans, and we believe that ultimately will prove out for us as we go through
this difficult period." In fact, according to Camner, one of the biggest obstacles for the
Company was not its loan portfolio itself, but rather doing a "better job" convincing the
"market" that the Company's "loss mitigation" strategies regarding non-performing
assets were stronger than its competitors. Camner concluded by stating that while the
Company is going to have "our share of delinquencies and [non-performing assets1",
BankUnited's "underwriting was at a much higher level [than our competitors'. We
believe that's going to carry us through to a better extent..."
documentation and no documentation loans from 100%. According to the reported datain the 10-Q, the total percentages for all loan categories sum to 119.7%.
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119. Nevertheless, the cracks in the scheme were beginning to show. As one
conference participant pondered, "How did we fairly quickly go from a well-operating
bank that I've been invested in for ten plus years to suddenly a $65 million quarterly loss
and a $200 million loss [reserve]."
120. On this news, the Company's share price fell from $3.70 per share on May
12, 2008 to close at $3.53 per share on May 13, 2008.
121. On May 13, 2008, the Company filed another response to several
additional questions and comments from the SEC regarding BankUnited's 2007 Form 10-
K and 1Q 2008 Form 10-Q. The Company included the SEC's questions and prior
comments in its response. While the Company had previously argued that information
regarding re-amortization and recalculation of the Company's payment option loans
policies was immaterial, the SEC specifically noted that "fwihile the amounts for certain
historical periods may be small we continue to believe that the trends reflected in the
significant increases of such amounts are material." In addition, the SEC specifically
instructed the Company to "more clearly disclose in future filings why the balance of
payment option non-performing loans increased 1,168.6% from September 30, 2006 to
September 30, 2007 and how the increase was contemplated in your computation of your
allowance for loan losses."
122. On this news, the Company's share price fell again from $3.53 per share
on May 13, 2008 to close at $3.35 per share on May 14, 2008, a decline of 9.5% in two
trading days as artificial inflation continued to come out of the stock.
123. The statements set forth in tf 112 through 118 and 121 above concerning
BankUnited's earnings and net income, underwriting and appraisal standards, expected
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loan losses, borrowers' credit quality, internal controls, and capital position are false and
misleading because, as set forth in fi53 and 54 above, Defendants knowingly or
recklessly overstated BankUnited's earnings and net income by, among other things,
improper use of accepted accounting principles; failing to properly reserve for loan losses
on Option ARM loans; engaging in unsafe and unsound lending practices; and ignoring
escalating loan losses. Further, the statements set forth above concerning BankUnited's
expectations of loan losses are false and misleading for reasons stated above, including
that Defendants, notwithstanding their knowledge of same, failed to disclose that
BankUnited required a significant capital infusion to maintain its "well capitalized" status
with the OTS.
124. On May 29, 2008, in yet another response to several questions and
comments from the SEC relating to the Company's 1Q 2008 Form 10-Q, BankUnited
again acknowledged that $29.7 million worth of the Company's loans that were supposed
to be sold under a pre-existing contract were "rejected as a result of the purchaser's due
diligence." While the Company attempted to argue that the loans were not all rejected
because of questions regarding the fair market value of the collateral, Defendants
conceded that "Moans representing $18.3 million, or 62% of the total amount, had
characteristics which the Company initially believed were acceptable to the purchaser,
but were subsequently declined. The characteristics included foreign national borrowers
and collateral in the form of condominium units located in California. . . Loans
representing approximately $5.4 million or 18% of the total amount were rejected during
the due diligence process due to defects in file documentation. This last category
included 11 loans. The nature of the defects for 10 of these loans did not relate to any
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issue that could impact value. One of the 11 loans, in the amount of $425,000, was
rejected due to a differing opinion of collateral value."
125. On this news, the Company's share price fell from $3.41 per share on May
29, 2008 to close at $3.15 per share on May 30, 2008.
126. On June 4, 2008, the Company filed an "Investor Presentation" with the
SEC in order to "help investors better understand the Company's loan origination
process." In the presentation, Defendants noted that the Company "[proactively
manage[s] credit, capitalization and liquidity positions" with an "[a]ctive credit
management and loss mitigation strategy" and is also "[p]roactive [in] capital and
liquidity management to maintain well capitalized levels in this difficult environment."
Defendants continued to stress that the Company has Inio subprime lending" and that its
"Moans [are] underwritten at the fully indexed rate". In addition, the Company stated
that the Bank has a "[strong appraisal review process", and that its "Notal residential
portfolio [had a] weighted average FICO score at origination of 709". Similarly,
Defendants claimed that the Company's " r i • orous underwritin • standards were
designed to prevent borrower fraud and ensure accurate borrower representations."
127. As a result of the Company's damage control efforts, the share price rose
from $3.17 per share on June 4, 2008 to close at $3.49 per share on June 5, 2008.
128. The statements set forth in ¶J124 and 126 above concerning BankUnited's
earnings and net income, underwriting and appraisal standards, expected loan losses,
borrowers' credit quality, internal controls, and capital position are false and misleading
because, as set forth in ilf53 and 54 above, Defendants knowingly or recklessly
overstated BankUnited's earnings and net income by, among other things, improper use
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of accepted accounting principles; failing to properly reserve for loan losses on Option
ARM loans; engaging in unsafe and unsound lending practices; and ignoring escalating
loan losses.
129. On June 9, 2008, in response to further questions from the SEC,
Defendants wrote the SEC regarding the Company's activities involving real estate
acquired through foreclosure — i.e., real estate owned or "REO". More specifically, the
Company acknowledged that REO had increased from $729,000 at September 30, 2006
to $27.7 million at September 30 2007 and then to $73.4 million at March 31 2008.
VIII. THE EXTENT OF DEFENDANTS' FRAUD IS REALIZED
A. Defendants Announce A Massive Offering To Raise Approximately$400 Million In Cash
130. On June 17, 2008, Defendants filed a Preliminary Proxy Statement on
Form 14A announcing a "Special Meeting" to "vote upon an amendment to Article VI of
the Company's Amended Articles of Incorporation to increase the number of shares of
Series 1 Class A Common Stock, par value $0.01 per share, that the Company is
authorized to issue, from 200,000,000 shares to 500,000,000 shares."
131. On this news, the Company's stock price fell from a close of $3.38 on
June 17, 2008 to close at $2.35 per share on June 18, 2008 — a single day loss of more
than 30%.
132. On June 18, 2008, Defendants filed a series of documents to effectuate the
$400 million offering. In an accompanying press release issued after the markets closed,
the Company stated that it "expects to use the net proceeds from this offering for general
corporate purposes, including contributing capital to [the Bank]."
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133. On this news, the Company's share price fell again, from a $2.35 per share
close on June 18, 2008 to close at $1.90 per share on June 19, 2008 — or a loss of more
than 19%.
134. Thus, in two trading days, the Company's share price fell from a high of
$3.54 on June 17th to close at $1.90 on June 19 th — a decrease of almost 47%.
135. BankUnited's shares plummeted as the investing public realized that the
Company required a significant capital infusion of $400 million and the impact that
would have. RBC Capital Markets analyst Gerard Cassidy was quoted on June 26, 2008,
as saying about the $400 million stock offering, BankUnited's stock price decline, and
his sell recommendations: "As more and more people hear the story, they realize the
Company has to raise capital and they realize its going to be very dilutive. It tells you
they expect more serious problems on the horizon."
B. Post Class Period Announcements Give Further Details RegardingDefendants' Fraudulent Practices During the Class Period
136. On August 11, 2008, Defendants announced the Company's financial
results for its third quarter 2008 ("3Q 2008"), ended June 30, 2008. More specifically,
the Company announced a net loss of $117.7 million or $3.35 per share. Defendants also
disclosed that BankUnited took a provision for loan losses of $130 million for the 3Q
2008, resulting in a total loan loss reserve of $309.6 million.
137. On August 25, 2008, Defendants filed the Company's Form 10-Q for the
3Q 2008 with the SEC. The Company filed this 10-Q late, stating that the late filing was
due to "continuing adverse market conditions, the complexity of accounting and
disclosure issues has increased and we have dedicated additional time to our review and
analysis of our business including, without limitation, lending, liquidity, operations and
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capital." In the Company's 3Q 2008 Form 10-Q, Defendants announced, in significant
part, the following:
BankUnited has been advised by the OTS of certain concerns thatBankUnited has agreed to address Several of the measures addressingthese concerns were already in progress at the time the Company and theBank entered into agreements with the OTS to address the concerns. . .These measures include efforts to seek to raise at least $400 million ofcapital and to submit an alternative capital plan to be applicable if theCompany is unable to raise the $400 million; termination of the option ARM loan program (other than in the wealth management area and, incertain limited circumstances, for loan modifications); termination ofreduced and no documentation loan programs; reduction of the portfolio ofnegative amortization loans; and enhanced monitoring and internalreporting, as well as reporting to regulators on option ARM loan reductionefforts, preservation and enhancement of capital, mortgage insurance andliquidity strength. The Bank also agreed to enhance its policies andprocedures regarding the Bank's allowance for loan losses, includingincreasing the allowance to a level which has already been attained. TheBank has also agreed to maintain capital ratios substantially in excess ofthe minimum required ratios to be deemed well-capitalized upon raisingthe agreed upon amount of capital. The OTS has advised that the Bankmust limit its asset growth . . . . Based on a recent notification,BankUnited believes that, unless it raises significant capital, the OTS will reclassify the Bank to adequately capitalized primarily due to the deterioration in the Bank's non-traditional mortgage loan portfolio, the concentration of risk associated with that portfolio, and a resultant need for significant additional capital. The Company has continued its efforts toraise capital. Management believes that the Bank will maintain its well-capitalized status if the Company's capital raising efforts are successful.There can be no guarantee that any of the measures already taken or inprogress will be successful or satisfy the concerns of the OTS, andadditional restrictions may be imposed on BankUnited's activities in thefuture that could have a material adverse effect on BankUnited's financialposition and operations.
* * *
Current market conditions have resulted in increased concerns from investors, customers, regulators and lenders regarding liquidity. As aresult of these market conditions, the Bank has agreed with the OTS to,among other things, enhance its monitoring and internal reporting toregulators on liquidity strength. As part of this process, the Bank hasspecifically increased its holdings of cash and cash equivalents and hasinitiated steps to diversify its funding sources. We had accumulated $863million of cash and cash equivalents as of August 15, 2008 to meet ourfunding needs.
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138. The 3Q 2008 Form 10-Q also disclosed that "Fitch Ratings downgraded
BankUnited's long-term and senior debt" as well as "[t]he Bank's long-term deposits . . .
and its individual debt rating. . . Also the preferred stock associated with [the
Company's] trust subsidiaries . . . were downgraded . . . [and] Fitch Ratings placed
BankUnited and its subsidiaries on Rating Watch Negative."
139. Defendants also disclosed that "43% of our one-to-four family residential
loans were underwritten on borrower stated income and asset verification, 30% was [sic]
based on reduced documentation and employment verified, 18% was based on full
documentation and the remaining 9% was [sic] underwritten with no verification of either
borrower income or assets."
140. Then, just over one week later, on September 5, 2008, Defendants
disclosed that the Office of Thrift Supervision reclassified the Bank's regulatory capital
status from well-capitalized to adequately capitalized.
C. The Company And Bank Enter Into Cease And Desist Orders WithThe Office of Thrift Supervision
141. On September 19, 2008, Defendants disclosed that the Company and the
Bank each consented to Cease and Desist Orders issued by the Office of Thrift
Supervision.
