X05CV084013452S : Superior Court

Pursuit Partners, LLC et al : Complex Litigation

Docket at Stamford

v.

UBS AG et al : September 8, 2009

MEMORANDUM OF DECISION

ON PLAINTIFFS’ APPLICATION FOR A PREJUDGMENT REMEDY (#124)

Introduction

This is a case involving allegations of securities fraud and related causes of action.

It has been brought by a hedge fund against a financial institution whose businesses include

the creation and marketing of securities in the form of a series of notes. These notes

constitute a complex financial investment product known generically in the securities

industry as collateralized debt obligations (Notes or CDOs). CDOs are a type of structured

credit product in the world of asset-backed securities. CDOs lump various types of debt -

from the very safe to the very risky - into one bundle. The various types of debt are known

as tranches.1 The purpose of these products is to create tiered cash flows for various groups

of investors holding the different tranches. These cash flows come from mortgages and

other debt obligations that have been pooled together. These Notes are customarily

marketed and sold to institutional investors and hedge funds, the types of entities which are

considered generally self-sufficient in the area of due diligence.

Pursuit Partners, LLC is a hedge fund based in Stamford, Connecticut. This hedge

fund is managed by Pursuit Investment Management, LLC, and includes two investment

1 “Tranche” is the French word for “slice.” A tranche is a piece, portion or slice of a deal or structured financing. Different tranches have different risks, rewards and/or maturities.

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funds known as the Pursuit Opportunity Fund I Master Ltd. and the Pursuit Capital Master

(these entities collectively referred to as Pursuit or the Plaintiffs). The defendant UBS AG

is a Swiss Bank with a securities affiliate known as UBS Securities, LLC. (collectively

referred to as UBS). The principal United States offices for UBS are located in Stamford,

Connecticut and New York, New York. At the operative times in this case, the co-

defendant Robert T. Morelli (Morelli) was employed as the head of the UBS syndicate

desk.

The remaining two defendants, Moody’s Corporation (Moody’s) and the McGraw-

Hill Companies, Inc, d/b/a Standard and Poor’s (S & P), are both credit-ratings agencies.

Ratings agencies are a vital part of the securities market, and their ratings greatly influence

the market. To help investors assess risks, ratings agencies analyze and rate companies and

the fixed-income securities they issue, using risk profiles to determine the likelihood that

issuers will default on their loans. Markets react, often dramatically, to the increased or

decreased likelihood of default when a rating changes. Moody’s and S & P were

responsible for rating the credit worthiness of the collateral underlying the CDOs sold to

Pursuit by UBS and at issue in this case. In fact, the credit ratings for these CDOs changed

in an adverse manner shortly after UBS sold the Plaintiffs some $35,573,904.53 worth of

Notes, Notes then rated some form of “Investment Grade,” in a series of transactions

between late July 2007 and October 1, 2007.2

It is the credit ratings downgrades publicly announced by Moody’s and S & P later

in the month of October 2007, a short time after the last Note was purchased from UBS by

2 For purposes of the PJR hearing, the parties have agreed that this is the amount at issue. The original claim totaled over $40 million, but at the PJR hearing, the Plaintiffs withdrew their claims in connection with two of the CDOs they had purchased from UBS. (Transcript [Tr.] 4/7/09, p. 87). Therefore, the Plaintiffs’ application for a PJR is based on its purchases of four classes of Notes in three different CDOs arranged by UBS, as follows: Vertical ABS CDO 2007-1, ACA ABS 2007-2 Ltd., and TABS 2007-7 CDO.

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Pursuit, and the adverse effect that such changes to those credit ratings had on the value of

the Notes held by Pursuit due to certain “trigger” language contained in each of the CDOs,

and UBS’s earlier role in marketing and soliciting purchases of such Notes by the

Plaintiffs, and finally (and most importantly), UBS’s degree of knowledge of such

impending ratings changes, and representations made by UBS to Pursuit in written, oral

and email communications, that are at the heart of this case.

On January 21, 2009, the Plaintiffs filed a thirty count Second Amended Complaint,

stating claims of relief against UBS, Morelli, Moody’s and S & P. The allegations center

on a fraud allegedly committed by UBS upon Pursuit in connection with Pursuit’s purchase

of CDOs from UBS. The Plaintiffs also moved for the issuance of a prejudgment remedy

(PJR) solely against the UBS defendants, which resulted in an evidentiary hearing on the

application. Following the hearing, the parties submitted their proposed findings of fact

and conclusions of law.3

The issue facing this court is simple, even if some of the nuances of the securities

purchased and sold in this case are complex. Have the Plaintiffs presented sufficient

evidence to warrant the granting of a PJR?4 At the hearing held on the application for a

PJR, the court heard witnesses from both sides, and it received into evidence numerous, if

not voluminous, documents relating to the transactions between the parties and the Notes

3 Prior to this memorandum of decision as to the PJR, the court, Blawie, J., granted the defendants’ motion to strike the counts in the Plaintiffs’ complaint sounding in negligent concealment, negligent supervision, breach of contract, breach of duty of good faith and fair dealing, civil conspiracy and breach of fiduciary duty. Therefore, the court will not address those allegations in this decision. 4 The court declines the Plaintiffs’ request to consider evidence of UBS’s uncharged misconduct as evidence of a common scheme or plan for purposes of ruling upon this application for a PJR. This is in reference to the fact that in February 2009, UBS agreed to pay $780 million to United States authorities to settle accusations that it helped wealthy Americans illegally evade taxes through secret offshore bank accounts that went undeclared to the Internal Revenue Service. UBS has admitted to conspiracy to defraud the I.R.S, and the Plaintiffs may renew their motion to introduce such evidence at a trial on the merits of their allegations, but it played no part in this court’s decision on the PJR.

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and CDOs themselves, including preliminary and final offering memoranda. The court in

its discretion also allowed the parties to conduct limited discovery on the issues presented

before scheduling such hearing. The court had the opportunity to observe and listen to all

the witnesses, and it also assessed their credibility. The court further understands the

factual issues in light of the legal framework (both substantive and procedural) it must

apply in granting or denying a PJR in this case, including a consideration of UBS’s

defenses. Finally, the court has, as it must, decided the contested issues of fact presented

by the parties. Those findings, and the necessary orders that flow therefrom, are the subject

of this memorandum of decision.

