Case 1:09-cv-03807-RMB Document 40 Filed 08/20/10 Page 1...

Case 1:09-cv-03807-RMB Document 40 Filed 08/20/10 of 82

TIME ROSEN LAW FIRM, P.A.Laurence M. Rosen, Esq. {LR 5733}Phillip King , Esq. (PK 9384)Timothy W. Brown, Esq. ('113 1008)Julie Kamps (JK 604 1)350 Fifth Avenue, Suite 5508 ^, nNew York, New York 10118 • . vTel: (212) 686-1060Fax: {212} 202-3$27 AU0 0email: l ro senO ro se nl eiza i . co m email: [email protected]'•Cr•email: [email protected] C•SIJI& Semail: jkamps^)a,rosenlegal.com

Lead Counsel for Lead Plaintiffs

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK X

Case No.: 09-cv-3807 (RMB)In re: MRU Securities Litigation

JURY TRIAL DEMANDED X

CONSOLIDATED SECOND AMENDED CLASS ACTION COMPLAINT

Lead Plaintiffs Peter Gianoukas and Alan Borkowski {"Plaintiffs"}, individually

and on behalf of all other persons similarly situated, by their undersigned attorneys, for

their complaint against defendants, allege the following based upon personal knowledge

as to themselves and their own acts, and information and belief as to all other matters,

based upon, inter alga, the investigation conducted by and through their attorneys, which'

included, among other things, a review of the defendant's public documents, conference

calls and announcements made by defendants, United States Securities and Exchange

Commission ("SEC") filings, wire and press releases published by and regarding MRU

Holdings, Inc. ("MRU" or the "Company"), securities analysts' reports and advisories

about the Company, interviews with certain confidential' witnesses, and information

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readily obtainable on the Internet. Plaintiffs believe that substantial evidentiary support,

some of which is in the exclusive possession of the defendants, wiII exist for the

allegations set forth herein after a reasonable opportunity for discovery.

SUMMARY

I . This is a federal securities class action on behalf of a class consisting of all

persons other than defendants who acquired the securities of MRU between July 9, 2007

and September 19, 2008, inclusive (the "Class Period"), seeking to recover damages

caused by Defendants' violations of federal securities laws and pursue remedies under the

Securities Exchange Act of 1934 (the "Exchange Act").

2. This complaint alleges federal securities law claims against the senior

executive officers and directors of MRU, whose business was to continuously find

funding to purchase student loans and repay prior financiers. The complaint also alleges

federal securities law claims against Merrill Lynch & Co., Inc. ("Merrill Lynch"), MRU's

multi-purpose banker and a virtual MRU insider, and BageIl, Josephs, Levine &

Company, LLC ("BJU'), MRU's purportedly independent auditor.

3. MRU was a financing middle-man. The Company purchased student

loans issued by certain banks using other people's money. MRU derived its meager

revenue from student loan origination fees and interest payments on the student loans.

This revenue was not sufficient to service MRU's obligations. In order to service the

obligations incurred to fund the student loans it had already purchased, MRU required

additional,-and Iarger, sources of funding. As MRU's obligations grew, so did its need

for more and more funds. MRU used its new financings to repay or service prior

obligations, and to purchase additional student loans, saddling the Company with

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unmanageable debt. MRU engaged in a classic financing Ponxi scheme, borrowing from

Peter to pay Paul.

4. Throughout the Class Period, Defendants concealed material information

from investors and MRU fabricated its financial statements using mark-to-model

accounting. This type of accounting is called "mark-to-myth" or "mark-to-make believe"

fbecause it is frequently abused to fabricate materially false and misleading financial

jstatements, as it was Here. MRU's purportedly independent auditors turned a blind eye tof

this wrongdoing.

5. MRU's business model relied on its ability to remove the student loans it

purchased from its financial statements so that the Company would be in compliance

with financial metrics, such as minimum liquidity ratios, net worth, and available cash,

unposed by its funders and could continue to obtain financing. If the Company could not

maintain the required financial metrics, it would trigger defaults and cross-defaults on its

financings and collapse in a death spiral. In June 2007, MRU was heavily indebted and

under intense pressure to improve its fiscal yearend financials and avoid defaulting on its

obligations.

6. MRU had nearly $150 million in debt as its fiscal year end approached.

MRU could not pay down or service the debt from its meager revenue stream.

7. Merrill Lynch sold MRU access to cheap financing and nearly debt-free

FYE June 30, 2007 financial statements that facially showed MRU's first profit. In

exchange, MRU and Merrill Lynch manufactured nearly $200 million worth of auction

rate securities for Merrill Lynch to trade in a market in which Merrill Lynch rigged the

prices. Further, Merrill Lynch traded auction rate securities, at its sole discretion, while in

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possession of material non-public information (the absence, existence, or size and rate of

other auction bids), Merrill Lynch also stood to gain a stream of auction dealer fees from

the trust.

8. As of March 31, 2007, MRU owed Nomura Capital & Credit more than

$17.5 million. Under the terms of the Nomura credit facility, a lien on all of the student

loans MRU purchased with that facility, among other things, secured Nomura's loan to

MRU.

9. On that same day, MRU had an operating loss for the nine months ended

March 31, 2407 of more than $26,2 million dollars and total operating revenue of only

about $6.3 million.