142. In regards to the Company, the Stipulation and Consent to Issuance of
Order to Cease and Desist (the "Company's Stipulation") stated that the OTS "is of the
opinion that grounds exist to initiate an administrative proceeding against the [Company]
pursuant to 12 U.S.C. § 1818(b)" and that:
Based on [the OTS1 January 31, 2008 Report of Examination of[BankUnited], the OTS finds that the [Company] has engaged in unsafe
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and unsound practices that have resulted in the . . . Company's whollyowned savings association subsidiary, BankUnited, FSB . . ., being in anunsatisfactory condition primarily due to the rising delinquencies anddefaults in its payment option arm loan portfolio, a significant portion ofwhich was originated on a 'stated income' basis. The deterioration in thisportfolio has resulted in the need for greater levels of capital andallowance for loan and lease losses at the [Bank].
143. The Company's Order to Cease and Desist (the "Company's Order")
requires, in part, that BankUnited: (1) commit to not accept or request dividends from
the Bank, or pay dividends or make capital distributions without the written approval of
the OTS; (2) notify, or in certain cases receive the approval or non-objection of the OTS
prior to (a) making certain changes to its directors or senior executive officers, (b)
making any golden parachute or prohibited indemnification payments, or (c) entering into
renewing extending or revising any contractual arrangement related to compensation or
benefits with any director or senior officer of the Company; (3) submit to the OTS a
capital plan which outlines steps to preserve and enhance the capital of the Company and
the Bank and present a written alternative capital strategy to be implemented in the event
that capital rising efforts are unsuccessful; and (4) not incur, issue, renew, or rollover any
debt, increase any current lines of credit or guarantee the debt of any entity without
notifying the OTS.
144. The Bank also entered into a Stipulation and Consent to Issuance of Order
to Cease and Desist (the "Bank's Stipulation"). In the Bank's Stipulation, the OTS again
stated that "the OTS is of the opinion that grounds exist to initiate an administrative
proceeding against the [Bank] pursuant to 12 U.S.C. § 1818(b)" and that:
Based on [the OTS1 January 31, 2008 Report of Examination of the[Bank], the OTS finds that the [Bank] has engaged in unsafe and unsoundpractices that have resulted in the [Bank] being in an unsatisfactorycondition, primarily due to the rising delinquencies and defaults in its
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payment option arm loan portfolio, a significant portion of which wasoriginated on a 'stated income' basis. The deterioration in this portfoliohas resulted in the need for greater levels of capital and allowance for loanand lease losses.
145. The Bank's Order to Cease and Desist (the "Bank's Order") requires, in
part, that the Bank: (1) not originate any new loans that provide for or may result in
negative amortization loans (including payment option loans) or reduced documentation
loans; (2) submit a detailed written plan to reduce the level of payment option loans; (3)
enhance its monitoring and internal reporting, as well as reporting to regulators regarding
liquidity, payment option loans, real estate owned and mortgage insurance; (4) prepare
and review a plan to ensure that the Bank maintains and adheres to allowance for loan
and lease loss ("ALLL") policies, procedures, timeframes and calculation inputs; (5)
restrict asset growth to an amount less than net interest credited on deposits during any
quarter, until the business plan is approved by the OTS; (6) not pay dividends or make
capital distributions without receiving the prior approval of the OTS; (7) notify, or in
certain cases receive the approval or non-objection of, the OTS prior to (a) making
certain changes to its directors or senior executive officers, (b) making any golden
parachute or prohibited indemnification payments, or (c) entering into, renewing,
extending or revising any contractual arrangement related to compensation or benefits
with any director or senior officer of the Bank; and (8) appoint a regulatory compliance
committee to monitor and coordinate compliance with the provisions of the [Bank's]
Order and the 2008 examination.
146. In addition to filing the Cease and Desist Orders and the Stipulations as
part of a Form 8-K, the Form 8-K also announced that the Bank was terminating
approximately 160 Bank employees and was "defer[ring] payment of regularly
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scheduled quarterly interest payments on the Company's aggregate $237 million of
floating rate junior subordinated interest debentures . . . associated with its ten trust
preferred subsidiaries."
D. The Company Collapses And Is Taken Over By Federal Regulators
147. On October 24, 2008, the Company announced that Defendant Camner
was retiring as Chairman of the Board and Chief Executive Officer of BankUnited and
the Bank. Moreover, effective October 20, 2008, Lauren R. Camner, daughter of
Defendant Camner, also resigned as a director, officer, and employee of the Company
and the Bank.
148. On December 16, 2008, the Company filed a Form NT 10-K with the SEC
explaining that it was "not able to file a timely Form 10-K because we have not
completed our financial statements for the fiscal year ended September 30, 2008. . . [, in
part, because of] regulatory issues, liquidity and capital [concerns]."
149. Moreover, the Company admitted that it:
[has] not completed our assessment of the effectiveness of our internalcontrol over financial reporting as of September 30, 2008. .. Based on ourassessment thus far, we expect to report at least one material weakness as of September 30, 2008. A material weakness is a control deficiency, orcombination of control deficiencies, in internal control over financialreporting such that there is a reasonable possibility that a materialmisstatement of the consolidated annual or interim financial statementswill not be prevented or detected on a timely basis. We had an insufficientcomplement of personnel with a level of accounting knowledge, experience and training in the application of generally accepted accounting principles. . . Specifically, the implementation and executionof the Company's controls and procedures did not ensure the systematic and accurate execution of account level analyses related to the residential loan portfolio, including the allowance for loan losses and the identification of troubled debt restructuring. . . As a result, internal controlover financial reporting and disclosure controls and procedures were noteffective at September 30, 2008.
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150. The Company further admitted that "kin October 2008, we received an
informal inquiry from the Miami Regional Office of the Securities and Exchange
Commission requesting a broad range of documents relating to, among other matters, the
Company's non-performing, non-accrual, and charged-off loans, recoveries of assets,
non-performing Option ARM loans, pending litigation to which the Company is or was a
party and whistleblower complaints."
151. Likewise, the Company stated that they expect to realize a substantial loss
for FY 2008:
as a result of our recognition of significant provisions for loan lossesrelated to our option ARM portfolio, recognition of other than temporaryimpairment on securities, and lower net interest income due to highernonperforming assets. We expect to also report a loss of approximately$327 million in the fourth fiscal quarter of 2008. . . If the final earningsanalysis results in a material level of additional losses and we areunsuccessful in our negotiations with a fund . . . to Increase Capital, thereis substantial doubt about our ability to continue as a going concern.
152. Then, on January 27, 2009, the Company announced that while it
originally "stated that [BankUnited] expected to report a loss of approximately $327
million in the fourth fiscal quarter of 2008 . . . our ALLL analysis was not yet completed.
Additional review of the Company's ALLL reserve indicates that the loss for the fourth
quarter of fiscal 2008 will be approximately $607 million, resulting in a loss for 2008 of
approximately $816 million." Thus, "[biased upon a preliminary fourth quarter loss of
$607 million, the Bank's Tier I Core Capital ratio was 3.4% and total risk-Based Capital
ratio was 7.1%."
153. On February 10, 2009, the Company filed another Form NT 10-Q with the
SEC. In this Form NT 10-Q, BankUnited announced that it was unable to timely file its
Form 10-Q for the first quarter of 2009 ("1Q 2009"). In addition, the Company disclosed
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preliminary results for the fourth quarter 2008 ("4Q 2008"). More specifically, the
Company announced that its loan loss allowance for the 4Q 2008 and 1Q 2009 was
$704.5 million and $772.6 million, respectively. Similarly, the Company claimed an
estimated loss for the 1Q 2009 of approximately $217.45 million and a loss of $845.052
million for fiscal year 2008.
154. On April 17, 2009, the Company filed a Form 8-K with the SEC and
disclosed that the Bank had entered into a Stipulation and Consent to Prompt Corrective
Action Directive ("PCA Directive") with the OTS because of the Bank's continued
failure to operate under an accepted capital restoration plan. In fact, the Company
disclosed that "[a]s of January 30, 2009, the Bank is critically undercapitalized." The
PCA Directive requires the Company to "be recapitalized by (a) merging with or being
acquired by another financial institution, financial holding company, or other entity, or
(b) the sale of all or substantially all of the Institution's assets and liabilities to another
financial institution, financial institution holding company, or other entity, within twenty
(20) days."
155. Moreover, the Company announced that:
On April 10, 2009, the Company completed its review of the allowancefor loan losses for the Bank as of December 31, 2008 and determined torecognize an additional provision of $154 million. Approximately $7million of the $154 million increase will be reflected in the [FY 20081 and$147 million will be reflected in the [1Q 20091. . . Based on these recentreviews, the Company concluded that the market value of its portfolioshould be reduced by $30.3 million as of the end of [FY 20081, of which$4.6 million is considered other than temporary impaired.
156. On May 21, 2009, the Office of Thrift Supervision announced that it
"closed the $13.1 billion BankUnited, FSB . . . and appointed the Federal Deposit
Insurance Corporation (FDIC) as receiver." According to the OTS, the Bank was closed
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because "BankUnited was critically undercapitalized and in an unsafe condition to
conduct business. The [Blank reported losses of $1.2 billion in 2008 as loan quality
continued to deteriorate."
157. On the same day, May 21, 2009, it was announced that a consortium of
private equity investors led by John Kanas "invested $900 million in a new depository
institution that acquired the operations of BankUnited, FSB from the Federal Deposit
Insurance Corporation, as Receiver. . . The FDIC facilitated a sale of BankUnited's
operations, deposits, and assets to the newly formed depository institution."
158. Then, on May 22, 2009, BankUnited announced that it "commenced
proceedings under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida. The filing of the bankruptcy cases
was prompted by the appointment of the [FDIC] as receiver for the Company's banking
operations, BankUnited FSB (the "Bank"), by [OTS]."
159. On May 22, 2009, The Wall Street Journal reported that the seizure of the
Bank amounted to "the biggest bank failure this year" and that it would cost the FDIC
$4.9 billion.
160. Finally, on May 29, 2009, the Company filed a Form 8-K with the SEC
and announced that, on May 22, 2009, "Ramiro A. Ortiz, Humberto L. Lopez and Felix
Garcia submitted their resignation as [] directors of the Company, effective immediately.
Messrs. Ortiz and Lopez also resigned as officers. Lucious T. Harris resigned as the
Company's Chief/Principal Accounting Officer."
IX. ADDITIONAL SCIENTER ALLEGATIONS
A. General Allegations of Scienter
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161. The above allegations establish a strong inference that Defendants
Camner, Ortiz and Lopez acted with scienter in misrepresenting the quality of
BankUnited's loans, the diligence and thoroughness of BankUnited's underwriting and
appraisal of assets backing the mortgage receivables recorded on BankUnited's balance
sheet, BankUnited's capitalization, and, consequently the financial condition of
BankUnited during the Class Period.
162. The Defendants entered into this scheme to (a) increase the value of their
own securities holdings and options; (b) bolster BankUnited's financial performance
which was directly relevant to their compensation pursuant to various incentive
compensation plans maintained by BankUnited; (c) enjoy the prestige and gratification
associated with the illusion which they created that BankUnited was a profitable
enterprise, and (d) protect their positions with BankUnited and the substantial
compensation they gained therefrom.