Choice of Law Provision

While the Plaintiffs have brought this complaint and application for a PJR here in

Connecticut, the Defendants argue that both New York’s PJR statute, as well as the

substantive law of the state of New York should govern these allegations. The Defendants

contend that the Indentures governing the transactions between the parties in this case

contain a choice of law provision. This clause states that New York law shall govern all

matters arising out of or relating in any manner to the Indenture or the Notes. However, an

analysis of this language is the beginning, not the end, of the court’s inquiry. “Connecticut

indubitably favors enforcement of contractual choice of law provisions. . . . A broadly

worded choice of law provision in a contract may govern not only interpretation of the

contract in which it is contained, but also tort claims arising out of or relating to the

contract.” (Citation omitted; internal quotation marks omitted.) Blakeslee Arpaia

Chapman, Inc. v. Helmsman Management Services, Inc., Superior Court, judicial district of

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New Haven, Docket No. CV 00 0443753 (January 9, 2002, Blue, J.) (31 Conn. L. Rptr.

214, 215).

The UBS defendants provided the Plaintiffs with a copy of the Offering

Memoranda5 for each transaction before the Plaintiffs purchased the subject Notes.

Although the Plaintiffs were not provided with the Indenture before their purchases, the

Offering Memoranda contained certain pertinent clauses of the Indenture, including a

governing law provision, for the Plaintiffs to review as prospective purchasers. The

“Governing Law” provision states: “The Notes . . . will be governed by, and construed in

accordance with, the Law of the State of New York.”6 The court heard testimony from

Frank Canelas (Canelas), a partner at Pursuit Management, LLC. Canelas testified that at

least two Pursuit employees read the Offering Memoranda before they purchased the

subject Notes from UBS. Specifically, Canelas testified that either himself or his partner

Anthony Schepis, as well as a Pursuit analyst read the Offering Memoranda. (Tr., 4/6/07,

p. 208). Thus, the Plaintiffs were aware of and were on notice that any purchase of Notes

outlined in their respective Offering Memoranda would be governed by New York law and,

knowing this, the Plaintiffs still purchased the Notes. The Plaintiffs claim that they cannot

be bound by the terms of an agreement that they did not sign. It is clear, however, that

“[p]arties [can be] bound to the terms of a contract even though it is not signed if their

assent is otherwise indicated, such as acceptance of benefits under the contract.” (Internal

5 The Offering Memorandum provides prospective investors with a detailed description of the most

significant terms of the CDO, including the distribution of interest and principal payments to the various counterparties and Noteholders in the CDO, and what constitutes an “event of default” for the CDO. The Offering Memorandum also identifies or describes the collateral manager, the types of collateral, the counterparties, and numerous risk factors for the CDO. (Tr. 4/7/09, pp. 120-21). 6 The “Governing Law” provision of the Indentures states: “This Indenture and each Secured Note will be construed in accordance with, and this Indenture and each Secured Note and all matters arising out of or relating in any manner to this Indenture or the Secured Notes (whether in contract, tort or otherwise) will be governed by the law of the State of New York.” (Exhibits [Exhs.] Q, S, T).

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quotation marks omitted.) Schwarzschild v. Martin, 191 Conn. 316, 321-22, 464 A.2d 774

(1983). In the present case, the court finds that the Plaintiffs were aware that the subject

Notes would be governed by New York law and, nevertheless, purchased the Notes.

Next, the Plaintiffs argue that the choice of law provision should not be enforced in

this case as it is a product of bad faith. Section 187 of the Restatement (Second) provides

in relevant part: “A choice-of-law provision, like any other contractual provision, will not

be given effect if the consent of one of the parties to its inclusion in the contract was

obtained by improper means, such as by misrepresentation, duress, or undue influence, or

by mistake.” In Elgar v. Elgar, 238 Conn. 839, 848, 679 A.2d 937 (1996), the court stated

that “[t]he fact that a contract was entered into by reason of misrepresentation, undue

influence or mistake does not necessarily mean that a choice-of-law provision contained

therein will be denied effect. This will only be done if the misrepresentation, undue

influence or mistake was responsible for the complainant’s adherence to the provision.”

In the present case, the Plaintiffs have not provided the court with sufficient evidence to

conclude that the choice of law provision at issue was obtained by reason of

misrepresentation, undue influence, or mistake. As such, the court will not invalidate the

provision on these grounds.

Absent a showing of bad faith in obtaining the assent of a party to its terms, there

are only two grounds for the court to void a contractual choice of law provision. One is as

a matter of public policy, while the second is pursuant to a statute. In this case, the

significance of the choice of law provision is primarily that if New York law governs, the

Plaintiffs’ statutory claims against UBS under the Connecticut Uniform Securities Act,

General Statutes § 36b-29 (CUSA), would be barred. CUSA reflects important public

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policy considerations, and is designed for the protection of Connecticut investors.

Connecticut National Bank v. Giacomi, 242 Conn. 17, 66, 699 A.2d 101 (1997).

Moreover, there is a specific statutory provision within CUSA that reflects the will of our

legislature and the court finds it is applicable to this case. Its importance is underlined by

the broad range of remedies spelled out in a section entitled “Buyer’s Remedies,” found at

General Statutes § 36b-29i.

As indicated, the title of the statute is “Buyers Remedies.” Its legislative purpose

could not be more self-evident than that. This law is designed to protect Connecticut

investors buying securities, from sophisticated hedge funds (such as the instant plaintiff) to

ordinary citizens who are solicited to purchase securities. To allow securities to be

marketed, offered and sold in any or all of the 49 states outside of New York, and hold that

no other jurisdiction’s laws can be enforced or invoked, or that Connecticut law must be

ignored, even if a plaintiff can establish, as it has here, probable cause to support a cause of

action under Connecticut law, the state where the solicitation was made, simply because of

this choice of law provision, is not a proposition this court will or may accept, both as a

matter of statute and public policy.

Statutes such as CUSA reflect the fact that securities are different than other forms

of commercial transactions. That statute in the Buyer’s Remedies provides in part, “Any

condition, stipulation or provision binding any person acquiring any security . . . to waive

compliance with any provision of sections 36b-2 to 36b-33, inclusive, or any regulation or

order thereunder is void.” General Statutes § 36b-29i. Therefore, the court concludes that

even if the choice of law provision should be interpreted as providing that New York law

applies to the remainder of Pursuits’ claims, it would violate our state’s fundamental policy

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to give an effect to a provision that would prevent suit under CUSA. This conclusion is

reinforced by a belief that New York law is not adequate to provide the Plaintiffs with a

remedy similar to CUSA in the event that a securities fraud may be proven at trial.

