Certain Unknown Purchasers of Common Stock of Financial Security Assurance Holdings Ltd.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16474 / March 17, 2000

Securities and Exchange Commission v. Certain Unknown Purchasers of Common Stock of Financial Security Assurance Holdings Ltd, No. 00-Civ-2029 (S.D.N.Y.)(March 16, 2000)

Court Freezes Assets Linked to Suspicious Purchases
of More Than $2.5 Million in the Common Stock
of Financial Security Assurance Holdings Ltd.

SEC, In Emergency Federal Court Action, Obtains Order Freezing Shares of FSA Stock and Proceeds From Sales of FSA Stock Purchased Through Five Foreign Banks Three Days Before $2.6 Billion Merger Announcement

The Securities and Exchange Commission announced that on March 16, 2000 the U.S. District Court for the Southern District of New York entered a Temporary Restraining Order freezing the accounts of certain unknown purchasers of the common stock of Financial Security Assurance Holdings Ltd. ("FSA"), prohibiting the unknown persons from taking delivery of the stock or possession of the proceeds from the sale of the stock. The Commission alleges that the unknown purchasers engaged in illegal insider trading just before the announcement on March 14, 2000 that Dexia, a municipal lending corporation based in Brussels, Belgium, intended to acquire FSA in a friendly merger. FSA is a New York corporation that provides financial guaranty insurance on asset-backed and municipal obligations. The securities of FSA trade on the NYSE.

The Commission alleges that, within a 2 1/2 hour period beginning in the morning of March 9, 2000, a bank in Luxembourg operating as two banking entities, Banque Privee Edmond de Rothschild ("Banque Privee") and Banque de Gestion Edmond de Rothschild ("Banque Gestion"), as well as three Israeli banks, Bank Leumi, Bank Hapoalim, and Israel Discount Bank, purchased approximately 53,500 shares of FSA common stock. According to the Commission, the five foreign banking entities placed their trades on behalf of persons or entities presently unknown, using six U.S. broker-dealers. Moreover, according to the Commission, at least two of the foreign banks, Banque Gestion and Bank Hapoalim, placed limit orders before the market opened on March 9 for the purchase of FSA stock at prices significantly higher than the previous day's closing price.

The Commission's complaint and its application for an emergency temporary restraining order state that shortly after noon on March 9, 2000, an extraordinary increase in purchases of the thinly traded stock of FSA caused the NYSE to halt FSA's trading, citing an order imbalance. The NYSE thereafter extended the trading halt pending the release of news about FSA. Later that afternoon, FSA publicly announced that it had been in discussions with an unnamed third party concerning the possible sale of FSA. When trading in FSA resumed later on March 9, the stock re-opened at $59 1/2, a substantial increase from the $55 price at which FSA had traded before trading was halted.

Three days later, on March 14, 2000, FSA and Dexia formally announced that they had signed a definitive agreement providing for Dexia to acquire FSA for $76 in cash, a deal valued at approximately $2.6 billion. According to the Commission, sell orders have been placed with respect to some of the 53,500 shares that the five foreign banks purchased on March 9, and some of the trades are due to settle on Friday, March 17. Significantly, according to the Commission, Banque Privee placed a limit order early on March 14, before the opening of trading and before the public announcement, to sell FSA at $69 per share, a price significantly higher than the previous day's closing price of $57 11/16. The Commission's filing states that the proceeds from the pending orders to sell FSA stock total about $1 million.

In the pending lawsuit, the Commission alleges that the unknown defendants engaged in illegal insider trading in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5. The complaint seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil monetary penalties. The Court's Temporary Restraining Order prohibits the removal of the FSA common stock, or the proceeds from the sales of the FSA common stock, from the U.S. brokerage accounts in which the securities or funds currently reside.

The Commission acknowledges the assistance of the NYSE in this matter.