163. As a mortgage lender, BankUnited's underwriting guidelines and the
enforcement thereof defined the Company's risk profile and was of critical importance to
its operations. The quality of the Company's loans directly impacted the reported value
of the Company's income and assets. Moreover, as a lender that sold a material
proportion of the loans it originated in the secondary market subject to repurchase
obligations, the quality of BankUnited's loans subjected the Bank to significant
repurchase liability. Similarly, because BankUnited's loans were used to collateralize the
credit facilities on which the Bank's operations were dependent, the quality of the Bank's
loans was the single most important aspect of its business and operations. Accordingly,
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BankUnited's loan originations constituted the Company's core operations and formed
the heart of its business.
164. As outlined above, BankUnited management, including Defendants,
repeatedly touted the Bank's purportedly stringent underwriting practices, appraisal
standards, and loan quality. As described herein, however, BankUnited policies and
practices throughout the Class Period demonstrate that it was Defendants intention and
practice to ignore proper appraisal practices and other facets of the underwriting process
to aggressively churn out the maximum possible volume of mortgage loans — primarily
Option ARM loans — regardless of the value of the real estate being financed or the
borrowers' long-term ability to pay under the terms of the loan. In addition, it was also
BankUnited policy and practice to originate large volumes of "no documentation" and
"low-" or "limited documentation" loans, and to encourage loan officers and independent
mortgage brokers to obtain as little documentation from borrowers as possible.
Critically, these were BankUnited policies that Defendants designed and implemented to
take advantage of both increased volume in mortgage loan production and the short-term
accounting gains available from the issuance of risky Option ARM loans. These factors,
particularly given BankUnited's failure to establish appropriate loan loss reserves were
designed principally for the purpose of inflating BankUnited's earnings, net income, and
stock price, and to permit Defendants to achieve significant performance-based bonuses.
165. As confirmed by Confidential Witness 1, Defendant Camner was deeply
and personally involved in BankUnited's lending and underwriting practices, including
with respect to BankUnited's adherence to standards governing reviews of the appraisals
of properties that were pledged as collateral for BankUnited mortgages. In the summer
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of 2006, Camner personally traveled to California and told Confidential Witness 1 that,
while he understood that the in-house appraiser had a duty to cut appraisals that were
inappropriate, the appraiser should "cut them, but not too many."
166. The failure of BankUnited's underwriting and appraisal practices
overstated the underlying value of the assets backing the mortgage receivables recorded
on BankUnited's balance sheet, which required BankUnited to create larger reserves in
anticipation of inevitable loan losses. As described by Confidential Witnesses 2, 4, and
5, despite the fact that Defendants became aware of escalating loan losses during the
Class Period, they routinely failed to approve increased loan loss reserves to levels that
accurately reflected anticipated losses. As set forth above, on January 22, 2007, Camner
admitted he "personally got involved" with how the Company treated delinquencies.
Inadequate loan loss reserves inflated BankUnited's short term income throughout the
Class Period, thereby increasing the performance-based executive compensation paid to
Defendants.
167. Defendants were aware of BankUnited's increasing loan volumes during
the Class Period and were also aware that BankUnited did not have the personnel or other
administrative capacity to appropriately monitor loan appraisals and otherwise perform
diligent underwriting on those loans. Accordingly, Defendants acted knowingly, or were
reckless in not knowing that BankUnited's underwriting and appraisal standards were, in
reality, substantially weaker than what they and the company repeatedly represented them
to be throughout the Class Period.
168. Defendants were compensated in a manner that drove them to pursue
BankUnited's recklessly risky lending and business practices. The substantial majority of
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Defendants' compensation consisted of performance-based bonuses, restricted stock
grants, and other compensation that were dependent on BankUnited meeting undisclosed
performance targets, including targets related to the origination of loans and the
Company's achieving certain earnings per share numbers.
169. As a substantial portion of Defendants' compensation was performance-
based, Defendants had compelling personal financial incentives for BankUnited to
engage in risky, short-term focused lending practices, engage in aggressive and reckless
accounting practices, and/or otherwise manipulate BankUnited's results so as to meet or
exceed performance targets and maximize their compensation.
170. Throughout the Class Period, BankUnited consistently refused to provide
details on the specific, quantitative performance-based targets used in its executive
compensation packages, including the numeric bonus targets for Defendants. By a letter
dated April 25, 2008, the SEC Division of Corporation Finance took issue with
Defendants' position with respect to the confidential nature of the bonus targets for
executive officers, which included Defendants. The SEC requested that BankUnited
provide "all material performance targets used to determine the bonuses paid to the
named executive officers."
171. In May 12, 2008 correspondence with the SEC, BankUnited declined to
fully respond to the SEC's request with respect to compensation for all "named executive
officers" including Defendant Lopez. With respect to performance targets for Defendants
Camner and Ortiz, BankUnited reiterated its position that most of the performance targets
were confidential. BankUnited agreed, however to disclose part of the bonus criteria: the
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ranges of targets for net income and earnings per share. BankUnited provided these
targets — but for FY 2007 only — as outlined in the following table.
Net Income Diluted EPS Cannier Ortiz Cash Camner No Ortiz No of Cash of Shares Shares
Below $65 Below $1.65 $0 $0 0 0million
$65 million - $1.65 - $1.77 Up to Up to Up to 25,000 Up to 7,000$69.9 million $750,000 $150,000
$70 million - $1.78 - $2.03 Up to Up to Up to 27,000 10,000$79.9 million $800,000 $220,000
$80 million - $2.04- $2.10 $1,100,000 $260,000 29,000 12,000$82.9 million
$83 million - $2.11 -$2.23 $1,400,000 $280,000 31,000 13,000$87.9 million
$88 million - $2.24- $2.43 $1,500,000 $300,000 33,000 14,000$96.9 million
$97 million - $2.44- $2.49 $1,600,000 $700,000 35,000 28,000$98 million
Over $98 $2.50 and $1,700,000 35,000 -million over
172. Defendants saw their compensation jump considerably in FY 2006,
precisely at the time that BankUnited began to pursue its strategic shift toward pursuing
"unsafe and unsound" lending through aggressive reliance on Option ARM lending.
173. The damage done by BankUnited's "unsafe and unsound" lending
practices, its failure to disclose its serious capitalization issues, and the fact that the OTS
was about to come down hard on BankUnited's lending and business practices became
increasingly difficult for Defendants to conceal by the end of the Class Period.
174. In February 2008 — while the OTS Examination was in full steam, and
when Defendants understood that the OTS was deeply concerned with BankUnited's
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"unsafe and unsound" lending practices and the inadequacy of the Bank's capitalization —
BankUnited terminated Robert Green ("Green"), the Bank's Director of Residential
Lending, purportedly for losses in the loan portfolio and so-called "regulatory issues."
Defendants demonstrated, by the termination of Green, that they were aware that
BankUnited's lending practices were inappropriate and that the Bank was faced with an
acute need to make substantial revisions to its mortgage lending business.
B. BankUnited's Efforts To Raise Capital During The Class PeriodDemonstrates That Defendants Acted With Scienter
175. Throughout the Class Period, Defendants falsely and misleadingly stated
that the Bank was well-capitalized and that it was adequately reserving for loan loss
contingencies. BankUnited's efforts to raise capital during the Class Period, however,
demonstrate that Defendants were aware of serious threats to the Bank's capitalization
that were the result of its risky mortgage lending practices and escalating loan losses, and
that BankUnited was taking steps to shore up its capitalization.
176. Defendants became aware that BankUnited's capitalization was in
jeopardy no later than in the latter part of FY 2006. In connection with their knowledge
of BankUnited's capitalization troubles, Defendants undertook repeated efforts to secure
additional capital, including repeatedly increasing the number of authorized shares of
BankUnited stock, raising $160,000,000 in an offering of HiMEDS equity units, and
announcing the Company's intent to raise $400,000,000 in cash through a stock offering
at the end of the Class Period. In each instance, Defendants sought to take advantage of
the artificial inflation in the price of BankUnited stock.
1. Defendants Raise Approximately $178,500,000 Through The HiMEDS Offering During The Class Period
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177. On April 18, 2007, BankUnited announced a $160,000,000 offering of
3,200,000 equity units (the "HiMEDS Offering"). The Company filed a Prospectus in
connection with the HiMEDS Offering on April 19, 2007.
178. BankUnited stated that it intended to use the proceeds of the HiMEDS
Offering, in part, "for general corporate purposes such as expanding operations through
new branch offices and operations centers, possible acquisitions, acquisition of debt and
equity securities if available on favorable terms, redemption of outstanding debt and
investment in loans and mortgage-backed or other securities."
179. The HiMEDS Offering went forward as planned and closed on April 25,
2007. All 3,200,000 equity units sold, resulting in net proceeds of approximately
$155,200,000. After the closing, the underwriters exercised a thirty-day option to
purchase an additional 480,000 equity units to cover over-allotments. The over-allotment
sale occurred on May 23, 2007 and resulted in approximately $23,300,000 in additional
net proceeds to BankUnited, bringing the full net proceeds of the HiMEDS Offering to a
total of approximately $178,500,000.
180. Prior to and at the time of the HiMEDS Offering and the over-allotment
sale, BankUnited failed to disclose that its capitalization was eroding and that Defendants
intended to use the proceeds from the offering to shore up the Bank's increasingly
inadequate capitalization as protection against mounting losses in its Option ARM
mortgage loan portfolio.
2. Defendants Attempt To Raise Approximately $400,000,000 Throu2h A Public Offerin2 Of Stock
181. On December 8, 2006, BankUnited filed a Preliminary Proxy Statement in
which it announced that the Company's Board of Directors unanimously approved an
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Amendment to Article IV of BankUnited's Articles of Incorporation that would increase
the number of shares of the Company's stock from 60,000,000 shares to 100,000,000
shares — an increase of nearly sixty-seven percent. The December 8, 2006 Proxy stated,
in part, "[BankUnited] believes that the increase in the capitalization of the Company
would assure that an adequate number of authorized but unissued shares is available for
the Company to issue shares of [stock] to obtain equity capital and effect acquisitions, to
grant awards under the Company's stock bonus and stock option plans, and to use for
stock dividends or in stock splits." The Amendment was approved on January 23, 2007.
182. Then, on April 18, 2007, Defendants filed a Form S-3 Registration
Statement (the "April 18, 2007 Shelf Registration") in connection with the Registration
of debt securities, Class A common stock, Securities Purchase Contracts, and Securities
Purchase Units. The April 18, 2007 Shelf Registration was filed in connection with "Fain
indeterminate principal amount or number" of securities described in the Shelf
Registration at an "indeterminate aggregate initial offering price or number of the
securities . . . as may from time to time be offered at indeterminate prices." According to
the April 18, 2007 Shelf Registration, the intended purpose of the proceeds was for
"general corporate purposes." BankUnited explained that the general corporate purposes
"may include expanding our operations through new branch offices and operations
centers, possible acquisitions, acquiring our debt and equity securities, if available on
favorable terms, redeeming outstanding debt, investing in loans and mortgage-backed or
other securities and funding working capital needs."
183. Then, on January 2, 2008, while, as is set forth above, the OTS
Examination of BankUnited was underway, Defendants filed a Form S-3 Shelf
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Registration (the "January 2, 2008 Shelf Registration") in connection with the registration
of "an indeterminate number" of Class A Common shares, shares of preferred stock, and
debt securities, warrants, stock purchase contracts and stock purchase units, "for an
aggregate initial offering price not to exceed $400,000,000.00.. ."
184. Within a few weeks of filing the January 2, 2008 Shelf Registration,
however, Defendant Camner assured investors that there seemed to be a "misperception"
about the Company's previous shelf registrations. In fact, in addition to stating that the
Company's "current levels of capital are more than sufficient to carry us through this
cycle," Camner specifically (and falsely) stated that the previously filed shelf
registrations just "needed to [be brought] current . . . [and] [t]he amount stated is not
indicative of any near-term transaction."
