150 Spear Street, Suite 1800

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1 1 Daniel C. Girard (State Bar No ) Stewart H. Foreman (State Bar No ) 2 Jonathan K. Levine (State Bar No. 2209) FREELAND COOPER & FOREMAN LLP jkl@girardgibbs.com 3 Aaron M. Sheanin (State Bar No ) 150 Spear Street, Suite 1800 ams@girardgibbs.com San Francisco, CA Christina H. C. Sharp (State Bar No ) Telephone: (415) chc@girardgibbs.com Facsimile: (415) GIRARD GIBBS LLP 601 California Street, Suite 1400 Edward S. Wactlar (ESW-4978) 6 San Francisco, CA ewactlar@mwwellp.com 7 Telephone: (415) Facsimile: (415) Jill T. Braunstein (JTB-00237) jbraunstein@mwwellp.com 8 Lead Counsel for Plaintiffs and the Proposed MOOMJIAN, WAITE, WACTLAR 9 Class & COLEMAN, LLP 100 Jericho Quadrangle, Suite Jericho, NY Telephone: (516) Facsimile: (516) Attorneys for Plaintiff Aeroflex, Inc. 14 UNITED STATES DISTRICT COURT 15 FOR THE NORTHERN DISTRICT OF CALIFORNIA 16 ) MDL No (JSW) 17 In re Bank of America Corp. Auction Rate ) 18 Securities Marketing Litigation ) [PROPOSED] ORDER DENYING DEFENDANTS MOTION TO DISMISS, 19 This Document Relates to: ) DENYING DEFENDANTS REQUEST 20 ) FOR JUDICIAL NOTICE, AND Bondar v. Bank of America Corp., et al. ) DECLINING TO CONSIDER THE 21 ) DECLARATIONS OF STEPHEN R. No. C (JSW) ) MOONEY AND JASON GLIDDEN 22 ) ) 23 Aeroflex Inc. v. Bank of America Corp., et al. ) Date: October 1, 2010 ) Time: 9:00 a.m. 24 No. C (JSW) ) Location: Courtroom 11, 19th Floor ) Before: Hon. Jeffrey S. White

2 1 ORDER DENYING DEFENDANTS MOTION TO DISMISS, DENYING DEFENDANTS REQUEST FOR JUDICIAL NOTICE, AND DECLINING TO CONSIDER THE 2 3 This matter comes before the Court on the motion of Defendants Bank of America Corporation 4 ( BAC ) and Banc of America Securities LLC ( BAS ) (collectively, Defendants ) to dismiss the 5 Consolidated Class Action And Individual Complaint For Violations Of Federal Securities Laws 6 ( Complaint ) pursuant to Fed. R. Civ. P. 12(b)(6). The Complaint alleges class action claims by Lead 7 Plaintiffs N.R. Hamm Quarry, Inc. ( Hamm ) and Ed O Gara (collectively, Lead Plaintiffs ), and 8 individual claims by Plaintiff Aeroflex, Inc. ( Aeroflex ). This Order refers to Hamm, O Gara, and 9 Aeroflex collectively as Plaintiffs. 10 As alleged in the Complaint, Plaintiffs bought auction rate securities sold or managed by BAS. 11 Lead Plaintiffs in the Class Action claim that BAS manipulated the market for auction rate securities 12 for which it served as broker-dealer in violation of Section 10(b) of the Securities Exchange Act of ( Exchange Act ) and Rule 10b-5(a) and (c). Lead Plaintiffs also allege that BAS failed to 14 disclose material facts about the extent to which BAS manipulated and sustained the market for those 15 securities and its decision to let that market fail in violation of Section 10(b) and Rule 10b-5(b). 16 Plaintiff Aeroflex in the individual action brings a claim for material omissions under Rule 10b-5(b), 17 alleging that BAS was obligated, but failed, to disclose that it had decided to exit the auction rate 18 securities market permanently before it sold those securities to Aeroflex. All Plaintiffs sue corporate 19 parent BAC as a controlling person under Section 20(a). 20 Having carefully considered the papers, evidence, and oral arguments presented by the parties, 21 the Court denies Defendants motion to dismiss for the following reasons A. Lead Plaintiffs Claims Manipulative Acts. The Complaint alleges BAS s manipulative conduct with 25 sufficient particularity under Rule 9(b). Lead Plaintiffs allege that between May 2003 and February , BAS placed support bids for the full amount in every auction for which it was the sole or lead 27 broker-dealer. Lead Plaintiffs allege that BAS purchased securities as a result of its support bids, and that it did so not for investment purposes, but to prevent auction failures and condition the market to 1

