THE UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
HAROLD H. POWELL TRUST, IndividuallyAnd On Behalf Of All Others Similarly Situated,
Plaintiff,
vs.
ING GROEP N.V., ING FINANCIALHOLDINGS CORPORATION, STICHTINGING AANDELEN, MICHEL J. TILMANT,CEES MAAS, J. HANS VAN BARNEVELD,ERIC F. BOYER DE LA GIRODAY, FRED S.HUBBELL, ELI P. LEENAARS,ALEXANDER H. G. RINNOOY KAN, HANSK. VERKOREN, JOHN K. EGAN, A.H.J.RISSEEUW, H.J. BLAISSE, P.M.L.FRENTROP, T. REGTUIJT, J.J.M. VERAART,ING FINANCIAL MARKETS LLC, UBSSECURITIES LLC, CITIGROUP GLOBALMARKETS INC., MERRILL LYNCH, PIERCE,FENNER & SMITH INCORPORATED,WACHOVIA CAPITAL MARKETS, LLC,MORGAN STANLEY & CO.INCORPORATED, BANC OF AMERICASECURITIES LLC, RBC CAPITALMARKETS CORPORATION, J.P. MORGANSECURITIES INC., ABN AMRO INC., A.G.EDWARDS & SONS, INC., WACHOVIACORPORATION and ERNST & YOUNG LLP,
Civil Action No.:
DEMAND FOR JURY TRIAL
Defendants.
CLASS ACTION COMPLAINT FOR VIOLATION OFTHE FEDERAL SECURITIES LAWS
NATURE OF THE ACTION
This is a securities class action on behalf of all persons who acquired the 7.375%
ING Perpetual Hybrid Capital Securities (the "Securities") of ING Groep N.V. ("ING" or the
"Company") pursuant to a registration statement and September 2007 Prospectus (as defined
below, collectively, the "Offering Documents") issued in connection with the Company's
September 2007 offering of the Securities (the "Offering"). This action asserts strict liability
claims under the Securities Act of 1933 against ING, its senior insiders , the investment banks
that underwrote the Offering and ING's auditor (collectively, "Defendants").
2. ING is a global financial services company providing banking, investment, life
insurance and retirement services. ING is headquartered in Amsterdam, The Netherlands and
maintains branch offices in the United States and in this District. Defendants consummated the
Offering pursuant to the Offering Documents, which omitted material information.
3. As detailed below, ING sold the Securities at $25 per share for proceeds of
approximately $1.5 billion. The Offering Documents incorporated ING's financial results for
2005 and 2006 as well as quarterly reports through September 2007.
4. The Offering Documents, however, omitted material information, namely, that:
(a) Defendants' assets, including loans and mortgage-related securities, were
impaired to a much larger extent than the Company had disclosed;
(b) Defendants failed to properly record losses for impaired assets;
(c) The Company's internal controls were inadequate to prevent the Company
from improperly reporting the value of its assets; and
(d) ING was not as well capitalized as represented, and, notwithstanding the
billions of dollars raised in the Offering, the Company would have to raise an
additional €10 billion by selling equity in the Company to the Dutch government
in order to prevent ING' s total collapse.
After the Offering, ING announced €2 billion in impairment charges associated
with its exposure to bad loans, mortgage-related securities and other "pressurized" assets,
causing the price of the Securities issued in the Offering to decline.
JURISDICTION AND VENUE
6. The claims asserted herein arise under and pursuant to § § 11, 12(a)(2) and 15 of
the Securities Act of 1933 [15 U.S.C. §§77k, 771(a)(2) and 77o]. In connection with the acts
complained of, defendants, directly or indirectly, used the means and instrumentalities of
interstate commerce, including, but not limited to, the mails, interstate telephone
communications and the facilities of the national securities markets.
7. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and §22 of the Securities Act of 1933.
Venue is proper in this District pursuant to 28 U.S.C. § 1391 (b), because the
underwriter defendants conduct business in this District and many of the acts and practices
complained of herein occurred in substantial part in this District.
9. In connection with the acts alleged in this complaint, defendants, directly or
indirectly, used the means and6instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets.
PARTIES
10. Plaintiff Harold H. Powell Trust acquired the Securities pursuant to the Offering
and has been damaged thereby.
n
11. Defendant ING is a major global financial services provider operating in Europe,
the United States, Canada, Latin America, Australia and Asia. ING is headquartered in
Amsterdam, The Netherlands. Its common shares trade on the Euronext exchange, while the
Securities trade on the New York Stock Exchange ("NYSE"), which is an efficient market.
12. Defendant ING Financial Holdings Corporation ("ING Holdings") is a global
financial services company which provides banking, insurance and asset management services in
over 50 countries. ING Holdings is located in New York.
13. Defendant Stichting ING Aandelen ("Stichting ING") is an administrative trust
that holds approximately 99% of the outstanding ordinary shares of ING and that issues bearer
depositary receipts for such shares and for ING's preference shares. Stichting ING governs the
rights of the holders of bearer depositary receipts relative to Stichting ING.
14. Defendant Michel J. Tilmant ("Tilmant") is, and at all relevant times was, a
member of the Executive Board of ING from 1998 to May 2000, Vice-Chairman from May 2000
to April 2004 and Chairman of the Executive Board of the Company since April 2004.