In Custard Insurance Adjusters v. Nardi, Superior Court, judicial district of

Ansonia-Milford, Docket No. CV 98 0061967 (April 20, 2000, Corradino, J.), the court

concluded that although a contract specified Massachusetts law as governing, it allowed the

plaintiff to assert causes of action under the Connecticut Unfair Trade Practices Act, § 42-

110a et seq (CUTPA) and the Connecticut Uniform Trade Secrets Act, § 35-50 et seq

(CUTSA). The court stated, “[I]t would violate the state’s fundamental policy to give

effect to that provision that would prevent suit under CUTPA and CUTSA.”

That does not mean, however, that under this interpretation the choice of New York

law provision is to be entirely disregarded. Because the Plaintiffs through their conduct

assented to the choice of law provision, this court will apply New York law to the

remainder of the Plaintiffs’ substantive claims. As the plaintiffs have not provided the

court with any analysis of their claims under New York law, for purposes of this PJR

application, this leaves for the court’s consideration those counts in the complaint with a

readily identifiable New York counterpart. The court will discuss both CUSA and those

issues of substantive law in a moment, but it notes that as to legal procedure here in the

forum state, the court will follow no other procedure but that of Connecticut, including the

PJR procedure.

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The Prejudgment Remedy Statute

Turning now from legal substance to legal procedure, the court will address why it

will apply the prejudgment remedy statute of Connecticut, the forum state, and not that of

New York. The reason is simple. Although a choice of law provision may govern certain

claims arising from a contract, the Connecticut Appellate Court has stated that “in a choice

of law situation the forum state will apply its own procedure.” Paine Webber Jackson &

Curtis, Inc. v. Winters, 22 Conn. App. 640, 650, 579 A.2d 545, cert. denied, 216 Conn.

820, 581 A.2d 1057 (1990). Therefore, the question before this court is whether General

Statutes § 52-278a et seq., Connecticut’s PJR statute, should be considered as procedural or

substantive. Section 52-278d (a), provides in relevant part: “If the court, upon

consideration of the facts before it and taking into account any defenses, counterclaims or

set-offs, claims of exemption and claims of adequate insurance, finds that the plaintiff has

shown probable cause that such a judgment will be rendered in the matter in the plaintiff’s

favor in the amount of the prejudgment remedy sought and finds that a prejudgment

remedy securing the judgment should be granted, the prejudgment remedy applied for shall

be granted as requested or as modified by the court . . . .”

On this issue of whether or not the Connecticut PJR statute is procedural or

substantive, there is a dearth of precedent. One Superior Court opinion cited by the UBS

Defendants states that, “The intention of the parties to a contract governs the determination

of the parties’ rights and obligations under the contract. . . . Analysis of the contract focuses

on the intention of the parties as derived from the language employed. . . . [P]arties to a

contract generally are allowed to select the law that will govern their contract. . . . The

judicial rule of thumb, that in a choice of law situation the forum state will apply its own

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procedure . . . brings [the court] to the vexing question of which rules are ‘procedural’ and

which ‘substantive.’ . . . If a statute gives a right of action that did not exist at common law

. . . the entire statute is considered substantive rather than procedural.” (Citations omitted;

internal quotation marks omitted.) Macrolease International v. Nemeth, Superior Court,

judicial district of Fairfield, Docket No. CV 99 036774471 (June 9, 2000, Skolnick, J.).

The court acknowledges that Macrolease International is a Superior Court decision

that interpreted Connecticut’s prejudgment remedy statute in a substantive, rather than

procedural manner. However, while the PJR mechanism is unquestionably a statutorily

based remedy, this court declines to adopt the rather inflexible view that an entire statute

such as the PJR remedy should be considered as substantive law for all purposes, or for the

facts of this case, merely because the PJR remedy did not exist at common law. To the

contrary, it finds the reasoning in another Superior Court decision to be more persuasive.

That is the case of Butova v. Bielonko, Superior Court, judicial district of Hartford, Docket

No. CV 07 5010057 (November 9, 2007, Bentivenga, J.).

In Butova v. Bielonko, the court stated: “Connecticut’s prejudgment remedy statutes

were adopted in response to a line of United States Supreme Court cases prescribing the

standards of procedural due process in the area of property rights, foremost among them

the opportunity to be heard at a meaningful time and in a meaningful manner. . . . The

prejudgment remedy application is a process afforded by a state statute enabling an

individual to enlist the aid of the State to deprive another of his or her property by means of

[a] prejudgment attachment or similar procedure.” (Emphasis added; citation omitted;

internal quotation marks omitted.) Because Connecticut’s PJR statute is primarily

procedural in nature, and notwithstanding the choice of law provision in the Offering

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Memoranda, this court will apply the procedural law of the forum state, Connecticut,

including its PJR statute, to these allegations.

“The purpose of the prejudgment remedy of attachment is security for the

satisfaction of the plaintiff’s judgment, should he obtain one. . . . It is primarily designed to

forestall any dissipation of assets by the defendant and to bring [those assets] into the

custody of the law to be held as security for the satisfaction of such judgment as the

plaintiff may recover. . . . The adjudication made by the court on [an] application for a

prejudgment remedy is not part of the proceedings ultimately to decide the validity and

merits of the plaintiff’s cause of action. It is independent of and collateral thereto.”

(Internal quotation marks omitted.) Marlin Broadcasting, LLC v. Law Office of Kent

Avery, LLC, 101 Conn. App. 638, 646-47, 922 A.2d 1131 (2007).

“[P]rejudgment remedy proceedings are not involved with the adjudication of the

merits of the action brought by the plaintiff or with the progress or result of that

adjudication. They are only concerned with whether and to what extent the plaintiff is

entitled to have property of the defendant held in the custody of the law pending

adjudication of the merits of that action. . . . This limited evidentiary proceeding contrasts

sharply with, for example, the detailed and substantive arguments and conclusions that

must be addressed in a motion to strike.” (Citation omitted; internal quotation marks

omitted). Marlin Broadcasting, LLC v. Law Office of Kent Avery, LLC, supra, 101 Conn.

App. 646.

“‘Prejudgment remedy’ means any remedy or combination of remedies that enables

a person by way of attachment, foreign attachment, garnishment or replevin to deprive the

defendant in a civil action of, or affect the use, possession or enjoyment by such defendant

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of, his property prior to final judgment but shall not include a temporary restraining order.”