3 1 believe that sufficient demand existed for the securities. Lead Plaintiffs also allege that, in the fall of , BAS colluded with issuers to obtain 48 temporary waivers of limits on maximum interest rates 3 for their auction rate securities. According to Lead Plaintiffs, once these short-term waivers expired, 4 the maximum interest rates would collapse to below market levels, which would result in investors sell- 5 offs. Lead Plaintiffs allege that BAS s conduct sent a false pricing signal to the market, by depriving 6 investors of objective pricing information a clearing rate set by actual market forces necessary to 7 evaluate the true risk characteristics of these securities. Lead Plaintiffs allegations satisfy Rule 9(b) by 8 alleging what manipulative acts were performed, which defendants performed them, when the 9 manipulative acts were performed, and what effect the scheme had on the market for the securities at 10 issue. ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 102 (2d Cir. 2007). See also 11 Markowski v. SEC, 274 F.3d 525, (D.C. Cir. 2001) Disclosure As A Defense. Defendants argue that BAS s conduct was not manipulative 13 because it was disclosed in a document on their website, the prospectuses for the auction rate securities 14 purchased by Lead Plaintiffs and other investors, and elsewhere. Defendants argument amounts to a 15 truth-on-the-market defense, which is inappropriate for resolution at the pleading stage, because it 16 involves disputed issues of fact. See Provenz v. Miller, 102 F.3d 1478, 1493 (9th Cir. 1996); In re 17 Turnstone Sys. Sec. Litig., 2003 U.S. Dist. LEXIS 26709, at *1 (N.D. Cal. Feb. 4, 2003). At the 18 pleading stage, the Court cannot conclude that the documents upon which Defendants rely provided full 19 and fair disclosure necessary to apprise investors of the risks of investing in auction rate securities. See 20 Berner v. Lazzaro, 730 F.2d 1319, 1322 (9th Cir. 1984). For instance, BAS purportedly disclosed that 21 it may submit a bid in an auction to keep it from failing or is permitted, but not obligated to submit 22 orders for its own account, but these statements did not disclose events that Lead Plaintiffs allege 23 already had occurred and of which BAS was already aware, namely that there was not enough demand 24 for the auctions to clear without BAS s systematic intervention. Similarly, Lead Plaintiffs sufficiently 25 allege that BAS s disclosures that it may discontinue trading were insufficient after BAS allegedly 26 had decided to exit the auction market in December See In re Convergent Techs. Sec. Litig., F.2d 507, 515 (9th Cir. 1991); Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 987 (9th Cir. 2008); Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 640 (D.C. Cir. 2008). Lead Plaintiffs also adequately 2