Defendant Tilmant signed the false and misleading Offering Documents.
15. Defendant Cees Maas ("Maas") was, at relevant times, CFO of ING from July
1996 until his retirement from the Company in 2007, and Vice-Chairman of the Executive Board
from April 2004 to 2007. Defendant Maas signed the false and misleading Offering Documents.
16. Defendant J. Hans van Barneveld ("Barneveld") was Principal Accounting
Officer of ING. Defendant Barneveld signed the false and misleading Offering Documents.
17. Defendant Eric Boyer de la Giroday ("de la Giroday") is, and at all relevant times
was, a member of the Executive Board of ING since April 2004. Defendant de la Giroday
signed the false and misleading Offering Documents.
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18. Defendant Fred S. Hubbell ("Hubbell") was, at relevant times, a member of the
Executive Board of ING until April 2006. Defendant Hubbell signed the false and misleading
Offering Documents.
19. Defendant Eli P. Leenaars ("Leenaars") is, and at all relevant times was, a
member of the Executive Board of ING. Leenaars signed the false and misleading Offering
Documents.
20. Defendant Alexander H.G. Rinnooy Kan ("Rinnooy Kan") was, at relevant times,
a member of the Executive Board of ING until April 2006. Rinnooy Kan signed the false and
misleading Offering Documents.
21. Defendant Hans K. Verkoren ("Verkoren") was, at relevant times, a member of
the Executive Board of ING until April 2006. Verkoren signed the false and misleading Offering
Documents.
22. Defendant John K. Egan ("Egan") is, and at all relevant times was , CFO and
Managing Director of ING Holdings. Egan signed the false and misleading Offering Documents.
23. Defendant A.H.J. Risseeuw ("Risseeuw") was, at relevant times, Chairman of the
Executive Board of Stichting ING until December 2006. Risseeuw signed the false and
misleading Offering Documents.
24. Defendant H.J. Blaisse ("Blaisse") is, and at all relevant times was, a member of
the Executive Board of Stichting ING since December 1999. Defendant Blaisse signed the false
and misleading Offering Documents
25. Defendant P.M.L. Frentrop ("Frentrop") is, and at all relevant times was, a
member of the Executive Board of Stichting ING since July 2004. Defendant Frentrop signed
the false and misleading Offering Documents.
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26. Defendant T. Regtuijt ("Regtuijt") is, and at all relevant times was, a member of
the Executive Board of Stichting ING since May 1996. Defendant Regtuijt signed the false and
misleading Offering Documents.
27. Defendant J.J.M. Veraart ("Veraart") is, and at relevant times was , a member of
the Executive Board of Stichting ING from August 2001, and Chairman of the Executive Board
since December 2006. Defendant Veraart signed the false and misleading Offering Documents.
28. The defendants referenced above in ¶I( 14-27 are referred to herein as the
"Individual Defendants."
29. Defendant ING Financial Markets LLC ("ING Financial") offers investment
banking and corporate financial services. ING Financial acted as an underwriter in connection
with the Offering.
30. Defendant UBS Securities LLC ("UBS") is the U.S. investment banking and
securities arm of UBS Investment Bank. UBS Investment Bank provides a range of financial
products and services worldwide. UBS acted as an underwriter in connection with the Offering.
31. Defendant Citigroup Global Markets Inc. ("Citigroup") is a large integrated
financial services institution that through subsidiaries and divisions provides commercial and
investment banking services, commercial loans to corporate entities, and acts as underwriter in
the sale of corporate securities. Citigroup acted as an underwriter in connection with the
Offering.
32. Defendant Merrill Lynch, Pierce , Fenner & Smith Incorporated ("Merrill Lynch")
provides capital markets services, investment banking and advisory services, wealth
management, asset management, insurance, banking and related products and services on a
global basis. Merrill Lynch acted as an underwriter in connection with the Offering.
33. Defendant Wachovia Capital Markets , LLC ("Wachovia Capital") is the corporate
and investment banking side of brokerage firm Wachovia Securities (both companies are
subsidiaries of banking giant Wachovia). Wachovia Capital provides financial and corporate
advisory services, private capital, debt private placement, mergers and acquisitions advice,
underwriting, and equity investing. It also offers real estate financing, risk management services,
and structured products such as asset-backed and mortgage-backed securities. Wachovia Capital
acted as an underwriter in connection with the Offering.
34. Defendant Morgan Stanley & Co. Incorporated ("Morgan Stanley") is a global
financial services firm that, through its subsidiaries and affiliates, provides its products and
services to customers, including corporations, governments, financial institutions and
individuals. Morgan Stanley assists public and private corporations in raising funds in the
capital markets (both equity and debt), as well as in providing strategic advisory services for
mergers, acquisitions and other types of financial transactions. Morgan Stanley acted as an
underwriter in connection with the Offering.
35. Defendant Banc of America Securities LLC ("Banc of America") is the
investment banking arm of Bank of America. Banc of America offers trading and brokerage
services; debt and securities underwriting; debt and equity research; and advice on public
offerings, leveraged buyouts, and mergers and acquisitions. Banc of America acted as an
underwriter in connection with the Offering.