I0. MRU owed Merrill Lynch more than $97 million as of March 3I, 2007,

The loans MRU purchased with the $97 million Merrill Lynch lent MRU were collateral

for the loans.

1 I , If MRU Gould not uphold its obligations to Merrill Lynch, MRU stood to

lose $97 million worth of student loan receivables, which provided a substantial portion

of MRU's meager revenue. For its part, Merrill Lynch would own low-profit student

loans that, as an investment bank, it had neither the desire nor the facilities to own and

manage.

12. Merrill Lynch and MRU devised a manipulative and deceitful scheme. In

late June 2007, MRU and Merrill Lynch created an off-balance sheet special purpose

trust to which MRU "sold" $137.8 million worth of student loans for the purpose of

manufacturing an asset and a stream of income, as well as removing the student loans

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from its financial statements. Merrill Lynch served as an initial purchaser of $200

million of notes backed by the student loans that the trust "purchased."

13. At the same time, MRU transferred to its Merrill Lynch credit facility the

debt it owed to Nomura and closed the Nomura credit line. MRU then used nearly all of

the proceeds from the "sale" of the student loans to the off-balance sheet trust to pay

$129.6 million to Merrill Lynch to pay down the money MRU owed Merrill Lynch.

14. More than 90% of the bonds that the off balance sheet special purpose

trust issued were auction rate securities. These auction rate securities had undisclosed,

# material terns that Defendants hid from MRU's shareholders and the investing public.

During or even prior to the Class Period, neither MRU nor Merrill Lynch disclosed

certain material terms of these notes to investors, deceiving MRU shareholders and the

investing public about, among other things, the terms and functioning of the notes,

MRU's financial condition, the demand for and Iiquidity of these notes, the functioning

of the auctions, and the risks, known to Defendants in June 2007, of the potential for the

"maximum rate" cap on interest the trust would have to pay the bondholders to increase

and the impact of the "carryover" interest feature to which MRU's right to receive

residuals was subordinate.

15. MRU shareholders and the investing public relied on the integrity,

efficiency, and honesty of Merrill Lynch's auction rate securities market. Merrill Lynch

needed issuers to create auction rate notes and intended for the issuers' shareholders to

trust and rely on the integrity of the auction rate securities market and on that market

being free from manipulation and price rigging.

All

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16. MRU's shareholders and the investing public relied on MRU's and Merrill

Lynch's conduct and statements in connection with MRU's notes and the auction market

generally. Had MRU and Menill Lynch disclosed that they were engaged in a fraudulent

and deceptive scheme to provide MRU with less debt to show on its year-end financials

and to repay the money that MRU borrowed from Merrill Lynch, MRU's artificially

inflated share price would have dropped,

17. Defendants concealed material information about and the serious risks that

the hidden terms of MRU's auction rate securities posed to its business model, the value

of MRU's assets, and the Company's financial performance. Defendants concealed that

its financial partner and ARS underwriter, MerriII Lynch and other broker-dealers were

artificially maintaining the auction rate securities markets so as to create demand where

none existed and to permit the broker-dealers to continue to cam billions in underwriting

and brokerage fees selling auction rate securities to investors who were seeking liquid,

short-term investments.

18. MRU and Merrill Lynch further engaged in manipulative and deceptive

conduct and a scheme to defraud with respect to the ratings of the MRU bonds. Merrill

Lynch could not sell the auction rate bonds as the "same as cash" unless the bonds were

AAA rated, The rating agencies would not rate the bonds AAA unless MRU complied

with the rating agencies loss coverage ratios. Merrill Lynch and MRU manipulated the

fraudulent June 2007 transaction to ensure that the bonds received the required AAA

rating.

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19. Even as the auction rate securities markets generally collapsed in February

2008, defendants falsely led MRU investors to believe that there was little or no risk to

MRU's ability to finance its business.

20. In July 2008, MRU secretly ceased originating new loans and began

massive layoff's of its staff. Defendants concealed from investors that it had ceased

originating new loans and had undertaken massive layoffs.r

21. State and federal regulators have charged Merrill Lynch and other

gfinancial institutions with conducting the auction rate securities markets in a fraudulentE

and dishonest manner, and failing to make adequate disclosures to the investing public

that it had a legal duty to make. Merrill Lynch, through its operation of the auction rate

securities markets, violated the securities laws by engaging in practices and schemes that

artificially affected market activity and by making false statements. And, as the truth

about the auction rate securities markets, and specifically the true terms of the MRU

auction rate securities issued in July 2007, was disclosed, MRU's stock price collapsed as

a result.

22. MRU was overleveraged, and as MRU wrote down an asset that never

actually existed other than on paper, it began to breach its contractual obligations to

maintain certain financial metrics, and financing it never should have had brought the

Company into bankruptcy. Specifically, in September 2007, MRU pledged its fraudulent

$11.2 million interest in residuals from the trust as collateral for financing from two

private investment funds, MRU's inability to comply with the terms of these financings,

and the triggering of defaults and crass-defaults, put MRU into a death spiral.