4 1 allege that BAS omitted material facts concerning the maximum rate applicable in a failed auction and 2 the influence and control BAS exerted on interest rates Actionable Omissions. Lead Plaintiffs allege the omissions of material fact in BAS s 4 sales presentation to Plaintiff Hamm with particularity. The written disclosures discussed above do not 5 counter BAS s alleged oral omissions. See Copperstone v. TCSI Corp., 1999 U.S. Dist. LEXIS 20978, 6 at *43 (N.D. Cal. Jan. 19, 1999). Although Defendants argue that Lead Plaintiffs cannot show BAS 7 brokers uniformly failed to disclose material facts, Lead Plaintiffs are not required to prove facts to 8 support class certification at the pleading stage. See Baas v. Dollar Tree Stores, Inc., 2007 U.S. Dist. 9 LEXIS 65979, at *7-8 (N.D. Cal. Aug. 27, 2007); In re Wal-Mart Stores, Inc. Wage & Hour Litig., F. Supp. 2d 609 (N.D. Cal. 2007). Lead Plaintiffs also state a claim for omissions of material fact 11 arising from BAS s written disclosures on its website, prospectuses, and elsewhere for the same reasons 12 described above. Defendants argument that BAS had no duty to update its disclosures over the Class 13 Period lacks merit. The SEC s May 31, 2006 cease-and-desist order mandated that BAS shall at all 14 times make a description of its then-current material auction practices and procedures available, to all 15 customers and the general public. BAS s duty to disclose its alleged manipulative conduct is well- 16 established. See United States v. Charnay, 537 F.2d 341, 349 (9th Cir. 1976) Transaction Causation. Lead Plaintiffs satisfy their burden with respect to the element 18 of transaction causation for purposes of their Rule 10b-5(a) and (c) claims, by pleading that they 19 directly relied on the false appearance of liquidity and apparent demand that BAS had created through 20 its alleged manipulative conduct. See ATSI Communs., 493 F.3d at 101. The Court cannot conclude at 21 the pleading stage that Lead Plaintiffs reliance was unreasonable. In addition, Lead Plaintiffs have 22 alleged sufficient facts to support a presumption of reliance based on either a fraud-on-the-market 23 theory or a fraud-created-the-market theory. See In re USA Talks. com, Inc. Sec. Litig., 2000 U.S. Dist. 24 LEXIS 14823, at *14-16 (S.D. Cal. Sep. 14, 2000); Wade v. Indus. Funding Corp., 1993 U.S. Dist. 25 LEXIS 21498, at *12 (N.D. Cal. Dec. 14, 1993). Lead Plaintiffs also satisfy the reliance element for 26 their omissions claim under Rule 10b-5(b). See Affiliated Ute Citizens v. U.S., 406 U.S. 1, (1972); Binder v. Gillespie, 184 F.3d 1059, 1063 (9th Cir. 1999). Desai v. Deutsche Bank Sec. Inc., 573 F.3d 931 (9th Cir. 2009), does not preclude Lead Plaintiffs from invoking the Affiliated Ute 3

5 1 presumption for this omissions claim. The Court need not decide at this stage whether Lead Plaintiffs 2 allegations can support a presumption of reliance on a class-wide basis. See, e.g., Ruiz v. Gap, Inc., F. Supp. 2d 1121, 1124 (N.D. Cal. 2008) Loss Causation. Lead Plaintiffs allege that BAS perpetuated the auction market by 5 creating an artificial appearance of demand and concealing liquidity risk. They further allege that the 6 market s collapse revealed these risks and immediately caused their securities to become unsalable at 7 par. These allegations show a plausible causal connection between Defendants scheme and Lead 8 Plaintiffs injuries, satisfying the requirement for the pleading of loss causation. See In re Daou Sys. 9 Inc., 411 F.3d 1006, (9th Cir. 2005); In re Gilead Sci. Sec. Litig., 536 F.3d 1049, 1057 (9th 10 Cir. 2008). The Court rejects Defendants contention that Lead Plaintiffs must, at the pleading stage, 11 separate loss attributable to fraud from loss attributable to the recession or market-wide conditions. See 12 In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d 1132, 1174 (C.D. Cal. 2008); King County v. 13 IKB Deutsche Industriebank A G, 2010 U.S. Dist. LEXIS 43203, at *23, 25 (S.D.N.Y. Apr. 26, 2010). 14 Defendants also argue that the Complaint attributes Lead Plaintiffs loss to the conduct of other broker- 15 dealers in addition to BAS. This argument fails. Defendants alleged scheme need not be the sole 16 reason for Lead Plaintiffs losses. Gilead Sci., 536 F.3d at It need only be a substantial cause. 17 Id Scienter. Lead Plaintiffs allege particularized facts to support a strong inference of 19 scienter. According to the Complaint, BAS intentionally and systematically prevented auction failures 20 to create a false appearance of demand and marketed auction rate securities as cash equivalents. The 21 Complaint alleges that BAS never disclosed the nature and extent of its interventions, their impact on 22 the market, the true risks or condition of that market, or its ultimate decision to let the auctions fail, 23 despite its disclosure obligations. Lead Plaintiffs cite numerous internal communications reflecting that 24 BAS knew, but concealed, the increasingly fragile condition of the BA ARS market, and that BAS s 25 auction rate securities personnel feared that the entire market would collapse. Lead Plaintiffs further 26 allege that BAS decided in December 2007 to exit the auction rate securities market, but concealed this 27 material fact from investors while it engaged in an aggressive campaign to sell off its inventory to reduce its own exposure. Lead Plaintiffs allege that BAS took advantage of the February 2008 auction 4