36. Defendant RBC Capital Markets Corporation ("RBC") is the corporate and
investment banking division of Royal Bank of Canada. RBC acted as an underwriter in
connection with the Offering.
37. Defendant J.P. Morgan Securities Inc. ("JP Morgan") is one of the oldest
operating financial services firms in the world and is a leader in investment banking, financial
services, asset and wealth management and private equity. JP Morgan acted as an underwriter in
connection with the Offering.
38. Defendant ABN Amro Inc. ("ABN Amro") is a leading banking and fixed-income
capital markets firm. ABN Amro acted as an underwriter in connection with the Offering.
39. Defendant A.G. Edwards & Sons, Inc. ("A.G. Edwards") is a full service
brokerdealer providing securities and commodities brokerage, investment banking, trust services,
asset management, financial and retirement planning, private client services, investment
management, and other related financial services to individual, governmental, and institutional
clients. A.G. Edwards is a subsidiary of defendant Wachovia Corporation. A.G. Edwards acted
as an underwriter in connection with the Offering.
40. Pursuant to the Securities Act of 1933, the defendants referenced in ¶T 29-39
above are referred to herein as the "Underwriter Defendants."
41. The Underwriter Defendants are strictly liable for the false and misleading
statements in the Offering Documents . In connection with the Offering, the Underwriter
Defendants drafted and disseminated the Offering Documents and were paid fees in connection
therewith. The Underwriter Defendants' failure to conduct an adequate due diligence
investigation was a substantial factor leading to the harm complained of herein.
42. Defendant Ernst & Young LLP ("Ernst & Young") is a registered public
accounting firm with its principal place of business at 5 Times Square, New York, New York.
Ernst & Young audited ING's financial statements for 2006, issued unqualified opinions thereon
that were included in ING's 2006 Form 20-F filed with the SEC and incorporated by reference
into the Offering Documents. Ernst & Young consented to the use of its audit report in the
Offering Documents.
CLASS ACTION ALLEGATIONS
43. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons or entities who acquired
the Securities pursuant or traceable to the Company's false and misleading Offering Documents
issued in connection with the Company's Offering and who were damaged thereby (the "Class")
Excluded from the Class are defendants, the officers and directors of the Company, at all
relevant times, members of their immediate families and their legal representatives, heirs,
successors or assigns and any entity in which defendants have or had a controlling interest.
44. The members of the Class are so numerous that joinder of all members is
impracticable. The Securities were actively traded on the NYSE. While the exact number of
Class members is unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, plaintiff believes that there are hundreds of members in the proposed
Class. Record owners and other members of the Class may be identified from records
maintained by ING or its transfer agent and may be notified of the pendency of this action by
mail, using the form of notice similar to that customarily used in securities class actions.
45. Plaintiff' s 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 in violation of
federal law that is complained of herein.
46. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
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47. 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. Among the
questions of law and fact common to the Class are:
(a) whether the Securities Act of 1933 was violated by defendants ' acts as
alleged herein;
(b) whether statements made by defendants to the investing public in the
Offering Documents misrepresented material facts about the business, operations
and management of ING; and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
48. 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, as
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.
SUBSTANTIVE ALLEGATIONS
49. On or about December 1, 2005, ING filed with the SEC a Form F-3ASR
Registration Statement concerning the issuance of the Securities by ING. The Form F-3ASR
incorporated by reference subsequently filed prospectuses as explained by the following
disclosure:
That, for the purpose of determining liability under the Securities Act of 1933 to
any purchaser:
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(i) Each prospectus filed by the registrants pursuant to Rule 424(b)(3) shall bedeemed to be part of the registration statement as of the date the filed prospectuswas deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or(b)(7) as part of a registration statement in reliance on Rule 430B relating to anoffering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose ofproviding the information required by Section 10(a) of the Securities Act of 1933shall be deemed to be part of and included in the registration statement as of theearlier of the date such form of prospectus is first used after effectiveness or thedate of the first contract of sale of securities in the offering described in theprospectus. As provided in Rule 430B, for liability purposes of the issuer and anyperson that is at that date an underwriter, such date shall be deemed to be a neweffective date of the registration statement relating to the securities in theregistration statement to which the prospectus relates, and the offering of suchsecurities at that time shall be deemed to be the initial bona fide offering thereof;provided, however, that no statement made in a registration statement orprospectus that is part of the registration statement or made in a documentincorporated or deemed incorporated by reference into the registration statementor prospectus that is part of the registration statement will, as to a purchaser with atime of contract of sale prior to such effective date, supersede or modify anystatement that was made in the registration statement or prospectus that was partof the registration statement or made in any such document immediately prior tosuch effective date.
50. On or about September 27, 2007, pursuant to Rule 424(b)(5) of the Securities Act
of 1933, ING filed the prospectus for the Offering (the "September 2007 Prospectus"), which,
together with the Registration Statement, constituted the previously defined Offering Documents.
The September 2007 Prospectus reported, as of March 31, 2007, ING shareholder equity of
€38.166 billion.
51. The September 2007 Prospectus also stated:
We have filed a registration statement on Form F-3 under the Securities Act of1933, as amended, with the SEC covering the securities. For further informationon the securities of ING Groep N.V., you should review our registration statementand its exhibits.
