Ambac Faces Investor Lawsuits

Bond Insurer Accused of Artificially Boosting Share Price

Ambac Financial Group, the second-largest bond insurer, has been accused in two lawsuits of misleading investors and artificially boosting its share price.

Baltimore-based Brower Piven said yesterday that it had commenced a suit, which seeks class-action status, in U.S. District Court in New York. It is being filed on behalf of people who bought Ambac shares from Oct. 19, 2005, to Nov. 26, 2007.

Ambac's Assurance Corp. unit was lowered two levels, to AA, on Jan. 19 by Fitch Ratings after the company abandoned plans to raise new money. Without an AAA rating, New York-based Ambac may be unable to write the top-ranked bond insurance that makes up 74 percent of its revenue.

A spokesman did not respond to a request for comment.

Brower Piven's action follows a Jan. 16 suit filed by San Diego-based Coughlin Stoia Geller, in which Ambac was accused of shifting from conservative municipal bonds to writing insurance on collateralized-debt obligations, some of which were backed by subprime mortgages, in the pursuit of higher returns.

"The company's underwriting standards were at best aggressive and at a minimum completely inadequate," Samuel H. Rudman, the plaintiff's lawyer, said in the Coughlin complaint.

Ambac shares have fallen 76 percent since Jan. 2. They closed at $6.20 on Jan. 18 after trading as high as $96.10 on May 18.

Both Ambac and its larger rival, MBIA, are also under threat of losing the top grades from Moody's Investors Service and Standard & Poor's, a move that would throw doubt on the ratings of $2.4 trillion of securities.

Bond insurers' shares plunged last week, and credit-default swaps rose to a record on concern the companies may be unable to meet their obligations as the subprime-mortgage securities and collateralized-debt obligations they guarantee slump in value.

ACA Capital Holdings, a bond insurer now run by regulators, won a month's grace to unwind $60 billion of credit-default swap contracts that it cannot pay.

ACA, under the control of the Maryland Insurance Administration, extended an agreement that waives collateral requirements, policy claims and termination rights until Feb. 19, the New York-based company said in a statement on Business Wire late yesterday.

Standard & Poor's cut ACA's rating 12 levels to CCC last month, casting doubt on the company's guarantees and triggering collateral requirements. ACA, which has lost 97 percent of its market value in the past 12 months, caused Merrill Lynch to write down $1.9 billion of securities last week and Canadian Imperial Bank of Commerce to sell more than $2.7 billion in stock to cover write-downs.