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23. The pledged $11,2 million was merely an accounting fiction that would

entirely disappear if the rating agencies lowered the rating on the bonds and the

undisclosed automatic increase in the maximum rate occurred. Thus, not only did MRU

(together with Merrill Lynch) falsify its financials throughout the Class Period, MRUi

then used the false and misleading financials to borrow yet more money.

24. While many purchasers of auction rate securities have been made whole

by Merrill Lynch-funded settlements, shareholders of the issuers without whom there

could not have been such an artificial securities market, are left holding worthless shares

representing large Josses,

25. For their part, MRU's auditors, BJL, closed their eyes to "red flags" and

significant risk factors that should have been apparent to them as accounting and auditing

professionals that no rational auditors could have ignored. In doing so, they issued

materially false and misleading clean audit opinions of MRU's financial statements

during the Class Period.

JURISDICTION AND 'VENUE

25. The claims asserted herein arise under and pursuant to Sections 10(b) and

20(a) of the Exchange Act, (15 U.S.C. §§ 78j (b) and 78t(a)), and Rule 10b-5 promulgated

thereunder (17 C.F.R. § 240.10b-5).

27. This Court has jurisdiction over the subject matter of this action pursuant

to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.

28. Venue is proper in this Judicial District pursuant to § 27 of the Exchange

Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b). The Company maintains offices in this

District and has also engaged in substantial financial transactions in this District, In

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addition, many of the acts and transactions alleged herein, including the preparation and

dissemination of materially false and misleading information, occurred in substantial parti

in this District,

29. In connection with the acts, conduct and other wrongs alleged in thisi

complaint, defendants, directly or indirectly, used the means and instrumentalities of

interstate commerce, including but not limited to, the United States mails, interstate

telephone communications and the facilities of the national securities exchange.

PARTIES

30. Court-Appointed Lead Plaintiffs, Peter Gianoukas and Alan Borkowski,

purchased MRU securities at artificially inflated prices during the Class Period and have

been damaged thereby, as set forth in their respective certifications filed with this Court,

which are incorporated by reference herein.

31. Defendant Edwin J. McGuinn, Jr. ("McGuinn") was Chief Executive

Officer ("CEO") of the Company and a member of the Company's Board of Directors

(the "Board") at times relevant to this complaint.

32. Defendant VishaI Garg ("Garg") was Chief Financial Officer ("CFO") of

the Company and a member of the Board at times relevant to this complaint.

33. Defendant Yariv Katz ("Katz") was Vice President and General Counsel

of the Company at times relevant to this complaint.

34. Defendant Raza Khan ("Khan") was President of the Company and a

member of the Board at tines relevant to this complaint.

35. McGuinn, Garg, Katz, and Kahn are collectively referred to hereinafter as

the `Individual Defendants."

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36. Each of the Individual Defendants:

a. directly participated in the management of the Company;

b. was directly involved in the day-to-day operations of the Company at the

highest Ievels-,

c. was privy to confidential proprietary information concerning the Company

and its business and operations;

d. was involved in drafting, producing, reviewing and/or disseminating the

false and misleading statements and information alleged herein;

e. was aware of or recklessly disregarded the fact that the false and

misleading statements were being issued concerning the Company; and

f approved or ratified these statements in violation of the federal securities

laws.

37. As officers, directors, and controlling persons of a publicly-held company

whose common stock is and was registered with the SEC pursuant to the Exchange Act,

and was traded on the NASDAQ and governed by the provisions of the federal securities

laws, the Individual Defendants each had a duty to disseminate accurate and truthful

information promptly with respect to the Company's financial condition and to correct

any previousIy-issued statements that had become materially misleading or untrue to

allow the market price of the Company's publicly-traded stock to reflect truthful and

accurate information.

38. Defendant Merrill Lynch & Co,, Inc. is a Delaware company. During the

Class Period, its principal executive offices were located in New York. Presently, as a

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result of its having been acquired by another entity, Bank of America Corporation,

Merrill Lynch's principal executive offices are located in North Carolina.

39. Defendant Bagell, Josephs, Levine & Company, LLC is a New Jersey

limited liability company with its principal executive offices in New Jersey, and served as

MRU's independent certified public accountant during the Class Period.'s

PERTINENT NON-PART'S

40, MRU, a Delaware corporation with as many as 95 employees during the

Class Period, has principal executive offices at 1114 Avenue of the Americas, New York,

New York 10036. The Company was originally incorporated on March 2, 2000 as Dr.

Protein.com, Inc., and became MRU Holding, Inc. on July 6, 2004, through a reverse

merger by which the Company issued 6,863,433 shares'of common stock in exchange for

100% of the issued and outstanding shares of Iempower, Inc., a Delaware corporation

doing business in New York. MRU was a financing middle-man that tried to borrow

money at lower rates and purchased student loans paying higher rates.

41. On February 9, 2009, in the Southern District of New York, MRU filed a

voluntary petition for bankruptcy protection under Chapter 7 of the United States

Bankruptcy Code. For this reason, MRU is not named as a defendant in this action.