We incorporate by reference the following documents or information which wefiled with the SEC (other than, in each case, documents or information deemed tohave been furnished and not filed in accordance with SEC rules):
• our Annual Report on Form 20-F for the year ended December 31, 2004, filedon April 18, 2005;
• current reports on Form 6-K filed on July 14, 2005, September 14, 2005,September 23, 2005 (related to our six-month results), November 9, 2005,November 14, 2005 (related to our nine-month results) and November 30, 2005;
• our registration statement on Form 8-A filed on May 20, 1997, describing theordinary shares, bearer depositary receipts and ADSs, including any furtheramendments or reports filed for the purpose of updating those descriptions; and
• any filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) ofthe Securities Exchange Act of 1934, as well as any Form 6-K furnished to theSEC to the extent such Form 6-K expressly states that we incorporate such formby reference, on or after the date of this prospectus and before the termination ofany offering of securities hereunder.
52. The Form 20-F ING filed with the SEC on April 20, 2007, and which was
incorporated by reference into the Offering Documents , stated:
[O]ur financial position - thanks to focused portfolio management over the pastthree years - enables us to allocate our capital across businesses and clientsegments in such a way that it optimizes the highest growth and return.
We believe ING's financial results demonstrate that our underlyingperformance in all business lines remains strong.... ING Real Estate experiencedanother year of strong growth, both in profits and assets under management.
Our residential mortgage portfolio reached EUR 69 billion, and in tens of profit,mortgage business achieved break-even in 2006.
Managing risks
Important progress has been made in 2006 in improving risk modelling andmeasurement techniques. At Group level, we are developing risk metrics that
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capture bank and insurance risk into a single view. We significantly improved thequantification and our understanding of the credit risk in our banking book in linewith Basel II, and on the insurance side, we have introduced a market consistent
framework which enables more accurate pricing of complex products. INGstrengthened the risk management organisation and centralised the risk function
by means of creating the position of (deputy) Chief Risk Officer (CRO) who isresponsible for managing and controlling risk on a consolidated level. Theseimprovements further enhance the full integration of risk management in our dailybusiness activities and strategic planning ....
53. The Form 20-F also reported ING's financial performance for 2006. Among
other things, it reported total annual income of $62.378 billion and net annual profit of $8.949
billion.
54. The Form 6-K ING filed with the SEC on June 4, 2007, and which was
incorporated by reference into the Offering Documents , reported ING' s condensed consolidated
interim accounts for the three month period ended March 31, 2007. It reported, inter alia, total
income of €18.516 billion and net profit (before minority interests) of €1.958 billion.
55. Prior to the disclosures set forth above, beginning in mid-2005, a prolonged and
consistent stream of announcements concerning the housing market and related impact on the
financial markets began:
• May 27, 2005: Economist Paul Krugman of the New York Times said hesaw "signs that America's housing market, like the stock market at the end of thelast decade, is approaching the final, feverish stages of a speculative bubble."
• June 9, 2005: Federal Reserve Chairman Alan Greenspan, whiledownplaying risk of a national housing bubble, acknowledged in testimony to theJoint Economic Committee that he saw "signs of froth in some local marketswhere home prices seem to have risen to unsustainable levels."
• June 16, 2005: The Economist print edition: "Perhaps the best evidencethat America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every Americannewspaper and magazine over the past month. Such bubble-talk hardly comes asa surprise to our readers. We have been warning for some time that the price ofhousing was rising at an alarming rate all around the globe, including in America.Now that others have noticed as well, the day of reckoning is closer at hand. It is
1^
not going to be pretty. How the current housing boom ends could decide thecourse of the entire world economy over the next few years." (Emphasis added).
• July 26 2005: The Wall Street Journal reported that "Mortgage lenders arecontinuing to loosen their standards, despite growing fears that relaxed lendingpractices could increase risks for borrowers and lenders in overheated housingmarkets." The article cited increases in novel loan products, including interest-only mortgages, option adjustable-rate mortgages and no documentation loans.
December 2005: Some CDO traders warned the bubble could burst. JasonSchechter, then head of CDO trading at Lehman Brothers, echoed otherparticipants at the Opal Financial Group CDO Summit when he said: "Whatconcerns me though is: is this liquidity here to stay, or are we at risk for a sizabledownturn?" (Asset Securitization Report, December 12, 2005).
• May 2006: Ameriquest Mortgage, one of the United States' leadingwholesale subprime lenders, announced the closing of each of its 229 retailoffices and reduction of 3,800 employees. At this time, Ameriquest stated that inthe future it would make its loans through mortgage brokers, a channel notcovered by the January 2006 predatory-lending settlement with the AttorneysGeneral.
• September 13, 2006: The Senate Banking Committee heard testimonyfrom "leading economists" as to the economic ramifications of the housingbubble, including from Richard Brown of the FDIC, who stated, "According tothe Federal Housing Finance Board, over 30 percent of all conventionalmortgages closed in 2004 and 2005 were ARMs. The ARM share moderated to 25percent by the second quarter of 2006. The percentage ofARMs aniong subprimemortgages is higher. Within subprime mortgage backed securities, the share ofARMs was far higher, close to 80 percent. The prevalence of subprime loansamong all mortgage originations doubled from 9 percent in 2003 to 19 percent in2004."
