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unexpected and unprecedented in their scale.

18.

Given the size of the market failure, the numbers of investors whose

holdings became illiquid or who actually lost money, and the collapse of Lehman, the

sale of ARS by Lehrnan has been the subject of Investigation by various regulators and

governmental agencies including the United States Attorney’s Office for the Eastern

District of New York.

19.

On or about January 17, Z’OOS, K&K, acting as counsel to Respondents,

filed the Statement of Claim that commenced the Arbitration on behalf of Respondents

against Lehman and Petitioners; thereafter, K&K twice amended the pleadings. The

Second Amended Statement of Claim, dated May 2, 2008, asserts various claims against

L e h a n and Petitioners in connection with Lehnm’s sale of ARS to Respondents,

iiicluding one count of securities fraud under Section lo@) and Rule 1O(b)(5) of the

Securities

Exchange

Act

and

two

counts

of

common

law

fraud.

Specifically,

Respondents allege they suffered damages in excess of $285 million when the auctions

for the ARS they purchased

failed and the ARS became illiquid.

Lehman and the

individual Petitioners have filed a Statement of Answer denying all claims. Copies of the

Second Amended Statement of Claim and Petitioners’ Statement of Answer thereto are

annexed as Exhibits A and B respectively.

20.

On or about September

19, 2008, Lehman filed for bankruptcy which,

among other things, automatically stayed the Arbitration as against Lehman. In light of

these changed circumstances, Respondents considered whether to proceed with their

arbitration claims against the individual Petitioners and asked FINRA for time to make

6

Supreme Court Records OnLine Library - page 9 of 22

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