42. During the Class Period, MRU's common stock was listed on the

NASDAQ under ticker UNCL.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

43. Plaintiffs bring this action as a class action pursuant to Federal Rule of

Civil Procedure 23(a) and (b)(3) on behalf of all those who purchased or otherwise

acquired the securities of MRU between July 9, 2007, and September 19, 2008, inclusive,

1I

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and who were damaged thereby (the "Class"), seeking to pursue :remedies under the

Exchange Act. Excluded from the Class are defendants, IMRU and its officers and

directors at all relevant tunes, members of the immediate families of any defendant

and/or MRU and their legal representatives, heirs, successors, or assigns, and any entity

in which any defendant has or had a controlling interest,

44. The members of the Class are so numerous that joinder of all members is

impracticable. While the exact number of Class members is unknown to Plaintiffs at this

time and can only be ascertained through appropriate discovery, Plaintiffs believe that

there are at least thousands of members in the proposed Class. Record owners and other

members of the Class may be identified from records maintained by the Company or its

transfer agents and may be notified of the pendency of this action by mail, using the form

of notice similar to that customarily used in securities class actions.

45. Plaintiffs' claims are typical of the claims of the members of the Class, as

all members of the CIass are similarly affected by Defendants' wrongful conduct in

violation of federal law that is complained of herein.

46. Plaintiff's will fairly and adequately protect the interests of the members of

the Class and has retained counsel competent and experienced in class and securities

litigation.

47. Common questions of law and fact exist as to all members of the Class

and predominate over any questions solely affecting individual members of the Class.

Among the questions of law and fact common to the Class are:

a. whether the federal securities Iaws were violated by Defendants' acts as

alleged herein;

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b. whether statements made by Defendants to the investing public during the

Class Period misrepresented material facts about the business, operations

and management of MRU; and

c. to what extent the members of the Class have sustained damages and the

proper measure of damages.

48. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

j Furthermore, as the damages suffered by individual Class members may be relatively

small, the expense and burden of individual litigation make it impossible for members of

the Class to individually redress the wrongs done to them. There will be no difficulty in

the management of this action as a class action.

49. The Court appointed the Lead Plaintiffs to represent the Class. The Lead

PIaintiffs purchased MRU stock during the Class Period.

FACTUAL BACKGROUND

50. MRU was a purchaser, holder, and seller of federal and private student

loans.

51. A prospective college student has three sources of funds to cover tuition.

Low income students can apply for federal fell grants, which do not have to be repaid.

Students can also apply for government-subsidized student loans, originated by firms

such as Sallie Mae at below-market interest rates, with the loans guaranteed by the

government. However, these loans are capped at $3,500 to $14,500 annually for

undergraduate students, meaning that students must often obtain additional private loans

from banks to cover the full cost of tuition, currently running at an average annual cost of

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$12,000 for a public university, and $20,000 for a private one. The third source of funds

IS private student loans such as those MRU purchased,

52, Financing middle-men like MRU purchase student loans but then try to

clear them from their balance sheets by packaging pools of the loans and selling them or

otherwise removing them from their financial statements. This allows the middle-man tof

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pay off prior financings and earn, or simply fabricate, more revenue than they could if

they held the loans on their books, since the student loans provided only a meager source

of revenue insufficient to service prior financings, comply with contractually-required

financial metrics, and grow.

53. MRU principally derived revenue tram interest accrued on its student loan

portfolios, origination fee revenue on its student loan portfolios, and faked residual cash

flows from the sale or securitization of its student loan portfolios.

MRU'S AND MERRILL LYNCH'S AUCTION RATE BOND SCHEME

54. On ,bane 28, 2007, MRU announced that the offering of the MRU notes

was conducted in accordance with a Note Purchase Agreement between MRU, MRU

ABS LLC (MRU's subsidiary that held the student loan notes), and MerriIl's broker-

dealer subsidiary. MRU's shareholders relied on Merrill Lynch to refrain from

manipulating the auction markets and rigging the prices of the auction rate bonds. MRU

shareholders relied on the market for the notes to be honest and functioning fairly and

efficiently.

55. As reported in the Company's Annual and Quarterly Reports issued during

the Class Period, "Securitization refers to the technique of pooling loans and selling them

to a special purpose, bankruptcy remote entity, typically a trust, which issues securities to

14

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investors backed by those loans. The debt instruments that the trust issues to finance the

purchase of these student loans are obligations of the trust, and not obligations of the

Company.

56. The trust, which is controlled by the Company, buys the loans from the1

I

Company and the Company is allowed to record an immediate gain from the sale of the

loans to the trust.

57. The interest rate that the trust receives on the debt instruments it issues to

investors impacts the Company's results in two ways.1

58. First, the greater the difference between the interest rates on the

underlying Ioans and the interest rates paid by the trust on the issued debt instruments

(i.e., the greater the "spread"), the greater the premium that the Company can charge the

trust for the pooled student loans that it sells to the trust. This premium is recorded as

immediate income by the Company.

59. MRU's special purpose trust sold $200 million worth. of June 2007 bonds

to the initial purchaser, Merrill Lynch, with the initial rate set at 1 basis point (1/100 of

1%) above LIBOR.

60. Second, the Company maintains an interest in the income that the trust

receives on the pooled student loans, referred to as a "Residual Interest." The greater the

spread between the interest rates on the underlying loans and the interest rates paid by the

trust of the issued debt securities, the more valuable the Residual Interest will be.

AIthough this Residual Interest is income to be received in the future, its purported net

present value is immediately recorded as an asset on the Company's balance sheet.