• October 23, 2006: a Bloomberg article reported that "'[d]elinquencytrends and home prices' show a weakening real estate market, said Scott Eichel,head of credit trading for New York-based Bear Stearns & Co., the biggestunderwriter of bonds backed by mortgages. `A lot of investors that have concernsabout the housing market' are using the ABX index to speculate on a continueddrop, he said."
• October 26, 2006: The Commerce Department reported that the medianprice for a new home sold in September was $217,100, a drop of 9.7 percent fromSeptember 2005. It was the lowest median price for a new home since September2004 and the sharpest year-over-year decline since December 1970. Theweakness in new home prices was even sharper than a 2.5 percent fall in the priceof existing homes last month, which had been the biggest drop on record.
• December 14, 2006: The Mortgage Bankers Association reported in itsquarterly National Delinquency Survey that late payments and new foreclosureson U. S. homes rose in the third quarter and are likely to grow as a massive waveof adjustable-rate mortgages reset at higher interest rates. MBA also reported thatdelinquencies rose for all home loans, but most notably for adjustable loans tosubprime borrowers who were already stretched before mortgage rates climbedand predicted that between $1.1 trillion and $1.5 trillion of mortgages face rateresets in 2007.
• December 22, 2006: Center for Responsible Lending (CRL) study revealsthat 2.2 million American households are likely to lose their homes and as muchas $164 billion due to foreclosures in the subprime mortgage market. CRL'sresearch suggests that risky lending practices have triggered the worst foreclosurecrisis in the modem mortgage market, projecting that one out of five (19.4%)subprime loans issued during 2005-2006 will fail.
• December 28, 2006: Ownit Mortgage Solutions, the 11th largest UnitedStates issuer of subprime mortgages, filed for bankruptcy. Earlier in the month,Ownit abruptly shut its doors and told its 800 workers not to return.
• January 30, 2007: J.P. Morgan's CEO, speaking at a Citigroup annualfinancial services conference, stated that "defaults are rising at J.P. Morgan `alittle bit,"' adding, "`home equity is subject to deterioration' from a recession, butthat the bank is well positioned to sustain a downturn in the economy. The bankhas largely exited the subprime lending area." (MarketWWatch, January 30. 2007Article, "Dimon sees a sign of recession.")
• February 2: Bloomberg reported the subprime market was facing recordlevels of collapse:
o Defaults on mortgages to people with poor credit histories or largedebt burdens had risen in November above their worst levels during thelast recession six years ago, according to Friedman Billings RamseyGroup Inc.
o The percentage of subprime mortgages packaged into bonds anddelinquent by 90 days or more, in foreclosure or already turned into seizedproperties had climbed to 10.09 percent from 9.08 percent in October,analysts led by Michael D. Youngblood at the Arlington, Virginia-basedfirm had reported. The default rate fell to'5.37 percent in May 2005 from10.05 percent in November 2001, when economic growth resumed.
o Defaults on subprime loans had surged as rates on ones made in2002, 2003 and 2004 adjust higher as their fixed-rate periods endfollowing an increase in short-term interest rates from the lowest in 45
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years. Subprime mortgages made in 2005 and 2006 were suffering fromslumping home prices and looser lending standards.
o "These borrowers are very leveraged and have little skin in thegame" because they took out loans with small, or no, down payments andmany of them haven't seen their properties appreciate, DebashishChatterjee, an analyst at Moody's Investors Service in New York, had saidin an interview Jan. 26.
• February 5: Mortgage Lenders Network USA Inc., a company thatcatered to borrowers with weak credit , filed for bankruptcy . 880 of its 1,600employees had been laid off earlier in the year.
• February 7: The Senate Banking Committee held the first hearing of the1 IOth Congress addressing legislative solutions to predatory lending in thesubprime sector.
• February 9: "The Financial Express" reported online that HSBC HoldingsPlc's Chief Executive Officer would change lending policies after the bank'slosses from bad home loans in the US increased, stating "I am responding, andmore action will be taken ... [t]his is a problem, we have taken the severity onboard." HSBC was forced to set aside nearly $2 billion of its funds for 2006 dueto souring subprime-mortgage loans.
• February 12: ResMae Mortgage , a subprime lender, filed for bankruptcy.According to Bloomberg , in its Chapter 11 filing, ResMae stated that "[t]hesubprime mortgage market has recently been crippled and a number of companiesstopped originating loans and United States housing sales have slowed anddefaults by borrowers have risen." Also in its filing , ResMae stated that it couldnot cope with the "enormous" surge in loan defaults.
• February 13: Dr. Mark Dotzour, the chief economist for the Real EstateCenter at Texas A&M University, issued a warning with respect to these "rescueloans" because. hornebuyers who bought homes with subprime loans areespecially vulnerable. "Texas Economist Warns of Foreclosure Rescue Scams,"www.mortgagefraudblog.com, February 13, 2007.
• February 20: NovaStar Financial, a company specializing in ori-inatine,investing, and servicing non-conforming residential mortgages, reported asubstantial loss. Floyd Norris of The New York Times noted as follows: "Theclass of 2006 may live on as a very bad memory in subprime land."