General Statutes § 52-278a (d). Prejudgment remedies are statutory devices designed to

bring the defendant’s assets into custody as security for the satisfaction of the judgment the

plaintiff may recover. They are limited by definition to attachments, foreign attachments,

garnishments, replevin, or a combination thereof. . . . Pursuant to § 52-278d (a), the

prejudgment remedy hearing is limited to a determination of: “(1) whether or not there is

probable cause that a judgment in the amount of the prejudgment remedy sought, or in an

amount greater than the amount of the prejudgment remedy sought, taking into account any

defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff.”

“The role of the court in considering an award of a prejudgment remedy is well

established. Pursuant to our prejudgment remedy statutes . . . the trial court’s function is to

determine whether there is probable cause to believe that a judgment will be rendered in

favor of the plaintiff in a trial on the merits.” (Citations omitted; internal quotation marks

omitted.) Butova v. Bielonko, supra, Superior Court, Docket No. CV 07 5010057.

“[A] hearing in probable cause is not intended to be a full scale, trial on the merits of the

[moving party’s] claim. The [moving party] does not have to establish that he will prevail,

only that there is probable cause to sustain the validity of the claim. . . . The court’s role in

such a hearing is to determine probable success by weighing probabilities. . . . The legal

idea of probable cause is a bona fide belief in the existence of the facts essential under the

law for the action and such as would warrant a man of ordinary caution, prudence and

judgment, under the circumstances, in entertaining it. . . . Probable cause is a flexible

common sense standard. It does not demand that a belief be correct or more likely true

than false.” Spilke v. Spilke, 116 Conn. App. 590, 593 n.6, __ A.2d. __ (2009). “Proof of

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probable cause as a condition of obtaining a prejudgment remedy is not as demanding as

proof by a fair preponderance of the evidence.” (Internal quotation marks omitted.)

Kosiorek v. Smigelski, 112 Conn. App. 315, 319, 962 A.2d 880, cert. denied, 291 Conn.

903, 967 A.2d 113 (2009); see 36 DeForest Avenue, LLC v. Creadore, 99 Conn.App. 690,

698, 915 A.2d 916, cert. denied, 282 Conn. 905, 920 A.2d 311 (2007) (stating that the

burden of proof at a probable cause hearing is a low one). “At a probable cause hearing on

a prejudgment remedy, a trial court may properly consider all evidence presented,

including testimony of witnesses, documentary evidence, and affidavits.” Fleet Bank of

Connecticut v. Dowling, 28 Conn. App. 221, 225, 610 A.2d 707, cert. granted on other

grounds, 223 Conn. 921, 614 A.2d 821 (1992).

Facts

With this standard in mind, and for the purposes of this application, the court

finds the following facts based on the evidence and testimony it finds credible. In the

spring 2007, UBS marketed certain CDO7 Notes to Pursuit. (Transcript [Tr.] 4/6/09, pp.

110-11). Pursuit, although not a regular investor in “synthetic” CDOs8, was familiar with

the CDO market from prior investments. (Tr., 4/7/09, pp. 91-92). In early 2007, UBS

solicited Pursuit with CDO Notes for sale. (Tr., 4/7/09, pp. 110-11). The Plaintiffs

inquired with UBS about purchasing CDO Notes at a discount that were both “investment

7 The complaint defines “CDO” or collateralized debt obligation as a vehicle which allows investors to invest in the future performance of either actual or referenced mortgages that act as the underlying collateral. A CDO allows an investor to purchase a position whose return profile is based upon the performance of a security with a defined risk and reward, without actually purchasing the mortgages themselves. 8 Unlike CDOs that may be backed by actual mortgages or underlying collateral, synthetic CDOs are usually backed by credit derivatives such as credit default swaps. At its most basic, a credit default swap is similar to an insurance contract. The swap provides the buyer with protection and coverage against specific risks in exchange for a periodic fee paid to the counterparty who “buys” that risk. The protection “buyer” is paid a set amount if there is a triggering event that is a specified risk, such as a default or a credit rating downgrade.

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grade” and “triggerless.”9 It is the ratings “triggers” embedded in the transaction

documents and credit default swaps that made millions of dollars in future payments to

Pursuit and UBS dependent upon how Moody’s and S & P labeled certain credit risks.

With such heavy reliance upon these ratings, the court finds that it created a bit of a

ratings trap, due to the catastrophic consequences of a downgrade.

While there are varying degrees of investment grade, a Note rated as investment

grade by Moody’s and/or S & P is reserved for the highest end of the credit spectrum. As

such, it is deemed to have the most predictable cash flow and is usually deemed to carry the

lowest risk of default. Pursuit informed UBS that although it was willing to make an

investment in the mortgage market, it was unwilling to take the extra-market risk of an

investment that was subject to unilateral termination by a senior investor (such as UBS).

Pursuit further informed UBS that it would only purchase Notes that: (1) were investment

grade; (2) “triggerless”; (3) not subject to an over collateralization test (O.C. test); (4) bore

a substantial discount from par; and (5) would perform based upon market, rather than

extra-market conditions. (Tr., 4/7/09, p. 91). All of these conditions were designed to

ensure the safety and security of any investment by Pursuit. In the spring of 2007, UBS

informed Pursuit that based upon the pre-drafted Offering Memoranda for the CDOs, it

would not meet Pursuit’s conditions for sale of the Notes. (Tr., 4/7/09, pp. 110-11).

Soon after, as a result of certain meetings with Moody’s, the court finds probable

cause to sustain the claim that UBS became privy to material non-public information

regarding a pending change in Moody’s ratings methodology. (Exhibits [Exhs.] 11, 17). 9 In paragraph sixty-eight of the Second Amended Complaint, the Plaintiffs state that “[i]t is generally accepted in the CDO investment community that the term ‘triggerless’ means that the O.C. test [Over Collateralization test] or Senior Credit test - which otherwise would allow the super-senior Noteholder to trigger or initiate a liquidation of the less senior positions in order to protect the super-senior Noteholder’s investment – is inapplicable.” Canales testified that triggers put the purchaser of a Note at a disadvantage, and can shut off the cash flow. (Tr. 4/6/09, p. 95).

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This change in ratings methodology, when implemented, would cause the Notes that UBS

had previously offered and sold as investment grade to no longer receive the same

investment grade ratings. (Exhs. 11, 17, 22, 25). Due to the way the CDOs at issue were

structured, such a change would effectively render the Notes, and Pursuit’s investment in

them, worthless. Thus, in the summer of 2007, UBS was aware that the Notes they were

currently marketing for sale in their CDOs were Notes for which the ratings agencies

would soon no longer be giving investment grade ratings. At that time, UBS was holding a

significant amount of unsold Notes in inventory that would lose a significant amount of

value when such a ratings downgrade occurred, (Tr., 4/7/09, pp. 140-41), and therefore had

an incentive to lower UBS’s inventory of these Notes and their corresponding exposure.