15

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61, As MRU and Merrill Lynch failed to disclose to investors, the Residual

Interest was subject to the rights of the note holders to receive "carryover interest" in the

event that the auction priced the interest rate at greater than the "maximum rate" and theI

"maximum rate" was not the "maximum" at all, and would increase automatically if the

rating agencies downgraded the ratings on the notes, which would cause the residual

iinterest to vanish and ARS investors to be left holding illiquid, long-term bonds.

1 62. Further, the rating agencies require the trust to maintain a loss coverage

reserve_ If a trust's principal loan balance does not sufficiently exceed the trust's

principal note balance, the Company would be required to provide additional capital to

pass the rating agencies' loss coverage requirements and obtain high ratings on the notes.

Without the highest ratings, Merrill Lynch would not be able to market and sell the notes

at a low interest rate and the residual interest paid to MRU would vanish.

63. The Company's first securitization, which is discussed at length below,

involved ARSs as 97% of its debt instrument, and of those, nearly all were rated AAA,

Because Merrill Lynch was marketing and selling the auction rate securities as safe,

highly liquid investments that are the same as cash, the AAA rating was imperative for

Merrill Lynch's marketing of the notes that the MRU trust issued.

64. If Merrill Lynch could not sell the bonds at low, short-term investment

prices, they would be worthless to MRU and unmarketable by Merrill Lynch.

65. The carryover interest obligation and the false "maximum" rate were

material to MRU's shareholders because, among other things, those features directly

impacted the risk of investing in MRU and the concealment thereof artificially increased

the share price.

16


I 66. Based on the above-described conduct, Merrill Lynch and MRU employed

a device, scheme, or artifice to defraud and engaged in acts, practices, and a course of

business that operated as a fraud and deceit upon MRU shareholders and the investing

j public.

67. Merrill Lynch's and MRU's conduct and scheme artificially inflated the

price of MRU shares and damaged investors.

68. Merrill sold its issuer clients like MRU access to a rigged capital market,

offering cheap financing for high fees, cross-sold business, and sweetheart deals in

exchange for MRU's participation in Merrill Lynch's auction rate market.

69. Merrill Lynch was a virtual insider at MRU throughout the Class Period,

Merrill Lynch's relationship with MRU was managed by a relationship manager whose

job, in part, was to cross-sell business to MRU. MRU, like other issuers, paid the capital

market's gatekeeper Merrill substantial investment banking fees to gain access to the

financial institution's fraudulent capital markets. MRU's and Merrill's interests were

financially aligned, because, among other things, (i) Merrill owned warrants in MRU; (ii)

MRU owed enormous sums to Merrill's banking subsidiary, Merrill Lynch Bank USA

("MLBU"); (iii) Merrill acted as underwriter, broker-dealer, and initial purchaser for

MRU's $200 million worth of off-balance sheet auction rate bonds and the July 2008

issuance of asset-backed securities; and (iv) in February 2006, certain funds of Merrill

Lynch Institutional Management Equity Partners bought MRU Series B Convertible

Preferred Stock. Because MRU was a small, new issuer, Merrill Lynch would also have

customarily done extensive and ongoing due diligence on the Company.

17

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AUCTION RATE SECURITIES

70. ARSs are municipal debt securities, corporate debt securities, or preferred

stock that pay interest or dividends at rates set at auctions held every 7, 14, 28, or 35

days.

71, ARSs have long-term, or even no, maturity dates. Corporate debt ARSs

fiequently mature 30 years after they are issued. ARSs issued by MRU in June 2007r

mature in July 2443.

72. ARSs were auctioned at par. As a consequence, the only return on

investment for an investor in auction rate securities was the interest rate or dividend yield

set through the auctions.

73. An issuer of ARSs, like MRU, selects one or more broker-dealers to

underwrite the offerings and to manage the auction process, Investors can only submit

orders through the selected broker-dealer.

74. ARSs issued by MRU were underwritten by Merrill Lynch, who then in

turn sold the ARSs to investors as "cash equivalents." Merrill Lynch and MRU

concealed from the investing public, including MRU shareholders, that demand for the

bonds was a function of Merrill Lynch's manipulative price rigging in the auction rate

securities market. Had MRU's shareholders known that the Company's biggest asset was

from a manipulated and price-rigged market, the artificially inflated share price would

have decreased.

75. In an auction rate securities auction, the interest rate or dividend yield is

supposed to be set through a Dutch auction. In a Dutch auction, all bids are supposed to

be submitted simultaneously. However, Merrill Lynch knew, but did not disclose to

18

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anyone, the absence, existence, size and rate of the bids in each auction before

determining if and what its bid will be. Indeed, Auction Desk employees were forbidden

from disclosing the bidding information that Merrill Lynch was using to determine its3

own trading.

75. In each auction, the bids are ranked from lowest to highest minimum hid

rate. The Iowest bid rate at which all the shares can be sold at par establishes the interest

rate, otherwise known as the "clearing rate." This rate is paid on the entire issue for the1

upcoming period. Investors who bid a minimum rate above the clearing rate receive no

securities, while those whose minimum bid rates were at or below the clearing rate

receive securities that pay the clearing rate for the next period. Merrill Lynch had the

virtually unfettered ability to control this process.