6 1 rate securities market failure by only supporting auctions for (and thereby purchasing) securities that it 2 knew paid above-market rates of interest that were likely to be refinanced through BAS for additional 3 underwriting fees, while leaving investors holding illiquid lower-paying securities. Analyzing the 4 Complaint holistically and with a practical and common sense perspective, these allegations support a 5 strong inference of scienter. See South Ferry LP, #2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008); 6 SEC v. U.S. Envtl., Inc., 155 F.3d 107, 111 (2d Cir. 1998) Defendants raise several challenges to Lead Plaintiffs scienter allegations. Defendants 8 argue that scienter is negated by BAS s disclosures. This argument is unavailing, as Lead Plaintiffs 9 have sufficiently alleged that those disclosures were false and misleading. See Novak v. Kasaks, F.3d 300, 311 (2d Cir. 2000). Defendants argue that BAS would not have continued to place support 11 bids in early 2008, if it had decided in December 2007 to withdraw from the market. Lead Plaintiffs, 12 however, have alleged that BAS chose not to abruptly end its bidding practices so that it could try to 13 sell its inventory to investors. That BAS was not entirely successful in this effort does not undermine 14 the strong inference of scienter. See Markowski, 274 F.3d at 529. Defendants argument that the 15 undisclosed maximum rate waivers were intended to benefit investors is not plausible in light of Lead 16 Plaintiffs allegations that BAS knew or was reckless in not knowing that, upon expiration of the 17 waivers, the maximum rates would plummet, prompting investor sell-offs and resulting in BAS s 18 withdrawal of support for the auctions. Defendants further argue that the February 2008 auction 19 failures were an unforeseen casualty of the global financial crisis, not an intentional fraud. On balance 20 however, the Court concludes that Lead Plaintiffs allegations give rise to an inference of scienter that 21 is cogent and at least as compelling as Defendants inference of non-fraudulent intent. See Tellabs, 22 Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007) Control Person. Because the Court rejects Defendants arguments regarding the 24 sufficiency of Lead Plaintiffs underlying Section 10(b) claims, and Defendants do not challenge Lead 25 Plaintiffs allegations of control, Lead Plaintiffs state Section 20(a) claims as well

7 1 B. Plaintiff Aeroflex s Claims 2 9. Omissions Of Material Fact. Plaintiff Aeroflex states a claim for violation of Section 3 10(b) and Rule 10b-5(b) against BAS. Aeroflex alleges that its broker, BAS principal Stephen R. 4 Mooney, omitted to disclose from solicitations for the sale of auction rate securities in January that BAS had already decided to exit the auction rate securities market permanently. Aeroflex 6 identifies the statements alleged to have been misleading, the reasons why those statements were 7 misleading, and the circumstances under which those statements were made with sufficient particularity 8 to satisfy Rule 9(b) and the heightened pleading standard of the PSLRA, 15 U.S.C. 78u-4(b)(1). 9 Aeroflex further alleges that BAS had a duty to disclose its decision to terminate its auction rate 10 securities business, and that BAS violated its duty to update its disclosures concerning its auction rate 11 securities practices. See, e.g., In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1431 (3d Cir ). A finder of fact will be able to determine whether the allegedly omitted fact was material. See 13 Siracusano v. Matrixx Initiatives, Inc., 585 F.3d 1167, 1178 (2d Cir. 2009) Transaction Causation. Aeroflex s reasonable reliance may be presumed as its claims 15 are based solely on alleged omissions. See Affiliated Ute, 406 U.S. at Scienter. Aeroflex alleges with particularity that BAS intended to defraud investors by 17 selling auction rate securities that it knew were soon to become illiquid without disclosing that it 18 already had decided to stop supporting the auctions for those securities and exit the market. Aeroflex 19 further alleges that BAS was motivated to sell these securities under false pretenses to alleviate the 20 strain on its own balance sheet. These allegations are cogent and at least as compelling as Defendants 21 proposed inference of non-fraudulent intent. Aeroflex s allegations therefore satisfy the scienter 22 requirement. See Tellabs, 551 U.S. at Loss Causation. Aeroflex satisfies the element of loss causation by sufficiently alleging 24 a causal connection between BAS s omission and the loss Aeroflex sustained as a result of the auction 25 failures. See In re Gilead Sci., 536 F.3d at Control Person. Aeroflex, having stated a claim against BAS under Section 10(b), also 27 states a claim against BAC under Section 20(a). 6