In late summer 2007, UBS again contacted Pursuit and offered to sell the same

Notes that Pursuit had rejected several months earlier. UBS, without disclosing the

information regarding the ratings of the Notes, represented to Pursuit that UBS would now

meet Pursuit’s aforementioned terms in a “no trigger deal.” (Exh. 32). This is significant,

because the terms and conditions of the Notes purchased by the Plaintiffs were by that

point fixed and immutable, just as they had been the first time such Notes were pitched by

UBS. That included such details as trigger vs. triggerless and/or the types of triggers each

CDO contained, all of which were contained in the respective offering memorandum. The

only feature not spelled out was the actual purchase price to be paid for the Notes, which

was subject to negotiation. The offering memoranda for each CDO was received into

evidence. As to the TABS 2007-7 CDO, the offering memorandum was dated March 17,

2007. (Exh. T). The offering memorandum for Vertical ABS CDO 2007-1 was dated

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April 6, 2007 (as supplemented April 9, 2007). (Exh. FF). The offering memorandum for

ACA ABS 2007-2 was dated June 27, 2007. (Exh. AA).

With the exception of the ACA ABS 2007-2 CDO, which was not finalized until

June 2007, the court finds that what had changed between UBS’s first unsuccessful pitch

and its second, successful pitch to the Plaintiffs was not the presence or absence of triggers,

or the structures of the CDOs themselves, but UBS’s awareness that these high grade

securities on its hands would soon turn into financial toxic waste. Shortly after selling

Pursuit the subject Notes, UBS diverted the cash waterfall payments after a ratings agency

downgrade . UBS triggered a termination and liquidation of the Notes, wiping out Pursuit’s

entire investment. Between July 26, 2007, and October 1, 2007, Pursuit purchased the

Notes that are the subject of this litigation.

UBS sent the Offering Memoranda for the Vertical ABS CDO 2007-1,10 ACA ABS

2007-2 Ltd.11 and TABS 2007-7 CDOs12 to Pursuit in summer and fall 2007 by cover

emails. These emails contain certain “transaction highlights” for each CDO. (Exhs. 32, 45,

83). Pursuit confirmed that at least two of its employees read the Offering Memoranda,

and that Pursuit would not have relied on a one- or two-page transaction highlights email to

invest tens of millions of dollars, but instead would have relied on the transaction

documents for each CDO. (Tr. 4/6/09, p. 208; 4/7/09, pp. 5, 39). To do otherwise would

10 The closing date on the Vertical CDO was April 10, 2007 and Pursuit purchased Notes in Vertical’s B2 class on July 26, 2007, and in Vertical’s B1 Notes on August 7, 2007. 11 The closing date on the ACA CDO was June 28, 2007 and Pursuit purchased Notes in ACA’s B1class on September 6, 2007. 12 The closing date on the TABS CDO was March 20, 2007 and Pursuit purchased Notes in TABS’ B3 class on October 1, 2007. As to the TABS CDO, the court finds that the “no trigger” language was specifically couched by UBS in favorable terms for prospective investors in the Notes, as it meant that coupon interest would be “unaffected by rating agency downgrades actions in the underlying collateral pool.” (Exh. 55).

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have been unreasonable and contrary to the standard of care in the CDO industry. (Tr.

4/8/09, p. 87).

It is true that there had already been a public disclosure on May 15, 2007 by

Moody’s that it was “re-examining its correlation assumptions for ABS [asset backed

securities] CDO tranches” due to “increasing overlaps in the securities underlying ABS

CDOs” traceable to a “growing proportion of synthetic transactions.” The disclosure noted

that, “Moody’s expects to complete its correlation analysis over the next couple of

months.” (Exh. O). It is also true that the Plaintiffs purchased these Notes at a deep

discount. However, in July 2007, the court finds probable cause to sustain the claim that

UBS, as a large player in the CDO market (Tr. 4/8/09, p. 34), one that “worked very

closely with the CDO analysts at the ratings agencies,” (Tr. 4/7/09, pp. 211-212), failed to

advise Pursuit that it in fact knew material nonpublic information about the ratings agencies

and their methods,13 and that the ratings agencies were going to downgrade the Notes UBS

was selling. This change was material, as it essentially was a shift from a performance-

based rating methodology to a market-based ratings methodology. Given the deteriorating

conditions in this sector of the market at that time, such ratings changes as to these Notes

were universally negative. On July 11, 2007, the day that Moody’s publicly announced it

was putting 184 CDO tranches on review for possible downgrade, Morelli sent an email

stating simply “put today in your calendar.” (Exh. 24). In explaining the context of that

email, the significance of that day was described to the court by Morelli as, “Today was

13 For example, a July 31, 2007 email from Vab Kumar, Director, Global CDO Group for UBS Securities LLC was received into evidence (Exh. 38) The email was sent to both UBS employees working the CDO desk as well as certain Moody’s CDO ratings analysts, with a copy to Morelli. The email concerns the Vertical 2007-2 CDO, which was purchased by the Plaintiffs. It starts out by stating that “There have been

a number of things that have been asked by Moodys on the above mentioned deal that are not market and not your criteria in deals we have closes in the past week.”(Emphasis added.) As the Senior Structurer at UBS, Kumar had extensive interactions with the ratings agencies.

18

essentially the beginning of the end of the CDO business, meaning the bonds were getting

downgraded, they were probably going to get downgraded further and we [UBS] were

going to lose a lot of money.” (Tr. 4/7/09, p. 213).

UBS failed to disclose and actively concealed the fact that based upon this change,

the Notes being marketed by UBS would not maintain their investment grade rating, and

would lose a significant amount of value, if not the liquidation of the entire investment.

After the July 2007 action by Moody’s, it was followed by the “massive mortgage bond

downgrades” which were publicly announced October 11-19, 2007. (Exh. 78). By the

time Moody’s publicly announced these ratings downgrade, the court concludes that

probable cause exists to sustain a belief that UBS had known that Moody’s was not just

“re-examining assumptions,” but was changing its methodology, and that the collateral

underlying the Notes would therefore no longer be rated investment grade. Had Pursuit

been aware of this, it would not have invested in the subject Notes.