77. There are four possible orders for ARSs: 1) "hold" orders by current

holders of the securities, by which the holder will keep the shares regardless of the new

interest rate; 2) "hold-at-rate" orders by current folders of the securities, by which the

holder will keep the securities if the clearing rate is at or above the specified rate;

3) "sell" orders by current holders of the securities, by which the holder will sell the

securities regardless of the clearing rate, and 4) "buy" orders by prospective investors, by

which the investor will buy securities if the clearing rate is at or above the specified rate.

78. An auction fails when there are not enough orders to buy all of the shares

being sold at the auction. In a failed auction, the issuer pays a rate set by a pre-

determined formula described in the registration statement or prospectus (the "Default

Rate"), and all of the current holders continue to hold the securities.

19

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79. As ARSs were originally conceived, the default rate was comparable to

long-term bond rates, and thus higher than the rate set by periodic auction. This higher

interest rate served two purposes, First, it compensated holders of the securities for- theI

lack of liquidity and long-term maturity of the security. Just as importantly, it created a

significant incentive for the issuer of the security to redeem the securities or otherwiseJ

provide Iiquidity for the holders.

{ 84. In recent years, however, some issuers have set the default rate for their

auction rate securities at rates only marginally higher, or even Iower than the auction

rate. As a result, if an auction for one of these securities fails, holders are left with an

entirely illiquid long-term bond (or preferred stock with a long-term maturity date) that

pays rates comparable to, or even less than, money-market rates.

81. Despite the long-term maturities of ARSs, MRU was able to pay short-

term money-market interest rates on these notes as a direct result of the AAA rating on

nearly all of the notes and the misleading and deceptive marketing efforts of Merrill

Lynch, who marketed these securities as the "same as cash." If Merrill Lynch's Auction

Market Securities Trading Desk did not fraudulently market and sell MRU's auction rate

securities at short-term, same as cash low interest rates, the off-balance sheet special

purpose trust would not be able to pay interest to the note holders from the revenue that

the student loan pool generated.

82. The student loan pool floated with the London Interbank Offered Rate-

("LIBOR") at a fixed amount above LIBOR that could not be increased. The trust would

quickly fail, and MRU's Residual Interest would disappear, if the secret features of the

bonds (the fake "maximum rate" and the "carryover interest") were triggered. In

20

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addition, the interest rate on the pool could not be adjusted, so MRU could only respond

to changes in interest rates by increasing student loan interest rates and origination fees

prospectively.3

j 81 The illusion of short-term liquidity was maintained by the auction process,f

which gave holders of MRU ARSs the ability to sell their securities at an auction held

every 28 days.

84. The auction process was misleading and deceptive. In fact, true auctions

were not being conducted. Instead, Merrill Lynch artificially manipulated the auctions,

s rigging the prices to prevent auctions from failing and to maintain its money-making

ARS market machine. Merrill Lynch collected more than $90 million in profits from its

auction rate program in 2006 and 2007.

86, The much-touted liquidity was illusory because there were often not

enough buy orders to purchase all of the ARSs at auction, which, if left unmanipulated,

would have resulted in widespread auction failures, leaving investors with illiquid, long-

term bonds. This result was only kept at bay by the manipulative practices of Merrill

Lynch. In order to conceal the inherent illiquidity of the Iong-term bonds, Merrill Lynch

made purchases on its own proprietary accounts to prevent the auctions from failing.

86. Merrill Lynch Financial Advisors sold the securities to unsuspecting

investors who were seeking a safe, Iiquid place to put their cash. The Financial Advisors

then submitted the investors' orders to Merrill Lynch's Auction Market Securities

Trading Desk, a Merrill Lynch business unit, Auction Desk employees both collected

investors' bids and traded for Merrill Lynch's own proprietary accounts.

21

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87. Merrill Lynch's Sales and Trading managers, including the Auction Deskii managers, violated the screening off' of the purportedly independent Research

Department. Merrill Lynch allowed Sales and Trading managers to directly request and

advocate for written research to be published endorsing the safety and high quality of

nearly all types of ARS and recommending investors buy ARS,

s 88. In one instance a Managing Director in charge of Merrill Lynch's auction

desk, Frances Constable, directly emailed Martin Mauro, a Fixed Income analyst in the

Research Department, instructing that "Any renewed research focusing on the high

duality of ... student loan backed bonds wrapped around the value added proposition

with today's rates would be extremely helpful."

89. Auction Desk managers reviewed the Research Department's published

pieces and demanded, and got, retractions and revisions that presented investments in

ARS "as a buying opportunity for investors who are looking for short-tern investments."

90. In short, there was no "auction" for auction rate securities. The "market"

for ARSs existed at Merrill Lynch's whim. Otherwise unable, for instance, to repay

Merrill Lynch's banking subsidiary, and facing the disclosure of its debt-laden financial

statements, MRU engaged in a deceptive scheme with Merrill Lynch to create, and for

Merrill Lynch to market and sell deceptively, auction rate securities in Merrill Lynch's

price-rigged auction market.

COLLAPSE OF THE ARS MARKET GENERALLY

91. As early as Fall 2007, there are email communications within Merrill

Lynch demonstrating that Merrill Lynch knew that its ARS market was collapsing.