185. Then, on May 6, 2008, Defendants filed a Preliminary Proxy Statement
with the SEC announcing BankUnited's intention to amend its Articles of Incorporation
yet again and to double the number of authorized Class A Common Shares — from
100,000,000 to 200,000,000 shares. On May 27, 2008, BankUnited shareholders
approved the Amendment.
186. On June 17, 2008, less than a month after BankUnited's shareholders, led
by Defendant Camner, voted to double the number of authorized Class A Common
Shares, Defendants filed a Preliminary Proxy Statement (the "June 17, 2008 Preliminary
Proxy") stating that BankUnited was facing acute needs for capital. The June 17, 2008
Preliminary Proxy also announced BankUnited's intention to hold a special meeting of
stockholders to approve an amendment to BankUnited's Articles of Incorporation to
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increase the number of authorized Class A Common Shares from 200,000,000 to
500,000,000 shares — an increase of 250%.
187. Finally, on June 18, 2008, Defendants filed a series of documents to
effectuate the $400,000,000 offering and, after the market closed, issued a press release
stating the Company expected to use the net proceeds "for general corporate purposes,
including contributing capital [to the Bank]." In fact, at this point, Bank United was so
undercapitalized Defendants were required by the OTS to have the $400 million offering.
This need for capital was a direct result of the Company's "unsafe and unsound" lending
practices throughout the Class Period.
C. Additional Facts Establishing That Defendant Canmer Acted WithScienter
188. Defendant Camner was the Chairman of the Board and Chief Executive
Officer throughout the Class Period, and, as such was the individual responsible for the
management of BankUnited's business, as well as for the accuracy of BankUnited's
public disclosures and its publicly issued financial statements.
189. During the Class Period, a substantial portion of Camner's personal wealth
was tied up in BankUnited stock. His holdings included over 9% of the publicly traded
BankUnited stock and over 90% of the Class B Common and Series B Preferred Stock.
190. Given his long-term professional and executive experience in the banking
industry, Defendant Camner was keenly aware of the critical importance of loan
underwriting, real estate appraisals, and loan loss reserves to the accuracy and reliability
of a mortgage lending bank's public statements. Camner was also keenly aware of the
Company's loan production status and the impact higher loan loss provisions would have
on the Company's financial reports by virtue of his attendance at the weekly executive
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management meetings described above, which were held for his benefit and at which
these topics were discussed.
1. Executive Compensation
191. Defendant Camner was highly motivated to generate short-term growth
and results at BankUnited during the Class Period by any means necessary — including
through the aggressive and reckless expansion of BankUnited's Option ARM mortgage
lending practices to take advantage of short term "smoke and mirrors" accounting that, in
part, permitted BankUnited to claim income from deferred interest payments on Option
ARM loans in the current period (provided, however, such recognition of income was
accompanied by a corresponding increase in the loan loss reserve as described in lf 25
above). Similarly, Camner knowingly or recklessly failed to disclose the true known risk
of Option ARM loan products to the medium- and long-term sustainability of
BankUnited so as to achieve production and EPS targets that represented the substantial
majority of his compensation. Defendant Camner thus had a powerful incentive to
increase the Company's short-term earnings by originating huge quantities of risky
Option ARM mortgage loans on properties whose values were overstated due to improper
appraisal and underwriting practices, to fail to establish appropriate loan loss reserves,
and to thereby materially misrepresent the Company's financial condition.
192. In FY 2006, when BankUnited made its most aggressive shift to Option
ARM lending, Camner saw his personal compensation jump dramatically from the prior
year due to incentive-based bonuses, as the table below demonstrates.
Fiscal Salary Bonus Other Annual Restricted Stock All OtherYear Compensation Awards Compensation
2005 $375,000 $1,400,000 $113,107 $2,486,749 $126,320
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Fiscal salary Bonus Other Annual. Restricted Stock All OtherCompensation Awards CompensationYear
2006 $450,000 $2,500,000 $120,095 $2,618,749 $236,807
193. The substantial majority (over 92.5%) of Defendant Camner's
compensation for FY 2006 consisted of performance-related cash and stock bonuses, the
amounts of which were tied to undisclosed performance measures related to
BankUnited's EPS, assets, deposits, residential and commercial loan production, net
income, total loans, credit quality, and the number of BankUnited branches. Camner's
cash bonus, which was dependent upon the Company reaching quarterly and annual
performance goals, was worth more than five times his annual salary.
194. According to an April 11, 2008 BankUnited correspondence with the SEC
Division of Corporation Finance, in FY 2006 the year in which the worst-performing
loans made by BankUnited were issued — Camner was awarded 100% of his maximum
annual cash bonus, 92% of the maximum aggregate quarterly cash bonuses, and 100% of
his performance-based restricted stock awards. In addition, that correspondence noted
that, in FY 2007, Camner was awarded 94% of his maximum annual cash bonus, 75% of
the maximum aggregate quarterly cash bonuses that could have been earned pursuant to
performance goals, and 67% of his performance-based restricted stock awards.
195. Defendant Camner's FY 2007 compensation was also substantially based
(over 91.5%) on performance-based cash and stock bonuses, the amounts of which were
tied to undisclosed performance measures related to BankUnited's earnings per share, net
income, deposits, total assets, loan production, loan sales, loan balances, credit quality,
efficiency ratio, book value per common share, and the number of BankUnited branches.
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In FY 2007, Camner was paid a base salary of $475,000, an annual cash bonus of
$1,600,000, quarterly cash bonuses totaling $1,050,000, and stock awards of $1,490,690.
196. Defendant Camner's compensation for FY 2007 was therefore
substantially tied to BankUnited's aggressive growth of its mortgage lending business,
including BankUnited's decisions to continue to recklessly expand its reliance on the
promotion of Option ARM loans, reduced- or no-documentation "liar's loans," and other
apparently profitable but recklessly risky mortgage products. Similarly, as it was driven
by EPS numbers, Camner's compensation was substantially dependent upon the
Company's failure to appropriately account for nonperforming assets, including the loans
in its Option ARM loan portfolio.
2. Insider Stock Sales
197. Camner also engaged in insider stock sales during the Class Period to take
advantage of his knowledge that BankUnited's stock was trading at artificially inflated
prices for the reasons described above.
198. On October 27, 2006, Camner converted 80,315 shares of Class B
common stock into 80,315 shares of stock. Camner then sold all of those shares in a
series of open-market transactions on October 27, 30, and 31, 2006 (the "October 2006
Camner Stock Sales"), knowing that the price of BankUnited stock was trading at an
artificially inflated price. The October 2006 Camner Stock Sales were structured in the
following manner:
• 5,315 shares sold in a single transaction on October 27, 2006 at $27.14 pershare;
• 65,000 shares sold in seven separate transactions on October 30, 2006 at pricesranging from $26.65 per share to $26.75 per share; and
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• 10,000 shares sold in a single transaction on October 31, 2006 at $27.20 pershare.
199. The October 2006 Camner Stock Sales resulted in gross proceeds to
Camner of $2,151,954.10.
200. On June 15, 2007, Camner converted 50,000 shares of Class B common
stock into 50,000 shares of stock. On that date, Camner also exercised 50,000 options to
purchase Class A Common stock at a price of $7.50 per share in a cashless exercise.
Camner then sold all 100,000 shares of newly-acquired Class A common stock in a series
of 24 open-market transactions on June 15, 2007 (the "June 15, 2007 Camner Stock
Sales"), knowing that the price of BankUnited stock was trading at an artificially inflated
price due to the rapidly eroding value of BankUnited's Option ARM loan portfolio and
corresponding decline in the value of the assets backing the mortgage receivables on
BankUnited's balance sheet. The June 15, 2007 Camner Stock Sales at prices from
$22.12 per share to $22.45 per share, resulted in $2,224,126.92 in gross proceeds to
Camner.
201. The October 2006 and June 15, 2007 Camner Stock Sales were unusual in
their timing and amount given that prior to the Class Period in 2006, Camner sold a total
of 28,500 shares of BankUnited Class A common stock in five separate transactions on
May 2 and 3, 2006 for total gross proceeds of approximately $886,159.60 — nearly 60%
less than the proceeds of the October 2006 Camner Stock Sales and more than 60% less
than the proceeds of the June 15, 2007 Camner Stock Sales. In addition, Camner did not
sell a single share of BankUnited stock during 2005 or 2008. That Camner capitalized on
the false information when it was greatest, selling stock when BankUnited's shares were
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trading at some of their highest levels during the Class Period and during the period of
inflation which was of his own making, is further indication of scienter.
D. Additional Facts Establishing That Defendant Ortiz Acted WithScienter
202. Given his long-term professional and executive experience in the banking
industry, Defendant Ortiz was keenly aware of the critical importance of loan
underwriting, real estate appraisals, and loan loss reserves to the accuracy and reliability
of a mortgage lending bank's public statements. Specifically, as noted in If11 above,
Ortiz served in numerous executive positions with BankUnited and the Bank.
203. Defendant Ortiz was highly motivated to generate short-term growth
during the Class Period by any means necessary — including the expansion of
BankUnited's reliance on increasing Option ARM and Payment Option ARM mortgages,
and the failure to disclose the true known risk of those loan products — to inflate his
personal compensation. During the Class Period, the substantial majority of Ortiz's
compensation was tied to performance-driven cash and stock bonuses. Defendant Ortiz
thus had a powerful incentive to increase the Company's short-term earnings by
originating and purchasing huge quantities of risky loans and to materially misrepresent
the Company's financial condition.
204. In FY 2006, when BankUnited made its most aggressive shift to Option
ARM and Payment Option ARM lending, Ortiz saw his personal compensation jump
dramatically from the prior year due to incentive-based bonuses — notably in the form of
restricted stock awards — as the table below demonstrates:
Fiscal Year Salary Bonus Restricted Stock Awards All Other Compensation
2005 $500,000 $200,000 $237,506 $174,985
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Fiscal Year Salary Bonus Restricted Stock Awards All Other Compensation
2006 $554,937 $500,000 $989,895 $20,855
205. The substantial majority of Ortiz's compensation for FY 2007 consisted of
performance-related cash and stock bonuses, the amounts of which were tied to
undisclosed performance measures related to BankUnited's earnings per share, net
income, deposits, total assets, loan production, loan sales, loan balances, credit quality,
efficiency ratio, book value per common share, and the number of BankUnited branches.
E. Additional Facts Establishing That Defendant Lopez Acted WithScienter
206. Given his long-term professional and executive experience in the banking
industry, Defendant Lopez was keenly aware of the critical importance of loan
underwriting, real estate appraisals, and loan loss reserves to the accuracy and reliability
of a mortgage lending bank's public statements. Specifically, as noted in V1 above,
Lopez served in numerous executive positions with the Company and the Bank. Lopez
was also keenly aware of the Company's loan production status and the impact higher
loan loss provisions would have on the Company's financial reports by virtue of his
attendance at the weekly executive management meetings described above at which these
topics were discussed.
207. Defendant Lopez was highly motivated to generate short-term growth
during the Class Period by any means necessary — including the expansion of
BankUnited's reliance on increasing Option ARM and Payment Option ARM mortgages,
and the failure to disclose the true known risk of those loan products — to inflate his
personal compensation. During the Class Period, the substantial majority of Lopez's
compensation was tied to performance-driven cash and stock bonuses. Defendant Lopez
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thus had a powerful incentive to increase the Company's short-term earnings by
originating and purchasing huge quantities of risky loans and to materially misrepresent
the Company's financial condition.