In sum, the court finds probable cause to sustain the claim that UBS sold the Notes

to Pursuit without disclosing the following material non-public information: (1) that the

Notes would soon no longer carry an investment grade rating, as the ratings agencies

intended to withdraw these ratings as a result of a change in methodology; and (2) that once

the investment grade rating was withdrawn, the CDO Notes sold by UBS to Pursuit, being

valued in the tens of millions of dollars, would thereby become worthless.

Fraud in the Inducement

Under New York law, “The required elements of a cause of action for fraud are

representation, falsity, scienter, deception, and injury. . . . In order to establish deception,

any reliance upon the false representation must be “justifiable under all the circumstances”

19

(Citations omitted; internal quotation marks omitted.) F & M Precise Metals, Inc. v.

Goodman, 798 N.Y.S.2d 344, 157 N.E.2d 597 (1959); see Ippolito v. Lennon, 150 A.D.2d

300, 303, 542 N.Y.S.2d 3 (stating that “[a]n action for fraud requires that the plaintiff

demonstrate the making of a material misrepresentation, known to be false, made with the

intention of inducing reliance on the part of the victim, on which the victim does in fact

rely and, as a result of).

The court finds that the Plaintiffs were sophisticated hedge fund investors in an

esoteric and at the time largely unregulated area of the securities markets. “A party cannot

claim justifiable reliance on a misrepresentation when that party could have discovered the

truth with due diligence. . . . A sophisticated investor may not allege justifiable reliance

upon alleged incomplete disclosure and partial withholding of information where it could

independently assess the risks and benefits of the transactions at issue . . . or where it could

have discovered the true nature of the investments by ordinary intelligence or with

reasonable investigation. . . . Indeed, New York law imposes an affirmative duty on

sophisticated investors to protect themselves from misrepresentations made during business

acquisitions by investigating the details of the transactions and the business they are

acquiring.” (Citations omitted; internal quotation marks omitted.) Big Apple Consulting

USA, Inc. v. Belmont Partners, LLC, 20 Misc.3d 1144(A), 873 N.Y.S.2d 232 (Nassau

County 2008).

Justifiable reliance does not exist “[w]here a party has the means to discover the

true nature of the transaction by the exercise of ordinary intelligence, and fails to make use

of those means.” Lusins v. Cohen, 49 A.D.3d 706, 707, 853 N.Y.S.2d 685 (2004); see

Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 196 (2d Cir.

20

2003); In re Dean Witter Managed Futures Ltd. Partnership Litigation, 282 A.D.2d 271,

724 N.Y.S.2d 149, 150 (App. Div. 2001); Independent Order of Foresters v. Donaldson,

Lufkin & Jenrette, Inc., 919 F. Sup. 149, 154-55 (S.D.N.Y. 1996); GE Capital Corp. v.

U.S. Trust Co., 655 N.Y.S.2d 505, 505 (App. Div. 1997). It is clear that sophisticated

investors cannot reasonably rely on oral representations or statements in a sales brochure

when they have access to documents outlining the specific terms of the agreement. See

Independent Order of Foresters v. Donaldson, Lufkin & Jenrette, Inc., supra, 919 F. Sup.

154-55.

“In evaluating whether a plaintiff has adequately alleged justifiable reliance, a court

may consider, for example, the sophistication and expertise of the plaintiff in financial

matters, the existence of a fiduciary relationship, access to the relevant information,

concealment of the fraud, and the opportunity to detect the fraud. . . . New York law

imposes an affirmative duty on sophisticated investors to protect themselves from

misrepresentations made during business acquisitions by investigating the details of the

transactions and the businesses they are acquiring. . . . On the other hand, [w]hen matters

are held to be peculiarly within defendant’s knowledge, it is said plaintiff may rely without

prosecuting an investigation, as he has no independent means for ascertaining the truth.”

(Citations omitted; internal quotation marks omitted.) Bank of America Corp. v.

Lemgruber, 385 F. Sup.2d 200 (S.D.N.Y. 2005).

Additionally, in In re Dean Witter Managed Futures Ltd. Partnership Litigation,

supra, 282 A.D.2d 271, the Plaintiffs were individual investors who purchased interests in

limited partnerships engaged in the trading of futures and options contracts, and alleged

that the defendant brokers misrepresented the suitability of such investments for Plaintiffs.

21

The court held that, although the Plaintiffs alleged that the defendant brokers

misrepresented material facts regarding the investments, the Plaintiffs’ causes of action for

fraud and negligent misrepresentation were barred, as the written offering materials

provided to the Plaintiffs stated that the investments were “speculative” and involved a

“high degree of risk.” The court held that such disclosures in the written offering materials

rendered any reliance on alleged contradictory oral representations unjustifiable as a matter

of law.

In the present case, the court finds that although Pursuit was not a regular investor

in “synthetic” CDOs, it was familiar with the CDO market. (Tr., 4/7/09, pp. 91-92).

Further, during the period between 2005 and 2007, almost 30% of Pursuit’s trades involved

CDOs and, during the spring of 2007, at least 15% of Pursuit’s portfolio was invested in

CDOs, including distressed CDOs. (Tr., 4/6/09, pp. 202-03). Therefore, as sophisticated

investors, Pursuit had an affirmative duty to protect themselves from misrepresentations

made during business acquisitions by investigating the details of the transactions and the

businesses they are acquiring. Bank of America Corp. v. Lemgruber, supra, 385 F. Sup.2d

200.

It is clear that Pursuit received the Offering Memoranda for the subject Notes, as

well as other transaction documents which outlined the structure of each deal and the

notable clauses of the Indenture.14 Pursuit admitted that it read and reviewed the Offering

Memoranda before purchasing the subject Notes. (Tr., 4/6/09, p. 208). Therefore, Pursuit

was in possession of the material terms of the agreement. The Offering Memoranda for

14 In the CDO industry, reading the Offering Memorandum and relying on its terms is common practice

when making an investment decision to purchase Notes. (Tr., 4/6/09, pp. 208-09; Tr., 4/7/09, p. 121; Tr., 4/8/09, p. 87).

22

each Note was received into evidence. It sets forth the material terms of the agreement and

explicitly disclaims any representations made that are not contained in the Offering

Memoranda. They state: “No person is hereby authorized in connection with any offering

made hereby to give any information or make any representation other than as contained

herein and, if given or made, such information or representation must not be relied upon as

having been authorized . . . .”

Thus, similar to the Plaintiffs in In re Dean Witter Managed Futures Ltd.