8 1 14. State Law Claims. The Court will exercise supplemental jurisdiction over Aeroflex s 2 state law claims. 3 4 C. Defendants Request For Judicial Notice And The Mooney And Glidden Declarations 5 The Court denies Defendants request that judicial notice be taken of Exhibits 3-6, 15-19, 21 6 and 24-. These documents are not relevant to Plaintiffs claims, their allegations do not necessarily 7 rely on these documents, and the facts contained within the documents are subject to a reasonable 8 dispute. See Chatman v. Early, 2010 U.S. App. LEXIS 15174, at *4 (9th Cir. July 22, 2010); Swartz v. 9 KPMG LLP, 476 F.3d 756, 758 n.3 (9th Cir. 2007) (citing Fed. R. Evid. 201(b)); Doe v. Willits Unified 10 Sch. Dist., 2010 U.S. Dist. LEXIS 33152, at *6 (N.D. Cal. Mar. 8, 2010). 11 Defendants also submit the declarations of Stephen R. Mooney and Jason Glidden. These 12 documents raise disputed issues of fact and are extrinsic to the Complaint. The Court declines to 13 consider them in connection with this motion to dismiss. See Fed. R. Civ. P. 12(d); Aquair Ventures, 14 LLC v. Gulf Stream Coach, Inc., 2008 U.S. Dist. LEXIS 78811, at *7 (N.D. Cal. Sept. 4, 2008); accord 15 Vandyke v. Northern Leasing Sys., 2009 U.S. Dist. LEXIS 95757, at *14 n.4 (E.D. Cal. Oct. 14, 2009) For all of the foregoing reasons, Defendants motion is DENIED in its entirety. The Court 18 further DENIES Defendants request to take judicial notice of Exhibits 3-6, 15-19, 21 and 24-, and 19 DECLINES to consider the declarations of Stephen R. Mooney and Jason Glidden IT IS SO ORDERED Dated:, JEFFREY S. WHITE 25 UNITED STATES DISTRICT JUDGE

9 1 CERTIFICATE OF SERVICE 2 I, Aaron M. Sheanin, hereby certify that on August 9, 2010, I caused the foregoing document to 3 be filed electronically with the United States District Court for the Northern District of California s 4 through the Court s mandated ECF service. Counsel of record are required by the Court to be 5 registered e-filers, and as such are automatically e-served with a copy of the document(s) upon 6 confirmation of e-filing. 7 I further certify that I caused this document to be forwarded to the following designated Internet 8 site at: 9 I declare under penalty of perjury that the foregoing is true and correct. 10 Executed this 9th day of August, 2010 at San Francisco, California /s/ Aaron M. Sheanin CERTIFICATE OF SERVICE

IN THE UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS FAYETTEVILLE DIVISION CASE NO. 12-CV-5162 ORDER

Case 5:12-cv-05162-SOH Document 146 Filed 09/26/14 Page 1 of 7 PageID #: 2456 IN THE UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS FAYETTEVILLE DIVISION CITY OF PONTIAC GENERAL EMPLOYEES RETIREMENT