22

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92. On February 13, 2008, all of the major broker-dealers stopped purchasing

ARSs on their own account, which practice had been concealing the illiquidity, and

supporting the sham liquidity, of the ARS market. Without the support of the major

broker-dealers, on February 13, 2008, 87% of all ARS auctions failed. While the

Iauctions for MRU ARSs did not fail in February 2008, some did fail after March 3l,

2008. Nonetheless, MRU continued to issue reassuring press releases to investors

regarding the Company's financial position and prospects.

"MAXIMUM" RATES AND MRU'S UNDISCLOSED INTEREST RATE RISK

93. In addition to the falsity and deception of Merrill Lynch's auction rate

securities market, another feature of the ARSs was falsely and misleadingly presented to

MRU's shareholders and the investing public, when it was mentioned at all. Misnamed

"maximum" rates were purportedly the maximum interest rate that the issuing trust would

have to pay the bondholders. However, the maximum rate could increase and the trust

had an obligation to pay "carryover" interest under certain circumstances. As a result, the

Company was subject to undisclosed, material interest rate risk.

94. The interest rates on the student loan-backed bonds should have reflected

the price paid for the true risk taken by the investor, but did not. And, when investors

learned the truth about the liquidity risks they faced, the amount over LIBOR set as the

"maximum" rate was not sufficient and demand for the ARSs dried up. In addition, when

the truth about auction rate securities was revealed to the market, the rating agencies

reconsidered the ratings of the bonds, triggering the materialization of additional 'interest

rate risk as a result of the contractual increase in the "maximum" rate on the bonds in the

event of a rating downgrade_

23


95. Moreover, the terms of the ARSs were structured in a manner that

precluded secondary market value in the event of an auction failure. Maximum rates,

those interest rates that would be applied in the event of an auction failure, were set at

Iow levels which were favorable to issuers, but in the case of broad auction failures,

provided issuers with little incentive to seek alternative financing in order to redeem the

ARS shares.i

96. The establishment of low maximum rates directly contributed to issuers'

efforts in successfully obtaining AAA ratings for their securities from credit rating

agencies. Merrill Lynch stressed the AAA rating of its ARSs in its marketing effort,

billing them as ultraconservative investments. But, when Merrill Lynch stopped

artificially propping up the market, the low maximum rate which had allowed the

securities to receive a AAA rating rendered the securities unmarketable and illiquid. The

rates were not high enough to compensate investors for the increased liquidity risk.

97. Merrill Lynch had no incentive to negotiate for higher maximum rates to

balance market interest, as MRU and other issuers paid top dollar to Merrill Lynch in the

fonn of underwriting fees and auction dealer fees. Indeed, the 2007 MRU auction rate

security issuance was initially priced (and reported on MRU's financial statements) at

one basis point above LIBOR.

98. MRU, lake other issuers, paid the gatekeeper substantial investment

banking fees to gain access to the financial institution's fraudulent securitization market.

Indeed, MRU's and Merrill Lynch's interests were financially aligned, as Merrill Lynch

owned warrants in MRU and MRU owed significant sums to its banking subsidiary.

24

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Merrill Lynch, working with its investment banking side, had a significant interest in

keeping its issuer clients happy in hopes of future business.

99. The auction rate issuances, such as the MRU issuance, allowed Merrill

Lynch to ensure its repayment of MRU's debt and at the same time, pass the risk to

unsuspecting investors looking for safe investments. It was a model Merrill Lynch

repeated, earning enormous profits and maintaining its fictitious auction rate market.

j MRU'S UNTENABLE "SECURITIZATION" BUSINESS MODEL

100. Without the concealment of the true nature, and unreasonably favorable

accounting (discussed below), of its first securitization, and similar future securitizations,

the Company and its executives knew that the business model they touted to investors

was unsustainable. The terms of the Company's web of financings required the

Company to maintain certain financial metrics, such as minimum liquidity ratios, net

worth, and available cash, or face a collapse into a financing death spiral (which

ultimately happened). The impact of the 2407 securitization, as (improperly) accounted

for in the 2007 financial statements, was to forestall the failure of the Company to meet

those financing covenants, and delay defaulting on the financings MRU was using to

fund its private student loans.

101. The Company's reliance on its ability to securitize its student loan pools

repeatedly over time on extremely favorable terms was both exceedingly risky and

unrealistic, as well as hidden from its investors.

102. The securitization or sale of the Company's student loan portfolio was a

core component of MRU's business. Securitizations were so important to the Company's

bottom line that for the fiscal year ended Tune 30, 2007, the Company's income from

25

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securitizations was $16,205,324, or 58% of the Company's total income, and more than

twice the $7,909,515 that the Company earned from' interest on student loans. In

iaddition, without the "permanent financing" offered by the securitiea€inn or sale of the

I student loans, MRU would not be able to pay the debt service on its financings, or, asI

explained above, remain out of default on its financings.

103. Because the securitizations were a core component of the Company's

business, Defendants either knowingly or recklessly failed to disclose to investors that the

market for ARSs existed at the whim of the broker-dealers and were subject to enormous

interest rate risk.

104. By the time MRU fully revealed the true nature of the 2007 securitization

-- for instance, confessing in September 2008 in its 2008 Annual Report that

management's assumptions regarding the future cost of funding of auction rate notes

were "highly uncertain" -- it was too late and the stock was trading off 94% from the

Class Period high, When it finally became clear to investors that MRU's business model

had never been sustainable, the damage to investors was done.