Partnership Litigation, supra, 282 A.D.2d 271, Pursuit claims that brokers misrepresented

material facts regarding their investments. Pursuit, like the Plaintiffs in In re Dean Witter

Managed Futures Ltd. Partnership Litigation were provided with written offering materials

that stated the specific terms of the subject Notes and disclaimed any oral representations

made regarding the subject Notes. The term “trigger” or “triggerless,” standing alone, is

too loosely construed and susceptible of too many divergent interpretations to form a solid

basis for legal relief. As such, this court cannot find that Plaintiffs justifiably relied on the

claimed misrepresentations as required by New York law.

As the Plaintiffs have not submitted sufficient evidence for this court to determine

that there is probable that the Plaintiffs justifiably relied on any of the representations not

contained in the Offering Memoranda, it cannot be said that the Plaintiffs established that

that there is probable cause to sustain the validity of their claims for fraud in the

inducement, negligent misrepresentation15 and innocent misrepresentation,16 as all three

claims require the Plaintiffs’ justifiable reliance under New York law.

15 “To recover on a theory of negligent misrepresentation, a plaintiff must establish that the defendant had

a duty to use reasonable care to impart correct information because of some special relationship between the parties, that the information was incorrect or false, and that the plaintiff reasonably relied upon the information provided. . . . [T]here may be liability where there is a relationship between the parties such

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Fraudulent Concealment

In the Plaintiffs’ “fraudulent concealment” count, they allege that the defendants

fraudulently withheld information that induced the Plaintiffs into purchasing the subject

notes. “[W]hen dealing with a claim of fraud based on material omissions, it is settled that

a duty to disclose arises only when one party has information that the other party is entitled

to know because of a fiduciary or other similar relation of trust and confidence between

them. . . . When parties deal at arms length in a commercial transaction, no relation of

confidence or trust sufficient to find the existence of a fiduciary relationship will arise

absent extraordinary circumstances. . . . However, there may be a relationship of trust and

confidence sufficient to give rise to a duty to disclose under the ‘special facts doctrine.’

Under that doctrine, a duty to disclose arises where one party's superior knowledge of

essential facts renders a transaction without disclosure inherently unfair. . . . The plaintiff

must prove that (1) one party has superior knowledge of certain information; (2) that

information is not readily available to the other party; and (3) the first party knows that the

second party is acting on the basis of mistaken knowledge.” (Citations omitted; internal

quotation marks omitted.) Travelers Indemnity Co. of Illinois v. CDL Hotels USA, Inc.,

322 F Sup 2d 482, 499 (S.D.N.Y. 2004). that there is an awareness that the information provided is to be relied upon for a particular purpose by a known party in furtherance of that purpose, and some conduct by the declarant linking it to the relying party and evincing the declarant’s understanding of their reliance” (Citation omitted; internal quotation marks omitted.) Grammer v. Turits, 271 A.D.2d 644, 645, 706 N.Y.S.2d 453, 455 (App. Div. 2000); see Berger-Vespa v. Rondack Building Inspectors, 293 A.D.2d 838, 841, 740 N.Y.S.2d 504 (3d Dept. 2002) (stating that a plaintiff must establish that the defendant “had a duty, based upon some special relationship with them, to impart correct information, that the information given was false or incorrect and that the Plaintiffs reasonably relied upon the information provided”). 16 An innocent misrepresentation is a “misrepresentation by the defendants of a material fact made to

induce the plaintiff to enter into the [transaction] . . . and upon which the plaintiff justifiably relied.” West

Side Federal Savings & Loan Assn. of N.Y. City v. Hirschfeld, 476 N.Y.S.2d 292, 295 (App. Div. 1984).

24

It is clear that that from the parties’ extensive contact, UBS knew that Pursuit was

only interested in investing in Notes that carried an “investment grade.” (Tr., 4/6/09,

p.91). The Plaintiffs presented evidence suggesting that UBS, from their dealings with

the ratings agencies, had reason to believe that certain collateral would be downgraded in

the near future and their “investment grade” rating would be withdrawn. The Plaintiffs’

submitted multiple emails from UBS employees. These emails constitute both direct and

circumstantial evidence of UBS’s knowledge of a change in Moody’s ratings

methodology, and the likelihood, if not certainty, that this change in methodology would

cause Moody’s to downgrade the subject CDO Notes. (Exhs. 11, 17). As early as May

17, 2007, UBS had reason to believe that Moody’s was changing its methodology and

that would result in the downgrading of certain asset-backed securities. (Exhs. 11, 17).

UBS’s emails show that its employees met with Moody’s representatives to discuss the

impact of the downgrades and when they should start downgrading.17 (Exh. 17).

Thereafter on July 11, 2007, UBS employees had knowledge that Moody’s was going to

downgrade CDOs by the end of the day.18 On July 26, 2007, UBS instructed its

employees to “reduce cdos . . . no need to publicly relay this, but if you are close on

something, [please] close it . . .[thanks] for your discretion.” (Exh. 34). In response to

that email, Morelli stated “[P]ursuit has dry gun powder but not tons of it.”19 Soon after

on August 28, 2008, Morelli sent an email referencing the subject Notes, stating that he

had “sold more crap to Pursuit.” (Exh. 49). The court finds that the problem was not

confined to only the CDOs at issue in this PJR. For instance, on September 24, 2007, as

17 “It sounds like Moodys is trying to figure out when to start downgrading, and how much damage they’re going to cause – they’re meeting with various investment banks.” (Exh. 17). 18 “FW: hearing moody’s will announce a bunch of CDO downgrades in the next hourish.” Morelli’s response was: “[I’m] going out for lunch . . . do not call the police if I never return.” (Exh. 22). 19 The term “dry gun powder” refers to funds available for purchases of securities. (Tr., 4/6/09, p. 142).

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the clock was running out on the investment grade ratings for its products, another UBS

employee sent an email to a UBS director referencing another supposed “investment

grade” rated CDO in their inventory, writing, “OK still have this vomit?” (Exh. 62).

Based on the above-mentioned evidence, the court finds that the Plaintiffs’ have

presented sufficient evidence to satisfy the probable cause standard with respect to their

claim that UBS was in possession of superior knowledge that was not readily available to

the Plaintiffs. This material nonpublic information related to rating agency downgrades that

would significantly decrease, if not render worthless, the CDO Notes it was selling Pursuit.

