Several large insurance company investors have joined Teachers Insurance & Annuity Association in filing civil complaints against Enterprise Mortgage Acceptance Co. and affiliates, including EMAC's majority equity investor, Koch Industries, and several former EMAC principals (see ASR 4/01/02).

TIAA's initial complaint alleged that there were "material misrepresentations and omissions" associated with the EMAC securitizations, though subsequent plaintiffs have used harsher language, alleging the defendants were committing "securities fraud."

Most recently on the bandwagon are Aetna Life Insurance (including Aetna Health), Nationwide Life Insurance (including Nationwide Mutual and Nationwide Fire Insurance), Physicians Life Insurance, and Northern Life Insurance. Additionally, a class action suit has been filed on behalf of ING Investment Management, USG Annuity & Life, Security Life of Denver Co., Equitable Life Insurance, Insurance Company of Iowa, Life Insurance Company of Georgia and Southern Life Insurance Co.

The above complaints were filed in the U.S. Court Southern District of New York, and are being referred to Judge Shirley Wohl Kram, who heard TIAA's original complaint filed in March.

A spokesperson for Koch chose not to comment on the matter at this time. According to court documents, Koch's counsel was to have answered, moved or otherwise responded to ING's complaints as of last Thursday, June 20, though it was learned that the deadline has subsequently been postponed to a later date. Koch's counsel, Skadden, Arps, Slate, Meagher & Flom, has not yet moved to dismiss the charges. Skadden does not represent EMAC.

Like the TIAA lawsuit, the "ING Plaintiffs" (as referred to in the complaint) are alleging that EMAC was propping its securitization by subsidizing certain borrowers, allowing them to stay current so that the company could continue to securitize. Also like TIAA's complaint, it is alleged that EMAC was lending recklessly and in contrast to stated underwriting practices, often to parties personally affiliated with the underwriters or other EMAC employees.

The ING Plaintiffs further allege that EMAC was using shell companies to dispose of nonperforming loans and properties, giving the "false impression that independent third parties had assumed operation of the businesses collateralizing the loans."

There is approximately $900 million in EMAC bonds outstanding. According to Morgan Stanley research, 35% of the outstanding balance in the EMAC securitizations is delinquent. The firm, which was underwriter on all three EMAC deals, also notes that all the initially triple-A rated EMAC notes have fallen below investment grade. Both Moody's Investors Service and Fitch last downgraded EMAC deals in May. Regarding the 1999-1 deal, Moody's stated that "although writedowns have totaled only $10 million to date, substantial losses to the trust are inevitable given the weakness of the loans in the pool and in the gas and convenience sector."

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