208. In FY 2006, when BankUnited made its most aggressive shift to Option
ARM lending, Lopez received a $124,028 cash bonus in connection with the company's
performance in FY 2006.
209. In FY 2007, Lopez received a $124,028 cash bonus, 4,000 shares of
restricted stock, and 8,800 stock options. Lopez's compensation for FY 2007 was
therefore substantially tied to BankUnited's expansion of its mortgage lending business,
including BankUnited's decision to continue to recklessly expand its reliance on the
promotion of Option ARM, reduced documentation, and other apparently profitable but
recklessly risky mortgage products.
210. Throughout the Class Period, Defendant Lopez's compensation and bonus
amounts were determined at the discretion of Defendants Camner and Ortiz.
Accordingly, Lopez had a strong incentive to serve the interests and direction of Camner
and Ortiz to maximize his earnings potential.
X. DEFENDANTS' VIOLATIONS OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
211. During the Class Period, BankUnited's enormous exposure to losses on
Option ARM mortgages made it especially critical that Defendants ensure the accuracy of
the Company's reported financial results. Defendants failed to do so. Despite their
public statements to the contrary, throughout the Class Period, BankUnited suffered from
a pervasive weakness in its internal controls and repeatedly and systematically violated
GAAP.
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A. GAAP Overview
212. The SEC has the statutory authority for promulgation of GAAP for public
companies and has delegated that authority to the Financial Accounting Standards Board
("FASB") and the American Institute of Certified Public Accountants ("AICPA").
GAAP consists of those principles recognized by the accounting profession as the
conventions, rules, and procedures necessary to define accepted accounting practice at
the particular time. SEC Regulation S-X, 17 C.F.R. § 210.4-01(a)(1), provides that
financial statements that are not prepared in compliance with GAAP are presumed to be
misleading and inaccurate.
213. GAAP "recognize[s] the importance of reporting transactions and events
in accordance with their substance." AU § 411.06. GAAP should be applied
consistently. AU § 420.01 ("The report shall identify those circumstances in which such
principles have not been consistently observed in the current period in relation to the
preceding period.").
214. SEC Rule 13a-13 requires issuers to file quarterly reports. SEC Rule 12b-
20 requires that periodic reports contain such further information as is necessary to make
the required statements, in light of the circumstances under which they are made, not
misleading.
215. The SEC has stated, in Securities Act Release No. 6349 (September 8,
1981), that:
... it is the responsibility of management to identify and address those keyvariables and other qualitative and quantitative factors which are peculiarto and necessary for an understanding and evaluation of the individualcompany.
216. In addition, as noted by the SEC in Accounting Series Release 173:
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... it is important that the overall impression created by the financialstatements be consistent with the business realities of the company'sfinancial position and operations.
217. As alleged herein, the Company failed to properly account for the material
increase in credit risk associated with its issuance of limited documentation and no
documentation loans and its failure to properly underwrite such loans. By concealing the
Company's true risk profile and representing that the Company focused on high-quality
borrowers (i.e., borrowers with average FICO scores well above 700), BankUnited
overstated its financial results, including its net income, earnings, and assets, while at the
same time artificially deflating its expenses and provision for loan losses. The Company
therefore violated GAAP, thereby resulting in the misstatement of its financial results.
Defendants' representations that the Company's financial statements were prepared in
accordance with GAAP were, therefore, materially untrue and misleading. Each of these
misrepresentations standing alone was a material violation of GAAP, applicable SEC
regulations and the Company's own accounting policies.
218. By presenting untrue and misleading financial results, BankUnited
violated the following GAAP provisions, among others:
(a) the Company's method of determining the value of its residential
assets violated SFAS No. 140, SFAS No. 157 and SFAS No. 159; and
(b) the Company's method of determining the value of its investment
portfolio violated SFAS No. 115, SFAS No. 157, SFAS No. 159 and SAB Topic 5M.
219. AICPA issues industry specific Audit & Accounting Guides ("AAG") to
provide guidance in preparing financial statements in accordance with GAAP. The AAG
for Depository and Lending Institutions ("D&L AAG") was applicable to BankUnited
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with respect to its mortgage banking activities (see Ch. 4, Industry Overview — Mortgage
Companies). The D&L AAG interpreted GAAP pronouncements on the proper methods
to assess fair value for financial instruments.
220. BankUnited was also expected to adhere to fundamental accounting
principles that state a Company's financial statements should be presented in a manner
which, among other things, according to the FASB Concept Statements ("FASCON"),
should:
(a) Provide information that is useful to present and potential investors
and creditors and other users in making rational investment, credit and similar decisions.
(FASCON 1 1f34);
(b) Provide information about an enterprise's economic resources,
obligations, and owners' equity. That information helps investors, creditors, and others
identify the enterprise's financial strengths and weaknesses and assess its liquidity and
solvency. (FASCON 1 140);
(c) Provide information about an enterprise's financial performance
during a period. "Investors and creditors often use information about the past to help in
assessing the prospects of an enterprise. Thus, although investment and credit decisions
reflect investors' and creditors' expectations about future enterprise performance, those
expectations are commonly based at least partly on evaluations of past enterprise
performance." (FASCON 1 142);
(d) Include explanations and interpretations to help users understand
financial information because management knows more about the enterprise and its
affairs than investors, creditors, or other "outsiders" and can often increase the usefulness
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of financial information by identifying certain transactions, other events, and
circumstances that affect the enterprise and explaining their financial impact on it.
(FASCON 1 1f54);
(e) Be reliable in that it represents what it purports to represent. That
information should be reliable as well as relevant is a notion that is central to accounting.
(FASCON 2 fi58-59);
(0 Be complete, which means that nothing material is left out of the
information that may be necessary to ensure that it validly represents underlying events
and conditions. (FASCON 2 179);
(g) Be verifiable in that it provides a significant degree of assurance
that accounting measures represent what they purport to represent. (FASCON 2 1f81);
and
(h) Reflect that conservatism be used as a prudent reaction to
uncertainty to try to ensure that uncertainties and risks inherent in business situations are
adequately considered. (FASCON 2 fi95, 97).
B. Fraud Risk Factors Applicable To BankUnited
221. Because of BankUnited's role in the mortgage origination market, it was
subject to risks associated with depository and lending institutions. Two such risk factors
identified by AICPA in the applicable D&L AAG section were: (1) "[significant
declines in customer demand and increasing business failures in either the industry or
overall economy," including "deteriorating economic conditions . . . within industries or
geographic regions in which the institution has significant credit concentrations" and (2)
"[d]ecline in asset quality due to . . . [b]orrowers affected by recessionary declines and
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layoffs." (Ch. 5, Audit Considerations and Certain Financial Reporting Matters, Ex. 5-1,
Fraud Risk Factors at 99.) Given the depth of the recession and steep declines in housing
markets in Florida and the other locations in which BankUnited's business was heavily
concentrated, these risk factors assumed particular gravity as the Class Period wore on.
222. Another risk factor set forth in the D&L AAG is "excessive pressure on
management or operating personnel to meet financial targets set up by the board or
directors or management, including incentive goals" such as "[unrealistically aggressive
loan goals and lucrative incentive programs for loan originations," as shown by, among
other tings, 'relaxation of credit standards," "excessive extension of credit standards with
approved deviation from policy," "excessive concentration of lending," and "excessive
lending in new products." Id. at 100. Another component of this risk factor is the
Itihreat of failing to meet minimum capital adequacy requirements that could cause
adverse regulatory actions." Id.
223. The D&L AAG also identified risk factors when "[management's or the
board of directors' personal net worth is threatened by the entity's financial performance"
arising from "[heavy concentrations of their personal net worth in the entity." As noted
above, a substantial portion of Defendant Camner's personal wealth was tied up in
BankUnited stock.
224. Lastly, the D&L AAG also identify a further source of industry-specific
risk that occurs when an institution has "assets, liabilities, revenues, or expenses based on
significant estimates that involve subjective judgments or uncertainties that are difficult
to corroborate (Significant estimates generally include the allowance for loan losses.. .fair
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value determinations, and the recognition of other impairment losses...)" or Itirequent or
unusual adjustments to the allowance for loan and lease losses." Id. at 101.
225. Given BankUnited's lax underwriting, appraisal, and loan origination
standards described in detail above, BankUnited's financial disclosures were deeply
susceptible to the forms of risk identified in Example 5-1 of Ch. 5 of the D&L AAG.
C. Audit Risk Alerts
226. The AICPA issues Audit Risk Alerts ("ARAs") that are particularized by
industry, including for the mortgage lending/banking industry in which BankUnited
participated. ARAs are used by industry participants, such as BankUnited and its auditor,
PricewaterhouseCoopers ("PwC"), to address areas of concern and identify the
significant business risks that may result in the material misstatement of the financial
statements. The factors highlighted in the ARAs are most often summaries of existing
industry-specific considerations such as those provided by, for example, the Office of the
Comptroller of the Currency, the Federal Reserve, or the National Association of
Realtors.
227. It is also typical practice for the audit quality departments of major
accounting and auditing firms such as PwC to integrate the ARAs into firm memoranda
for purposes of disseminating that information to applicable clients such as BankUnited.
The ARAs are also included in the AICPA's annual Audit and Accounting Manual
"AAM").
228. Defendant Lopez, a Certified Public Accountant, should have had
familiarity with the existence and application of the ARAs.
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229. The 2006 ARA observed the following risk factors that were relevant to
BankUnited's financial statements:
(a) "Customers holding adjustable rate mortgages may not be able to
make payments if interest rates rise significantly." The ARA continued, "Upon
foreclosure, these financial institutions may not be able to liquidate underlying assets
without absorbing significant losses..." (2006 ARA 8050.37);
(b) Any increase in originations of risky loan products, such as ARMs
and Pay Option ARMs posed particular risks for entities that had not "developed
appropriate risk management policies..." (2006 AAM 8050.35);
(c) Of significant relevance to BankUnited, the 2006 ARA heightened
awareness that the value of these non-conforming products was often predicated on an
assumption that home prices would continue to rise, which it observed was an assumption
unlikely to be sustainable: "[S]ome of these [ARM] products assume a continued rise in
home prices that may not continue." (2006 AAM 8050.35).
230. The 2007 ARA reiterated the factors observed in the 2006 ARA and
expanded on the following risk factors:
(a) It observed "This quarter's foreclosure starts rate is the highest in
the history of the survey, with the previous high being last quarter's rate." (2007 AAM
8050.27);
(b) That the "American Banker recently reported that home resales hit
a 4-year low due to continued price decline. Many in the housing industry believe the
decline in resales signifies a protracted housing slump. Another issue contributing to
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sluggish home sales is the rising number of foreclosures of properties financed with
subprime debt." (2007 AAM 8050.30);
(c) That "Loin June 29, 2007, the federal financial regulatory agencies
(Board of Governors of the Federal Reserve System, FDIC, NCUA, OCC, and OTS)
issued the Statement on Subprime Mortgage Lending to address issues related, to ARMs.
. . . The agencies primary concern is the possibility of 'rate or payment shock' to the
borrower that may result from the expiration of a fixed introductory rate to an adjustable
variable rate for the duration of a fixed introductory rate to an adjustable variable rate for
the duration of the loan." (2007 AAM 8050.48).
231. These risk factors were relevant for BankUnited to consider in the
establishment of its internal controls and ultimately the preparation of its financial
statements. Moreover, these risk factors were generally observable to industry
participants. And so, Defendants, the highest officers of BankUnited, with access to
material inside information regarding its specific high-risk lending environment, had an
obligation to ensure that their certifications regarding the effectiveness of its internal
control over financial reporting as well as the assertions made in its financial statements,
reflected appropriate consideration of these issues.