• March 1: Fremont General announced it was delaying fourth-quarterresults in an annual filing with the SEC, sparking concern about its subprimemortgage business. The next day, Fremont General announced it was going tostop making subprime loans and put its subprime business up for sale.
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March 2: The Federal Reserve announced draft regulations to tighten
lending standards.
• March 8: New Century Financial, the second largest subprime lender in
2006, stopped making loans.
• March 20: People's Choice Home Loan, Inc., a mortgage lender for people
with credit problems, filed for bankruptcy.
April 2: New Century Financial filed for bankruptcy.
• April 6: American Home Mortgage Investment Corporation, the tenth
largest retail mortgage lender in the United States, wrote down the value of risky
mortgages rated one step above subprime.
• April 18: Freddie Mac announced plans to refinance up to $20 billion of
loans held by subprime borrowers who would be unable to afford their adjustable-
rate mortgages at the reset rate.
• April 24: The National Association of Realtors announced that sales of
existing homes fell by 8.4% in March from February, the sharpest month-to-
month drop in 18 years.
• May 25: The National Association of Realtors reported that sales of
existing homes fell by 2.6 percent in April to a seasonally adjusted annual rate of
5.99 million units, the slowest sales pace since June 2003. The number of unsold
homes left on the market reached a record total of 4.2 million.
• June 12: RealtyTrac announces U.S. foreclosure filings surged 90 percent
in May from May 2006. Foreclosure filings were up 19% from April. There were
176,137 notices of default, scheduled auctions and bank repossessions in May.
• June 14: Goldman Sachs reported flat profit from the previous year due to
niortgage market problems.
• June 22: Bear Steams pledged up to $3 .2 billion to bail out one of its
hcd`;e funds because of bad bets on subprime mortga cs.
• July 10: Standard and Poor's and Moody's downgraded bonds backed by
subprime mortgages, prompting investors to get rid of the securities. Fitch
followed suit. According to Christopher Wallen, an analyst from Institutional
Risk Analytics, "when ratings agency puts a whole class on watch, it will force all
the credit officers to get off their butts and reevaluate everything. This could be
one of the triggers we've been waiting for."
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• July 18: Bear Stearns announced its two hedge funds that had investedheavily in the subprime market were essentially worthless, having lost over 90%of their value, equal to over $1.4 billion.
• July 18: Commerce Department announces housing starts were down19.4% over the last 12 months. Also announced was a 7.5% plunge in permits tobuild new homes, the largest monthly decline since January 1995. Permits were25.2% below their level from the previous year, reflecting continued pessimismamong builders over the near-term outlook for new homebuilding.
• July 18 and 19: In two days of testimony in Congress, Chairman Bernankesaid there will be "significant losses" due to subprime mortgages and noted thatthe problems "likely will get worse before they get better."
• July 30: IKB Deutsche Industriebank, a German bank, was bailed outbecause of bad bets on U.S. mortgage-backed securities.
• August 1: Two hedge funds managed by Bear Stearns that investedheavily in subprime mortgages declared bankruptcy. Investors in the funds filedsuit against Bear Stearns, alleging that the investment bank misled them about theextent of the funds' exposure.
• August 6: American Home Mortgage, one of the United States' largesthome lenders, files for bankruptcy. According to the Associated Press on August7, 2007, "A weak housing market and a spike in payment defaults scaredinvestors from mortgage debt including bonds and other securities backed byhome loans."
• August 9: BNP Paribas, a French bank, suspended three of its fundsbecause of exposure to U.S. mortgages.
• August 9 and 10: European Central Bank and Federal Reserve intervenedin the credit markets by pumping in billions of dollars of liquidity.
• August 13: Aegis Mortgage Corp, one of the United States' top 30mortgage lenders, filed for bankruptcy. The Company also fired 782 out of 1,302employees.
• August 16: Countrywide Financial, the nation's largest mortgage lender,drew down $11.5 billion on its credit lines.
• August 22: RealtyTrac Inc. announced foreclosures were up 93% in July2007 from July 2006. The national foreclosure rate in July was one filing forevery 693 households. There were 179,599 filings reported in July, up from92,845 a year ago.
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• August: Congress's Joint Economic Committee compiled and published
the "Subprime Mortgage Market Crisis Timeline," a timeline that included,
among others, many of the above listed events.
• September 6: The Mortgage Bankers Association released a quarterly
report showing that the delinquency rate (the number of people who were behind
in their payments but had not yet entered the foreclosure process) for mortgage
loans on one-to-four-unit residential properties was 5.12% of all loans outstanding
in the second quarter of 2007, up 28 basis points from the first quarter of 2007,
and up 73 basis points from the previous year. The delinquency rate for subprime
loans was up from 13.77 in the first quarter to 14.82% in the second quarter. The
delinquency rate for prime loans rose from 2.58% to 2.73%. Compared to the
same time the previous year, the seriously delinquent rate was 23 basis points
higher for prime loans and 304 basis points higher for subprime loans.
• September 14: Merrill Lynch & Co., the biggest underwriter of
collateralized debt obligations, signaled that the subprime mortgage crisis might
hurt third-quarter earnings. The New York-based firm reported that it made "fair
value adjustments" for potential losses to date on unspecified holdings and
financing commitments.
