UNITED STATES SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 16494 / March 31, 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.) (SHS) (March 16, 2000)

COURT FREEZES $4.75 MILLION IN ASSETS LINKED TO SUSPICIOUS PURCHASES OF 67,300 SHARES OF COMMON STOCK OF FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.

SEC Obtains Preliminary Injunction Freezing FSA Stock Or Proceeds From Sales of the Stock Purchased By Four Foreign Banks Three Days Before $2.6 Billion Merger Announcement

The Securities and Exchange Commission announced that on March 30, 2000 the U.S. District Court for the Southern District of New York entered a preliminary injunction 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 alleged that, within a 2 1/2 hour period beginning in the morning of March 9, 2000, Banque Privee Edmond de Rothschild ("Banque Privee"), based in Luxembourg, and Bank Leumi, Bank Hapoalim, and Israel Discount Bank, based in Israel, placed orders to purchase 67,300 shares of FSA common stock. According to the Commission, the four foreign banks placed their trades on behalf of persons or entities currently unknown, using six U.S. broker-dealers. Moreover, according to the Commission, one of the foreign banks, Bank Hapoalim, placed a limit order before the market opened on March 9 for the purchase of FSA stock at a price significantly higher than the previous day's closing price.

The Commission's Application for Preliminary Injunction and supporting materials 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. 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, the unknown purchasers have placed orders to sell some of the 67,300 shares that the four foreign banks purchased on their behalf on March 9. 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 FSA stock and proceeds from the sales of the stock in the frozen accounts are worth more than $4.75 million, of which more than $1.2 million are trading profits.

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 Preliminary Injunction Order extends the Court's previously issued Temporary Restraining Order and 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 continued assistance of the NYSE in this matter.