D. Defendants Falsely Represented That The Company's InternalControls Were Effective Throughout The Class Period
232. Section 13(b)(2)(B) of the Exchange Act requires every issuer that has
securities registered pursuant to the federal securities laws to devise and maintain a
system of internal accounting controls sufficient to reasonably assure, among other
things, that transactions are recorded as necessary to permit preparation of financial
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statements in conformity with GAAP. See also AICPA's Generally Accepted Auditing
Standards definition of "Material Weakness" in internal controls:
A material weakness is a condition that precludes the entity's internalcontrol from providing reasonable assurance that material misstatementsin the financial statements in the financial statements will be prevented ordetected on a timely basis.
AT § 501.55.
233. Furthermore, in an effort to protect investors from corporate wrongdoing
by improving the accuracy and reliability of corporate disclosures made pursuant to the
securities laws, § 302 of the Sarbanes-Oxley Act of 2002, entitled "Corporate
responsibility for financial reports," directs that the SEC shall promulgate regulations
requiring that, in relevant part:
for each company filing periodic reports under section 13(a) or 15(d) ofthe Securities Exchange Act of 1934 . . . the principal executive officer orofficers and the principal financial officer or officers, or personsperforming similar functions, certify in each annual or quarterly reportfiled or submitted under either such section of such Act that:
(1) the signing officer has reviewed the report;
(2) based on the officer's knowledge, the report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary in order to make the statements made, in light of thecircumstances under which such statements were made, not misleading;
(3) based on such officer's knowledge, the financial statements, and otherfinancial information included in the report, fairly present in all materialrespects the financial condition and results of operations of the issuer asof, and for, the periods presented in the report;
(4) the signing officers
(A) are responsible for establishing and maintaining internalcontrols;
(B) have designed such internal controls to ensure that materialinformation relating to the issuer and its consolidated subsidiariesis made known to such officers by others within those entities,
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particularly during the period in which the periodic reports arebeing prepared;
(C) have evaluated the effectiveness of the issuer's internalcontrols as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about theeffectiveness of their internal controls based on their evaluation asof that date;
(5) the signing officers have disclosed to the issuer's auditors and the auditcommittee of the board of directors (or persons fulfilling the equivalentfunction)-
(A) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the issuer's ability to record,process, summarize, and report financial data and have identifiedfor the issuer's auditors any material weaknesses in internalcontrols; and
(B) any fraud, whether or not material, that involves managementor other employees who have a significant role in the issuer'sinternal controls; and
(6) the signing officers have indicated in the report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.
234. Likewise, § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.A. § 1350,
entitled "Failure of corporate officers to certify financial reports", requires, in relevant
part, that:
(a) Certification of periodic financial reports.-- Each periodicreport containing financial statements filed by an issuer with theSecurities Exchange Commission pursuant to section 13(a) or15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or78o(d)) shall be accompanied by a written statement by the chiefexecutive officer and chief financial officer (or equivalent thereof)of the issuer.
(b) Content.--The statement required under subsection (a) shallcertify that
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the periodic report containing the financial statements fully complies withthe requirements of section 13(a) or 15(d) of the Securities Exchange Actof 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in theperiodic report fairly presents, in all material respects, the financialcondition and results of operations of the issuer.
235. Pursuant to lf 404 of the Sarbanes-Oxley Act of 2002, part of a company's
corporate governance obligations, management is required "to include an internal control
report of management that contains" the following in its annual report:
a. A statement of management's responsibility for establishing andmaintaining adequate internal control over financial reporting for thecompany;
b. A statement identifying the framework used by management to conductthe required evaluation of the effectiveness of the company's internalcontrol over financial reporting;
c. Management's assessment of the effectiveness of the company'sinternal control over financial reporting as of the end of the company'smost recent fiscal year, including a statement as to whether or not thecompany's internal control over financial reporting is effective. Theassessment must include disclosure of any 'material weaknesses' inthe company's internal control over financial reporting identified bymanagement. Management is not permitted to conclude that thecompany's internal control over financial reporting is effective if thereare one or more material weaknesses in the company's internal controlover financial reporting; and
d. A statement that the registered public accounting firm that audited thefinancial statements included in the annual report has issued anattestation report on management's assessment of the registrant'sinternal control over financial reporting.
[footnotes omitted].
236. The Public Company Accounting Oversight Board ("PCAOB") adopted
the long-standing auditing provision that a company has a control deficiency "when the
design or operation of a control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or detect misstatements on a
timely basis." See Notice of Filing of Proposed Rule on Auditing Standard No. 2, An
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Audit of Internal Control Over Financial Reporting Performed In Conjunction With an
Audit of Financial Statements, File No. PCAOB-2004-03 (Apr. 8, 2004). Furthermore,
the PCAOB believes that a "deficiency in operation exists when a properly designed
control does not operate as designed, or when the person performing the control does not
possess the necessary authority or qualifications to perform the control effectively." Id.
237. As noted above, Defendants Camner and Lopez signed SOX certifications
attesting to the accuracy and reliability of the Company's financial results and the
effectiveness of its internal controls throughout the Class Period. However, on December
16, 2008, the Company admitted that it "expect[s] to report at least one material
weakness" in its internal controls. In fact, the Company admitted that "there is a
reasonable possibility that a material misstatement of the consolidated annual or interim
financial statements will not be prevented or detected on a timely basis" because of an
"insufficient complement of personnel with a level of accounting knowledge, experience
and training in the application of generally accepted accounting principles." More
specifically, according to the BankUnited: "the implementation and execution of the
Company's controls and procedures did not ensure the systematic and accurate execution
of account level analyses related to the residential loan portfolio including the allowance
for loan losses and the identification of troubled debt restructuring."
E. Defendants Misstated BankUnited's Exposure To Loss And Failed ToProvide Disclosure About Risk And Uncertainties
238. Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies ("SFAS 5") was issued in March 1975 by the FASB. The principles
described in SFAS 5 set forth the standards of financial accounting and reporting for loss
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contingencies. SFAS 5 sets forth the standards BankUnited was required to adhere to in
order to properly account for loss contingencies.
239. SFAS 5 provides in paragraph 8:
An estimated loss for loss contingency.. shall be accrued by a charge toincome if both of the following conditions are met:(a) Information available prior to issuance of the financial statementsindicates that it is probable that an asset had been impaired or a liabilityhad been incurred at the date of the financial statements. It is implicit inthis condition that it must be probable that one or more future events willoccur confirming the fact of the loss.(b) The amount of loss can be reasonably estimated.
240. As described above, Defendants saw loan losses escalating at an
increasingly rapid pace throughout the Class Period, and on May 21, 2009, the OTS
closed BankUnited FSB and appointed the FDIC as its Receiver given that BankUnited
was "critically undercapitalized and in an unsafe condition to conduct business" due to
crippling loan losses in BankUnited's Option ARM mortgage portfolio.
241. BankUnited was also required to provide disclosure about risk and
uncertainties related to its financial statements. These disclosures were guided in part by
the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and
Uncertainties ("SOP 94-6"). In particular, BankUnited was required to disclose any
vulnerability or risk inherent to its financial statements as a result of concentrations of
risk. (SOP 94-6 1f20). The concentration highlighted include "revenue from particular
products, services, or fund-raising events. The potential for the severe impact can result,
for example, from volume or price changes or the loss of patent protection for the
particular source of revenue." (SOP 94-6 1f22).
242. These concentration disclosures are related precisely to the issues
constituted by BankUnited's holdings of Option ARM mortgages, and specifically those
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made on limited- or no-documentation bases. Until the April 2008 correspondence with
the SEC noted above, BankUnited's disclosures did not contain specific reference to the
proportions of the Option ARM loans in its portfolio that were made on a limited- or no-
documentation bases.
F. Additional Fundamental GAAP Violations
243. The Company's financial statements issued during the Class Period also
violated the following fundamental GAAP, among others:
(a) The principle that financial reporting should provide information that is
useful to present and potential investors and creditors and other users in making rational
investment, credit and similar decisions (Financial Accounting Standards Board
("FASB") Statement of Concepts No. 1, 1f34);
(b) The principle that financial reporting should provide information about the
economic resources of an enterprise, the claims to these resources, and the effects of
transactions, events and circumstances that change resources and claims to these
resources (FASB Statement of Concepts No. 1, 140);
(c) The principle that financial reporting should provide information about an
enterprise's financial performance during a period; investors and creditors use
information about the past to help in assessing the prospects of an enterprise; thus,
although investment and credit decisions reflect investors expectations about the future
enterprise performance, those expectations are commonly based, in substantial part, on
evaluations of past enterprise performance (FASB Statement of Concepts No. 1, 142);
(d) The principle that financial reporting should provide information about
how management of an enterprise has discharged its stewardship responsibility to owners
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(stockholders) for the use of enterprise resources entrusted to it; to the extent that
management offers securities of the enterprise to the public, it voluntarily accepts wider
responsibilities for accountability to prospective investors and to the public in general
(FASB Statement of Concepts No. 1,1j50);
(e) The principle that financial reporting should be reliable in that it
represents what it purports to represent; that information should be reliable as well as
relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2,
fi58-59);
(0 The principle of completeness, which means that nothing is left out of the
information that may be necessary to insure that it validly represents underlying events
and conditions (FASB Statement of Concepts No. 2 179);
(g) The principle that conservatism be used as a prudent reaction to
uncertainty to try to ensure that uncertainties and risks inherent in business situations are
adequately considered; the best way to avoid injury to investors is to try to ensure that
what is reported represents what it purports to represent (FASB Statement of Concepts
No. 2, fi95, 97);
(h) The principle that disclosure of accounting policies should identify and
describe the accounting principles followed by the reporting entity and the methods of
applying those principles that materially affect the determination of financial position
(APB Opinion No. 22,10_2);
The principle that if no accrual is made for a loss contingency, then full
disclosure of the contingency shall be made when there is a reasonable possibility that a
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loss or an additional loss may have been incurred (Statement of Financial Accounting
Standards No. 5,10_0);
The principle that contingencies and other uncertainties that affect the
fairness of presentation of financial data at an interim date shall be disclosed in interim
reports in the same manner required for annual reports (APB Opinion No. 28, 1f22);
(k) The principle that disclosures of contingencies shall be repeated in interim
and annual reports until the contingencies have been removed, resolved, or have become
immaterial (APB Opinion No. 28, 1f22);
(1) The principle that management should provide commentary relating to the
effects of significant events upon the interim financial results (APB Opinion No. 28,
1f32).
244. In addition, Regulation S-X (17 C.F.R. § 210), which "sets forth the form
and content of and requirements for financial statements required to be filed [with the
SEC1" applies to interim financial statements. 17 C.F.R. §§ 210.1-01(a), 210.10.
245. "The term 'financial statements' as used in [Regulation S-X] shall be
deemed to include all notes to the statements and all related schedules." 17 C.F.R. §
210.1-01(b). Thus, "the interim financial information shall include disclosures either on
the face of the financial statements or in accompanying footnotes sufficient so as to make
the interim financial information presented not misleading." 17 C.F.R. § 210.10(a)(5).
246. "[D]isclosure shall be provided where events subsequent to the end of the
most recent fiscal year have occurred which have a material impact on the registrant. . . .
Notwithstanding the [foregoing], where material contingencies exist, disclosure of such
matters shall be provided even though a significant change since year end may not have
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occurred." 17 C.F.R. § 210.10(a)(5). "Any unaudited interim financial statements
furnished shall reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented." 17 C.F.R. §
210.10(b)(8).