• September 17: NovaStar Financial Inc. gave up its real estate investment
trust, effectively abandoning the lending business, because it could pay a $157
million dividend.
• September 17: Merrill Lynch & Co. Inc.'s $1.3 billion bet on subprime
lending took a turn for the worse when the world's largest brokerage confirmed
job cuts at its First Franklin Financial Corp. unit. Merrill Lynch declined to say
how many jobs were being cut. Recently filed reports with U.S. banking
regulators showed that Merrill Lynch Bank & Trust Co., where a lot of the First
Franklin franchise was housed, lost $111 million through the first half of 2007.
• September 18: The mortgage lending crisis intensified as Impac Mortgage
Holdings Tnc. stated it would quit most lending activities, while Accredited Home
Lenders Holding Co. posted a major quarterly loss and said its survival remained
in doubt.
• September 21: HSBC Holdings announced its plans to close its I.J.S.
subprime unit, Decision One Mortgage, and to record an impairment charge of
about $880 million. HSBC stated that it no longer believed the mortgage business
was sustainable. Approximately 750 U.S. employees were expected to be
affected by the decision.
56. On September 27, 2007, defendants sold more than $1.45 billion worth of 7.375%
Securities to the public at S25 per share pursuant to the Offering Documents.
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57. On October 17, 2008, however, ING issued a press release entitled "ING's capital
position in line with targets despite market turmoil in third quarter," which explained that ING
experienced significant losses in connection with its exposure to the real estate market as
follows:
Turmoil in financial markets and declining asset prices inevitably impacted ING'sresults in the third quarter, with impairments on equity and bond investments,pressurised asset classes, losses attributable to financial counterparties and fairvalue changes on real estate totalling approximately EUR 1.6 billion before tax.Loan loss provisioning at the bank also increased to approximately EUR 400million. That is expected to result in a net loss of approximately EUR 500 millionin the third quarter, based on preliminary numbers.
... ING's Alt-A, subprime and CDO investments of approximately EUR 1.5billion after tax were reflected in shareholders ' equity in the third quarter,bringing total shareholders ' equity to EUR 23.9 billion at the end of September.
58. On this news, the price of the Securities dropped over 8%.
59. On October 19, 2008, ING issued a press release entitled "ING to strengthen core
capital by EUR 10 billion," which explained that ING would be forced to raise a staggering €10
billion from the Dutch government to stay afloat:
ING announced today that it has reached an agreement with the Dutchgovernment to strengthen its capital position, creating a strong buffer to navigatethe current market and economic environment. ING will issue non-voting coreTier-1 securities for a total consideration of EUR 10 billion to the Dutch State.
ING Group will use the proceeds of the transaction to increase shareholders'equity in ING Bank by EUR 5 billion and to strengthen the balance sheet of INGInsurance by EUR 2 billion. The remaining EUR 3 billion will be used to reducethe Debt/Equity ratio at ING Group from 15% to around 10%. After thistransaction , ING Bank's core Tier-1 ratio will be around 8%, with ING Bank'sTier-1 ratio above 10%.
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60. The Offering Documents contained untrue statements of material fact or omitted
to state other facts necessary to make the statements made therein not misleading and were not
prepared in accordance with applicable SEC rules and regulations.
61. The true facts which were omitted from the Offering Documents were:
(a) Defendants' assets, including loans and mortgage-related securities, wereimpaired to a much larger extent than the Company had disclosed;
(b) Defendants failed to properly record losses for impaired assets;
(c) The Company' s internal controls were inadequate to prevent the Company
from improperly reporting the value of its assets; and
(d) ING was not as well capitalized as represented, and, notwithstanding the
billions of dollars raised in the Offering, the Company would have to raise an
additional €10 billion by selling equity in the Company to the Dutch government.
COUNT I
Violations of §11 of the Securities Act of 1933Against All Defendants
62. Plaintiff repeats and realleges each and every allegation contained above.
63. This Count is brought pursuant to § 11 of the Securities Act of 1933, 15 U.S.C.
§77k, on behalf of the Class, against all defendants. For purposes of this Count, plaintiff
expressly excludes and disclaims any allegation that could be construed as alleging fraud or
intentional or reckless misconduct, as this Count is based solely on claims of strict liability
and/or negligence under the Securities Act of 1933.
64. The Offering Documents was false and misleading , contained untrue statements
of material facts, omitted to state other facts necessary to make the statements made not
misleading, and omitted to state material facts required to be stated therein.
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65. ING was the registrant for the Offering. As issuer of the Securities, ING is
strictly liable to plaintiff and the Class for the misstatements and omissions.
66. The Individual Defendants named herein were responsible for the contents and
dissemination of the Offering Documents. Each of the Individual Defendants signed or
authorized the signing of the Offering Documents. None of the defendants named herein made a
reasonable investigation or possessed reasonable grounds for the belief that the statements
contained in the Offering Documents were true and without omissions of any material facts and
were not misleading.
67. Defendant Ernst & Young audited the publicly reported financial statements that
were incorporated by reference into the Offering Documents. Ernst & Young's audit reports
were also incorporated by reference in the Offering Documents. These audit reports falsely
stated that Ernst & Young' s audits were performed in accordance with Generally Accepted
Auditing Standards and that ING's financial statements were presented in accordance with
Generally Accepted Accounting Principles.