Further, UBS was aware the Pursuit was only seeking to invest in CDO Notes rated

“investment grade,” and UBS knew that by investing in the subject CDO Notes, Pursuit

was acting on the basis of misleading information. Moreover, because UBS was in the

position of “Super-senior Noteholder” in the structure of these CDOs, such ratings

downgrades, while working to the detriment of buyers like the Plaintiffs, could work to the

benefit of sellers like UBS in the super-senior position, because super-seniors have first

dibs on whatever payments are made on a CDO. A UBS Securities LLC credit analyst

explained it in an October 16, 2007 email sent to Morelli and others. Writing about the

billions of dollars in Moody’s downgrades, downgrades that were now public knowledge,

the UBS analyst wrote, “These bonds [subject to downgrades] appear in countless CDOs.

The downgrades were more severe than what the market seemed to anticipate !!! And !!!

The downgrades could constitute a triggering event that would be an Event of Default for

various for various CDOs. . . If this occurs, then it may prove salutary for the Super-senior

holders [like UBS] as more cash flow would be preserved for their protection.” (Exh. 91).

A November 21, 2007 email from a UBS senior structurer on its CDO desk stated it more

26

succinctly. Writing to Morelli, Kumar and the head of UBS’s CDO group, and ending with

a smiley face, the email says “we protect our super seniors the best : ).”

Connecticut Uniform Securities Act (CUSA)

General Statutes § 36b-29 provides in relevant part: “(a) Any person who . . . (2)

offers or sells or materially assists any person who offers or sells a security by means of

any untrue statement of a material fact or any omission to state a material fact necessary

in order to make the statements made, in the light of the circumstances under which they

are made, not misleading, who knew or in the exercise of reasonable care should have

known of the untruth or omission, the buyer not knowing of the untruth or omission, and

who does not sustain the burden of proof that he did not know, and in the exercise of

reasonable care could not have known, of the untruth or omission, is liable to the person

buying the security . . . .” With respect to this claim pursuant to CUSA, the court adopts

and incorporates its reasoning regarding Pursuit’s fraudulent omissions claim.

Unjust Enrichment

The elements of unjust enrichment are “that: (1) the defendant benefited; (2) the

benefit was at the expense of the plaintiff; and (3) that equity and good conscience require

restitution.” Mazzaro de Abreu v. Bank of America Corp., 525 F. Sup. 2d 381, 397

(S.D.N.Y. 2007). With respect to this claim, the court adopts and incorporates its reasoning

regarding Pursuit’s fraudulent omissions claim. Moreover, in light of the alternate grounds

articulated to sustain the application for a PJR, the court will not address the remaining

allegations of negligence.

27

Damages

“[I]n an application for a prejudgment remedy, the amount of damages need not

be determined with mathematical precision. . . . A fair and reasonable estimate of the

likely potential damages is sufficient to support the entry of a prejudgment attachment. . .

. Nevertheless, the plaintiff bears the burden of presenting evidence which affords a

reasonable basis for measuring [its] loss.” (Citations omitted; internal quotation marks

omitted.) Rafferty v. Noto Bros. Construction, LLC, 68 Conn. App. 685, 693, 795 A.2d

1274 (2002). “[A] finding of probable damages . . . is an integral part of the probable

cause determination.” Id., 694. The parties have agreed that for the purposes of this

application, Pursuit paid $40, 535,010.96 for the subject Notes. Pursuit received pre-

liquidation payments totaling $4,961,106.43, leaving $35,573,904.53 as the amount

sought under this PJR application.

Conclusion

Many financial institutions made bad bets in the mortgage related markets, with

losses totaling hundreds of billions of dollars. There can often be a huge discrepancy

between perceived risks and actual risks in investing. This discrepancy is magnified in the

facts of this case by the complexity and opacity of the terms of the CDOs, and the high

degree of leverage in their makeup. Risk means the chance that an investment's actual

return will be different than expected. This includes the possibility of losing some or all of

the original investment. The court finds that the Notes at issue were represented orally by

UBS employees and in emails to Pursuit as “triggerless.” The court also finds that even if

UBS knew that Pursuit attached a certain meaning to the term “triggerless,” that fact,

standing alone and without more, would be insufficient to sustain Pursuit’s burden for

28

purposes of the PJR, due to the full disclosures spelled out in the written documentation

supplied by UBS for each CDO. But the court finds there is more to this case than that.

Through direct and circumstantial evidence, Pursuit has established probable cause to

sustain the validity of a claim that the UBS defendants were in possession of material

nonpublic information regarding imminent ratings downgrades on the Notes it sold to the

Plaintiffs, information UBS withheld from the Plaintiffs.

The use of the term “triggerless,” which was used by UBS to entice the Plaintiffs to

purchase the same Notes they had earlier rejected, is akin to a representation by UBS that a

gun being handed to the Plaintiffs is not loaded, when in fact UBS knew the gun was not

only loaded, but was about to go off. The court takes UBS employees at their word when

they referenced their Notes, these purported “investment grade” securities which they sold,

as “crap” and “vomit”, for UBS alone possessed the knowledge of what their product, their

inventory, was truly worth. While UBS would argue that such descriptors lack a precise

meaning, the true meaning of these words and the true value of UBS’s wares became

abundantly clear when the Plaintiffs’ multi-million dollar investment was completely

wiped out and liquidated by UBS shortly after the last of the Note purchases was

consummated.

That is the difference between a risk that something might happen to change the

value of an investment, which is both a fact of life and a risk shared by all parties to any

securities transaction, and the undisclosed knowledge that something will happen. That

type of nondisclosure, whether it is on the part of a seller or a buyer, can cross the line into

actionable securities fraud, and the court finds probable cause to sustain a finding that it

this instance, it did.

29

Accordingly, the court finds probable cause that a judgment in the amount of the

prejudgment remedy sought, taking into account any known defenses, will be rendered in

favor of the Plaintiffs. It is hereby ordered that the Plaintiffs may attach and/or garnish the

property and/or assets of the defendants UBS AG and UBS Securities LLC to the value of

$35,573,904.53. The court denies the Plaintiffs’ application as to the Defendant Morelli,

believing the security of the assets of UBS AG and UBS Securities, LLC to be sufficient.

The court further declines to grant any additional fees, interest or damages, leaving such

claims for a trial on the merits. Within ten (10) days from the date of issuance of notice of

this order, it is further ordered, pursuant to General Statutes § 52-278n, that the UBS

Defendants are required to disclose assets sufficient to satisfy this prejudgment remedy, or

in lieu thereof, to move the court for substitution of a bond with surety, or of other

sufficient security.

SO ORDERED,

_________________ Blawie, J.