247. As noted herein, BankUnited's financial statements issued during the
Class Period violated the principles and regulations set forth in this section. For example,
among other reasons, the Company's results: (i) were not useful to present and potential
investors in making rational investment decisions; (ii) were not reliable; and (iii) were not
complete and did not rely on conservative accounting estimates.
XI. APPLICABLILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE
248. At all relevant times, the market for BankUnited's stock was an efficient
market for the following reasons, among others:
(a) BankUnited's stock met the requirements for listing, and was listed and
actively traded on NASDAQ at all relevant times, a highly efficient and automated
market;
(b) As a regulated issuer, BankUnited filed periodic public reports with the
SEC and was entitled to file (and did file) a Form S-3 registration statement;
(c) During the Class Period, BankUnited's average weekly trading volume
was substantial at approximately 5.09 million shares per week;
(d) During the Class Period, BankUnited was followed by several leading
securities analyst firms, including, but not limited to, the following: (i) SunTrust
Robinson Humphrey, Inc.; (ii) Oppenheimer & Co., Inc.; (Hi) Janney Montgomery Scott
LLC; (iv) Sterne, Agee & Leach, Inc.; (v) Fox-Pitt Kelton Cochran Caronia Waller
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(USA) LLC; (vi) JPMorgan Chase & Co.; (vii) ValuEngine, Inc.; (viii) RBC Capital
Markets (US); (ix) Thomson Reuters; and (x) Stanford Financial Group.
(e) BankUnited's stock price reacted immediately to publicly-released
corporate news and had a cause-and-effect relationship, over time, between unexpected
corporate events or financial releases and an immediate response in stock price.
BankUnited regularly communicated with public investors via established
market communication mechanisms, including, but not limited to, the regular
dissemination of press releases on the national circuits of major newswire services and
other wide-ranging public disclosures, such as communications with the financial press
and other similar reporting services.
249. As a result of the foregoing, the market for BankUnited's common stock
promptly digested current information regarding BankUnited from all publicly-available
sources and reflected that information in the Company's stock price. Under these
circumstances, all purchasers of BankUnited's stock during the Class Period suffered
similar injury through their purchase of the Company's stock at artificially-inflated prices
and a presumption of reliance applies.
250. At all relevant times, the material misrepresentations and omissions
particularized in this Complaint directly or proximately caused or were a substantial
contributing cause of the damages sustained by Plaintiffs and other members of the
Class. As described herein, during the Class Period, Defendants made or caused to be
made a series of materially false or misleading statements about BankUnited's business,
prospects and operations. These material misstatements and omissions had the cause and
effect of creating in the market an unrealistically positive assessment of BankUnited and
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its business, prospects and operations, thus causing the Company's stock to be
overvalued and artificially-inflated at all relevant times.
251. Defendants' materially false and misleading statements during the Class
Period resulted in Plaintiffs and other members of the Class purchasing the Company's
securities at artificially-inflated prices. Class Members' losses from these purchases
were proximately caused by the disclosures of the true facts, and were directly caused by
the Class Members' justifiable reliance on Defendants' fraudulent and material
statements, misrepresentations and omissions.
252. Had Plaintiffs and other members of the Class known of the material
adverse information not disclosed by Defendants, or been aware of the truth behind
Defendants' material misstatements, they would not have purchased BankUnited stock at
the artificially-inflated prices.
XII. NO SAFE HARBOR
253. The statutory safe harbor provided for forward-looking statements under
certain circumstances does not apply to any of the allegedly false statements pleaded in
this Complaint. The safe harbor expressly exempts from its protection financial
statements and results. In addition, many of the specific statements pleaded herein were
not identified as "forward-looking statements" when made. To the extent there were any
forward-looking statements, there were no meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from those in the
purportedly forward-looking statements. Alternatively, to the extent that the statutory
safe harbor does apply to any forward-looking statements pleaded herein, Defendants are
liable for those false forward-looking statements because at the time each of those
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forward-looking statements was made, the particular speaker knew that the particular
forward-looking statement was false, and/or the forward-looking statement was
authorized and/or approved by an executive officer of BankUnited who knew that those
statements were false when made.
XIII LOSS CAUSATION AND DAMAGES
254. The market for BankUnited's stock was open, well-developed and
efficient at all relevant times. As a result of the materially false and misleading
statements and failures to disclose particularized herein, BankUnited's stock traded at
artificially inflated prices throughout the Class Period. Plaintiffs and other members of
the Class purchased or otherwise acquired BankUnited stock relying upon the integrity of
the market price of BankUnited's stock and market information relating to BankUnited,
and have been damaged thereby.
255. During the Class Period, Defendants materially misled the investing
public, thereby inflating the price of BankUnited's stock, by publicly issuing false and
misleading statements and omitting to disclose material facts necessary to make
Defendants' statements, as set forth herein, not false and misleading. Said statements and
omissions were materially false and misleading in that they failed to disclose material
adverse information and misrepresented the truth about the Company, its business and
operations, as alleged herein.
256. At all relevant times, the material misrepresentations and omissions
particularized in this Complaint directly or proximately caused or were a substantial
contributing cause of the damages sustained by Plaintiffs and other members of the Class.
As described herein, during the Class Period, Defendants made or caused to be made a
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series of materially false or misleading statements about BankUnited's business,
prospects and operations. These material misstatements and omissions had the cause and
effect of creating in the market an unrealistically positive assessment of BankUnited and
its business, prospects and operations, thus causing the Company's securities to be
overvalued and artificially inflated at all relevant times.
257. BankUnited's stock price reacted swiftly and in statistically significant
ways to BankUnited's and other market announcements during the Class Period that
corrected, or partially revealed the false nature of prior Company disclosures. These
include, but are not limited to, the following examples:
(a) On October 4, 2007, BankUnited issued an "earnings warning" in which it
disclosed that its 4Q 2007 results would be well below Wall Street's expectations. This
was the first partial corrective disclosure which alerted the market to the fact that
BankUnited's loan portfolio might not be as was being represented by Defendants. In
response to this disclosure, BankUnited's stock price declined a statistically significant
8.4% on volume of 2,464,737 shares.
(b) As market analysts analyzed BankUnited's earnings warning and issued
downgrades on the Company's stock on October 15 and October 19, 2007, BankUnited's
stock price declined statistically significant amounts of 9.2% and 5.9%, respectively.
(c) When BankUnited's shelf registration filing of January 2, 2008 was
disclosed before trading opened on January 3, 2008, the market recognized that
BankUnited was now significantly undercapitalized. This called into question the
Defendants' positive statements about its underwriting and the quality of its loan
portfolio, constituting a further corrective disclosure of the true financial condition of the
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Bank. In response to this disclosure, BankUnited's stock price declined nearly 17% over
the next two trading days on volume of over 3.1 million shares.
(d) When the American Banker article appeared on January 9, 2008
discussing the need for $400 million of new capital in the context of BankUnited's loan
portfolio that was predominantly Option ARM loans, the market further recognized the
extent to which the Bank's loan portfolio had significantly eroded its capital. In
response, the Company's stock price declined over 15% in one day on single day volume
of over 3.7 million shares.
(e) When the Company disclosed on May 13, 2008 the SEC's view that
disclosure regarding the Company's re-amortization and re-calculation of its payment
option loans was material and raised further questions regarding the computation of the
Bank's loan losses, which disclosure had been omitted in prior filings, the stock price
declined 9.5% on May 14, 2008.
When BankUnited disclosed on May 29,2008 that $29.7 million in
BankUnited loans had been rejected by purchasers after due diligence, the stock price
declined 7.6% on May 30, 2008.
(g) On June 17, 2008, the Company filed a Preliminary Proxy Statement on
Form 14A and announced a "Special Meeting" to "vote upon an amendment to Article VI
of the Company's Amended Articles of Incorporation to increase the number of shares of
[stock] . . . that the Company is authorized to issue, from 200,000,000 shares to
500,000,000 shares." At this point, BankUnited acknowledged that it desperately needed
to raise capital. The market now began to recognize that BankUnited's capital was so
impaired, it might not survive. On this disclosure, the Company's share price fell from
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$3.38 on June 17, 2008 to close at $2.35 per share on June 18, 2008 — a single day loss of
more than 30%.
(h) The next day, June 18, 2008, Defendants filed a series of documents with
the SEC to effectuate the $400,000,000 offering. On this news, the Company's share
price fell again, from $2.35 per share on June 18, 2008 to close at $1.90 per share on June
19, 2008— a single day loss of more than 20%. Thus, within two days, the Company's
share price fell from a high of $3.54 per share on June 17, 2008 to a close of $1.90 per
share on June 19, 2008 — a drop of nearly 47%. Trading volume on the 18 th and 19th was
extremely high, with more than 3.8 million shares traded on June 18 and more than 2.5
million shares traded on June 19, as compared to a mere 259,580 on June 17.
258. Based on these announcements and disclosures, as well as others,
Plaintiffs and the Class suffered significant damages as a direct and proximate result of
Defendants' false and misleading statements issued throughout the Class Period.
XIV. CLASS ACTION ALLEGATIONS
259. Plaintiffs bring this action as a class action pursuant to Fed. R. Civ. P.
23(a) and (b)(3) on behalf of a Class, consisting of all persons or entities who
purchased BankUnited stock between October 24, 2006 and June 19, 2008 inclusive
and who were damaged thereby. Excluded from the Class are Defendants and their
affiliates, members of their immediate families and their legal representatives, heirs,
successors or assigns; any entity in which Defendants have or had a controlling interest;
and the officers and directors of the Company at all relevant times.
260. The members of the Class are so numerous that joinder of all members is
impracticable as BankUnited had more than 35,150,000 shares of stock outstanding
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during the Class Period. BankUnited stock was actively traded on NASDAQ, a highly
efficient market. While the exact number of Class members is unknown to Plaintiffs at
this time and can be ascertained only through appropriate discovery, Plaintiffs believe
that there are likely thousands of members in the proposed Class.
261. Plaintiffs' claims are typical of the claims of the members of the Class as
all members of the Class were similarly affected by Defendants' wrongful conduct that
occurred in violation of the federal securities laws that are complained of herein.
262. Plaintiffs will fairly and adequately protect the interests of the members
of the Class. Plaintiffs have no interests that are antagonistic to or in conflict with the
interests of the Class as a whole, and Plaintiffs have engaged competent counsel
experienced in securities class actions and complex litigation.
263. Common questions of law and fact exist as to all members of the Class
and predominate over any questions solely affecting individual members of the Class.
264. Among the questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants'
acts alleged herein;
(b) whether statements made by the Defendants to the investing
public during the Class Period misrepresented material facts about the business,
operations and management of BankUnited;
(c) whether Defendants failed to include material facts in the
financial statements issued during the Class Period, making those filings materially
false and misleading;
(d) whether Defendants acted with the required state of mind; and
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(e) to what extent the members of the Class have sustained damages
and the proper measure of damages.
265. A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is impracticable.
Furthermore, since the damages suffered by individual Class members may be
relatively small, the expense and burden of individual litigation make it impossible for
members of the Class to individually redress the wrongs done to them. There will be
no difficulty in the management of this action as a class action.
CLAIMS FOR RELIEF
COUNT IFOR VIOLATION OF § 10(b) OF THE EXCHANGE ACT AND RULE 10b-5
PROMULGATED THEREUNDER AGAINST DEFENDANTS
266. Plaintiffs repeat and reallege each and every allegation contained above as
if fully set forth herein.