68. Ernst & Young consented to being identified as having prepared or certified part
of the Offering Documents. The Offering Documents was materially false and misleading as set
forth above. As such, Ernst & Young is liable to the plaintiff and the Class for damages.
69. Ernst & Young is strictly liable to the members of the Class who purchased or
otherwise acquired the Securities in or traceable to the Offering, for the misstatements and
omissions in its audit reports and in the financial statements that it audited.
70. By reason of the conduct herein alleged, each defendant violated, and/or
controlled a person who violated, § 11 of the Securities Act of 1933.
71. Plaintiff acquired the Securities pursuant to the Offering Documents.
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72. Plaintiff and the Class have sustained damages. At the time of the purchase of the
Securities, plaintiff and other members of the Class were without knowledge of the facts
concerning the wrongful conduct alleged herein and could not have reasonably discovered those
facts prior to October 2008. Less than one year has elapsed from the time that plaintiff
discovered or reasonably could have discovered the facts upon which this complaint is based to
the time that plaintiff filed this complaint. Less than three years elapsed between the time that
the Securities upon which this Count is brought were offered to the public and the time plaintiff
filed this complaint.
COUNT 11
Violations of §12(a)(2) of the Securities Act of 1933Against the Underwriter Defendants and ING
73. Plaintiff repeats and realleges the allegations set forth above as if set forth fully
herein. For purposes of this Count, plaintiff expressly excludes and disclaims any allegation that
could be construed as alleging fraud or intentional or reckless misconduct, as this Count is based
solely on claims of strict liability and/or negligence under the Securities Act of 1933.
74. ING was the registrant for the Offering. By means of the defective September
2007 Prospectus, the Underwriter Defendants assisted in the sale of the Securities to plaintiff and
other members of the Class.
75. The September 2007 Prospectus contained untrue statements of material fact, and
concealed and failed to disclose material facts, as detailed above. ING and the Underwriter
Defendants owed plaintiff and the other members of the Class who purchased the Securities
pursuant to the September 2007 Prospectus the duty to make a reasonable and diligent
investigation of the statements contained in the September 2007 Prospectus to ensure that such
statements were true and that there was no omission to state a material fact required to be stated
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in order to make the statements contained therein not misleading. These defendants, in the
exercise of reasonable care, should have known of the misstatements and omissions contained in
the September 2007 Prospectus as set forth above.
76. Plaintiff did not know, nor in the exercise of reasonable diligence could have
known, of the untruths and omissions contained in the September 2007 Prospectus at the time
plaintiff acquired the Securities.
77. By reason of the conduct alleged herein, defendants violated § 12(a)(2) of the
Securities Act of 1933. As a direct and proximate result of such violations, plaintiff and the
other members of the Class who purchased the Securities pursuant to the September 2007
Prospectus sustained substantial damages in connection with their purchases of the Securities.
Accordingly, plaintiff and the other members of the Class who hold such Securities have the
right to rescind and recover the consideration paid for their Securities, and hereby tender their
Securities to the defendants sued herein. Class members who have sold their Securities seek
damages to the extent permitted by law.
COUNT III
Violations of §15 of the Securities Act of 1933
Against the Individual Defendants
78. Plaintiff repeats and realleges each and every allegation contained above.
79. This Count is brought pursuant to § 15 of the Securities Act of 1933 against the
Individual Defendants. For purposes of this Count, plaintiff expressly excludes and disclaims
any allegation that could be construed as alleging fraud or intentional or reckless misconduct, as
this Count is based solely on claims of strict liability and/or negligence under the Securities Act
of 1933.
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80. Each of the Individual Defendants was a control person of ING by virtue of his or
her position as a director, senior officer and/or major shareholders of ING which allowed each of
these defendants to exercise control over ING and its operations.
81. Each of the Individual Defendants was a culpable participant in the violations of
§ 11 of the Securities Act of 1933 allc-ed in the Count above, based on their having signed or
authorized the signing of the Offering Documents and having otherwise participated in the
process which allowed the Offering to be successfully completed.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action and certifying plaintiff as
Class representative;
B. Awarding compensatory damages in favor of plaintiff and the other Class
members against all 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 plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees;
D. Awarding rescission or a rescissory measure of damages; and
E. Such equitable/injunctive or other relief as deemed appropriate by the Court.
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JURY DEMAND
Plaintiff hereby demands a trial by jury.
DATED: February 17, 2009
WOLF HALDENSTEIN ADLERFREEMAN & I-IERZJ &P
By: ^Gr o Nes e (GN- 20)
es (DW=6912)270 ad* venueNew Y New York 10016Telephone: (212) 545-4600Facsimile: (212) 545-4653Email: Nespole(^z`.whafll.connEmail: \ •'ales'iwhafh.conm
KOI-IN, SWIFT, & GRAF, P.C.Joseph C. KohnDenis F. Sheils (DS-8374)One South Broad Street, Suite 2100
Philadelphia, PA 19107Telephone: (215) 238-1700Facsimile: (215) 238-1968
Attorneys for PlaintiffHoward H. Powell Trust
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