267. During the Class Period, Defendants carried out a plan, scheme and course
of conduct which was intended to and, throughout the Class Period, did: (i) deceive the
investing public, including Plaintiffs and other Class members, as alleged herein; and (ii)
caused Plaintiffs and other members of the Class to purchase BankUnited stock at
artificially inflated prices during the Class Period. In furtherance of this unlawful
scheme, plan and course of conduct, Defendants, and each of them, took the actions set
forth herein.
268. Defendants (a) employed devices, schemes, and artifices to defraud; (b)
made untrue statements of material fact and/or omitted to state material facts necessary to
make the statements made not misleading; and/or (c) engaged in acts, practices, and a
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course of business which operated as a fraud and deceit upon the purchasers of the
Company's stock in an effort to maintain artificially high market prices for BankUnited
stock in violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. All Defendants are sued either as primary participants in the wrongful and
illegal conduct charged herein or as a controlling person as alleged below.
269. Defendants, individually and in concert, directly and indirectly, by the use,
means or instrumentalities of interstate commerce and/or use of the mails, engaged and
participated in a continuous course of conduct to conceal adverse material information
about BankUnited's overall financial well-being and underwriting standards as well as
the Company's net income, earnings per share, assets, and expenses as specified herein.
270. Defendants employed devices, schemes, and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and
a course of conduct as alleged herein in an effort to assure investors of BankUnited value
and performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and omitting to state
material facts necessary in order to make the statements made about BankUnited's
financial results not misleading, as set forth more particularly herein, and engaged in
transactions, practices and a course of business which operated as a fraud and deceit upon
the purchasers of BankUnited's stock during the Class Period.
271. Defendants' primary liability arises from the following facts: (i) the
Individual Defendants were high-level executives and/or were members of the
Company's Board of Directors during the Class Period; (ii) by virtue of their
responsibilities and activities as senior officers and/or director of the Company,
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Defendants were privy to and participated in the creation, development and reporting of
the Company's internal budgets, plans, projections and/or reports; (iii) Defendants
enjoyed significant personal contact and familiarity with the other members of the
Company's management team, internal reports and other data and information about the
Company's finances, operations, and sales at all relevant times; and (iv) Defendants were
aware of the Company's dissemination of information to the investing public which they
knew or recklessly disregarded was materially false and misleading.
272. Defendants had actual knowledge of the misrepresentations and omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they
failed to ascertain and to disclose such facts, even though such facts were available to
them. Such Defendants' material misrepresentations and/or omissions were done
knowingly or recklessly and for the purpose and effect of concealing BankUnited's
operating condition and future business prospects from the investing public and
supporting the artificially inflated price of its securities. As demonstrated by Defendants'
false and misleading statements during the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and omissions alleged, were reckless in
failing to obtain such knowledge by failing to take steps necessary to discover whether
those statements were false or misleading.
273. As a result of the dissemination of the materially false and misleading
information and failure to disclose material facts, as set forth herein, the market price of
BankUnited's stock was artificially inflated during the Class Period. In ignorance of the
fact that market prices of BankUnited's publicly-traded stock was artificially inflated, and
relying directly or indirectly on the false and misleading statements made by Defendants,
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or upon the integrity of the market in which the securities trade, and/or in the absence of
material adverse information that was known to or recklessly disregarded by Defendants,
but not disclosed in public statements by Defendants during the Class Period, Plaintiffs
and the other members of the Class acquired BankUnited stock during the Class Period at
artificially high prices and were damaged thereby.
274. At the time of said misrepresentations and omissions, Plaintiffs and other
members of the Class were ignorant of their falsity, and believed them to be true. Had
Plaintiffs and the other members of the Class and the marketplace known the truth
regarding the problems that BankUnited was experiencing, which were not disclosed by
Defendants, Plaintiffs and other members of the Class would not have purchased or
otherwise acquired their BankUnited stock, or, if they had acquired such stock during the
Class Period, they would not have done so at the artificially inflated prices which they
paid.
275. By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act, and Rule 10b-5 promulgated thereunder.
276. As a direct and proximate result of Defendants' wrongful conduct,
Plaintiffs and the other members of the Class suffered damages in connection with their
respective purchases and sales of the Company's stock during the Class Period.
COUNT IIFOR VIOLATION OF § 20(a) OF THE EXCHANGE ACT
AGAINST DEFENDANTS
277. Plaintiffs repeat and reallege each and every allegation contained above as
if fully set forth herein.
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278. Defendants acted as controlling persons of BankUnited within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-
level positions, and their ownership and contractual rights, participation in and/or
awareness of the Company's operations and/or intimate knowledge of the false financial
statements filed by the Company with the SEC and disseminated to the investing public,
Defendants had the power to influence and control and did influence and control, directly
or indirectly, the decision-making of the Company, including the content and
dissemination of the various statements which Plaintiffs contend are false and misleading.
Defendants were provided with or had unlimited access to copies of the Company's
reports, press releases, public filings and other statements alleged by Plaintiffs to be
misleading prior to and/or shortly after these statements were issued and had the ability to
prevent the issuance of the statements or cause the statements to be corrected.
279. Moreover, Defendants had direct and supervisory involvement in the day-
to-day operations of the Company and, therefore, are presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as
alleged herein, and exercised the same.
280. As set forth above, Defendants each violated Section 10(b) and Rule 10b-5
by their acts and omissions as alleged in this Complaint. By virtue of their positions as
controlling persons, Defendants are liable pursuant to Section 20(a) of the Exchange Act.
As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and other
members of the Class suffered damages in connection with their purchases of the
Company's stock at artificially inflated prices during the Class Period.
PRAYER FOR RELIEF
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WHEREFORE, Lead Plaintiffs, on behalf of themselves and all other Class
Members, pray for relief and judgment, as follows:
(a) Certifying this action as a class action pursuant to Rule 23(a) and (b)(3) of
the Federal Rules of Civil Procedure; appointing Lead Plaintiffs as Class Representatives
and appointing Berman DeValerio as Class Counsel pursuant to Rule 23(g);
(b) Awarding compensatory damages in favor of Lead Plaintiffs and the other
Class Members against Defendants, jointly and severally, for all damages sustained as a
result of Defendants' wrongdoing, in an amount to be proven at trial, including interest
thereon;
(c) Awarding Lead Plaintiffs and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
XV. JURY TRIAL DEMAND
Lead Plaintiffs, on behalf of themselves and the Class, hereby demand a trial by
jury of all issues so triable.
Dated: June 30, 2009 Respectfully submitted,
BERMAN DeVALERIO
By: /s/ Michael J. Pucillo Michael J. PucilloFla. Bar No. 261033Wendy H. ZobermanFla. Bar No. 4346704280 Professional Center Dr.Suite 350Palm Beach Gardens, FL 33410Tel: 561/835-9400Fax: 561/835-0322Email: [email protected]: 'A zobernmnreithennandevalerio.com
113
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and
Steven J. ButtacavoliJason M. LevitonOne Liberty SquareBoston, MA 02109Tel: 617/542-8300Fax: 617/542-1194Email: sbuttacavoliWbermandevalerio.comEmail: jlcvitomethermandevalerio.com
Lead Counsel
Roger B. Greenberg, Esq.Schwartz June11 Greenberg& Oathout LLP
909 Fannin StreetSuite 2700Houston, TX 77010Tel: 713/752-0017Fax: 713/752-0327Email: rgreenberg(e4schwartz-junel1.com
Additional Plaintiffs' Counsel
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on June 30, 2009, I electronically filed the foregoing
document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document
is being served to all counsel on the attached Service List this day via transmission of Notice of
Electronic Filing generated by CM/ECF.
/s/Michael J. Pucillo
Case 1:08-cv-22572-MGC Document 67 Entered on FLSD Docket 06/30/2009 Page 120 of 121
In re Bank United Securities Litigation
Case No. 08-CV-22572-COOKE/BANDSTRA (S.D. Fla.)
SERVICE LIST
Michael J. Pucillo Roger B. Greenbergmtnici11o(11,bermandeva1erio.com roreenberS,schwartz-junell.comWendy H. Zoberman Schwartz June11 GreenbergwzobermanOthennandevalerio.corn & Oathout, L.L.P.BERMAN DeVALERIO 909 Fannin, Suite 27004280 Professional Center Drive, Suite 350 Houston, TX 77010Palm Beach Gardens, FL 33410 Tel: 713/752-0017Tel: 561/835-9400 Fax: 713/752-0327Fax: 561/835-0322
Additional Plaintiffs' CounselLead Counsel for Lead Plaintiffs' LouisianaMunicipal Police EmployeesRetirement System and OklahomaPolice Pension & Retirement System
Glen DeValerio Dennis A. NowakgdevalerioAbennandevalerio.com dnictztewlaw.comSteven J. Buttacavoli C. Thomas Tewsbuttacavolifathennandevalerio.com ttriitewlaw.comJason M. Leviton Jeffrey A. Tewileviton(ithermandevalerio.com Wittewlaw.comBERMAN DeVALERIO TEW CARDENAS, LLPOne Liberty Square Four Seasons TowerBoston, MA 02109 1441 Brickell Avenue, 15th FloorTel: 617/542-8300 Miami, FL 33131Fax: 617/542-1194
Tel: 305/536-1112Fax: 305/536-1116
Lead Counsel for Lead Plaintiffs' LouisianaMunicipal Police Employees Attorneys for Defendants Afred R. Camner,Retirement System and Oklahoma Ramiro Ortiz, and Humberto L. LopezPolice Pension & Retirement System
Case 1:08-cv-22572-MGC Document 67 Entered on FLSD Docket 06/30/2009 Page 121 of 121
Jack Reise Ryon M. McCabejreise(dcsgrrcorn_ rmccaberd?mccaberabin.comPaul J. Geller McCABE RABIN, P.A.pgellerAcsgrr.com 1601 Forum Place, Suite 301Douglas Scott Wilens West Palm Beach, FL 33401dwilensidesgmcom Tel: 561/659-7878COUGHLIN STOIA GELLER Fax: 561/242-4848
RUDMAN & ROBBINS LLP120 E. Palmetto Park Road, Suite 500 Attorneys for Movant The New JerseyBoca Raton, FL 33432 Building Laborers Pension and AnnuityTel: 561/750-3000 FundsFax: 561/750-3364
Attorneys for Plaintiff Waterford Jeffrey Miles OstrowTownship General Employees Retirement ostrowicahlcolaw.corn System and Movant The Pension & THE KOPELOWITZAnnuity Funds & OSTROW FIRM PA
200 S.W. 1st AvenueMartin D. Chitwood 12th Floormchitwood(cichitwoodlaw.com Ft. Lauderdale, FL 33301Ze'Eva K. Banks Tel: 954/525-4100zbanksAchitwoodlaw.com Fax: 954/525-4300Robert W. Killorinrkillorin(itchitwoodlaw.corn Attorneys for Movant Georgia MunicipalJames M. Wilson, Jr. Employee Benefit System Retirementjwilson(d;chitwoodlaw.com FundCHITWOOD HARLEY HARNES LLP1230 Peachtree Street NEPromenade II Suite 2300 Maya Susan SaxenaAtlanta, GA 30309 msaxena(dsaxenawhite.cornTel: 303/873-3900 SAXENA WHITE PA
2424 N. Federal HighwayAttorneys for Movant Georgia Municipal Suite 257Employee Benefit System Retirement Boca Raton, FL 33431Fund Tel: 561/394-3399
Fax: 561/394-3382
Attorneys for Movant The City of TulsaMunicipal Employees' Retirement Plan