REGULATORS' ALLEGATIONS REGARDING MERRILL'S WRONGDOING

105. On May 31, 2006, the SEC publicly instituted administrative and cease-

and-desist proceedings against Merrill's broker-dealer (the "2006 Order").

106. In the 2006 Order, the SEC ordered Merrill to stop approximately eight

practices violative of the securities Iaws.

107. In addition, the SEC imposed upon Merrill a legal duty to disclose "a

description of its then-current material auction practices and procedures available to ...

(2) the general public on another portion of its website accessible to the general public."

26

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I08. Merrill's disclosure was inadequate and deceptive and omits and/or

repeats some of the same actionable misstatements and omissions regarding the

undisclosed interest rate risk to which MRU investors were exposed concerning theI

carry-over interest and "maximum" rate features of the 2007 Fraudulent Transaction.i

Moreover, even though the SEC ordered Merrill Lynch to place the description on a

portion of its website available to the general public, investors were not told about it or

given access to it until after they invested in auction rate securities.

109. On July 31, 2008, the Massachusetts Securities Division ("MSD") filed an

administrative complaint against Merrill's broker-dealer subsidiary.

110. MSD charged Merrill with dominating its research department and

ensuring that no negative statements were made about its auction rate securities market.

MSD also charged that Merrill knew in Fall 2007 that its ARS market was collapsing.

11I. On August 22, 2008, the Enforcement Division of the United States

Securities and Exchange Commission (the "SEC") announced a preliminary settlement

with Merrill Lynch concerning its auction rate securities practices. According to the

announcement, the preliminary settlement "would enable investors who purchased

auction rate securities from [Merrill Lynch) to receive a total of up to $7 billion to restore

their Iosses and liquidity."

112. The SEC's August 22, 2008 announcement went on to state "[t]he

proposed charges involve alleged misrepresentations by Merrill Lynch to thousands of its

customers that ARS were safe, highly Iiquid investments equivalent to money market

instruments and cash. Merrill Lynch did not make adequate disclosures that the liquidity

of these securities was based on Merrill Lynch supporting the auctions it managed when

27

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there was not enough demand. Investors were left holding illiquid securities when

Merrill Lynch stopped supporting auctions in February 2008. Furthermore, Merrill

Lynch continued to tout the purported liquidity of ARS to customers despite its

awareness of the escalating liquidity risks in the weeks and months preceding the

collapse of the ARS market."

t 113. Merrill Lynch's misstatements and omissions regarding the true nature off

the auction rate securities markets, as well as its manipulated operation of those markets,

affected the integrity of the securities markets and investors' understandings of auction

rate securities.

114. As the initial purchaser of the asset-backed rotes issued by the MRU's

off-balance sheet special purpose trust, employees of Merrill Lynch and one or more of

its subsidiaries made a false statement that the "market price" of the interest on the bonds

was 1 basis point above LIBOR in late June and early July 2007.

115. Merrill Lynch's FA's and its Research Department made repeated false

statements throughout the Class Period about its auction rate bonds, including MRU's

student-loan backed bonds, which statements furthered the fraudulent scheme,

ACCOUNTING ALLEGATIONS

116. Generally Accepted Accounting Principles ("GAAP") constitutes those

standards recognized by the accounting profession as the conventions, rules, and

procedures necessary to define accepted accounting practices at a particular time. The

SEC has the statutory authority for the promulgation of GAAP for public companies and

has delegated that authority to the Financial Accounting Standards Board (the "FASB"),

28


1I7. SEC Regulation S-X, 17 C.F.R. § 210.4-01(a)(I), provides that financial

statements filed with the SEC that are not presented in conformity with GAAP will be

presumed to be misleading, despite footnotes or other disclosures.

118. In September 2006, the FASB issued Statement of Financial Accounting

Standards No. 157, Farr Value Measurement (SFAS 157). This standard was effective in

November 2007 for fiscal years beginning after that date. The standard instructs that for

items that are not actively traded, fair value should reflect the price in a transaction with a

market participant, including an adjustment for risk, not just the Company's mark-to-

model value. The Company's presentation of its financial statements, fully a year after

this standard was issued, did not consider the future impact of this standard in

manufacturing the net present value of its stream of income from the bonds that the off-

balance sheet trust issued and that matured in 2043.

119. MRU, in reporting its financial results during the CIass Period, made

numerous untrue statements of material fact and omitted to state material facts necessary

to make its reported financial results not misleading. Specifically, MRU violated GAAP

in a number of ways, including but not limited to in connection with the following topics:

(i) Residual Interest calculations; (ii) fair value assumptions; {iii} impairment;

(iv) assumptions concerning interest rates on the auction rate bonds; (v) discount rate;

(vi) Accounts Receivable from Securitization calculations; and (vii) cost of funds

assumption. In each case, MRU's assumptions were unreasonably and unrealistically

optimistic, such that the presentation of its financials was knowingly or severely

recklessly materially false and misleading.

29

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120. According to MRU's 2007 Form 10-KSB, filed with the SEC on

September 28, 2007, "[t]he Residual Interest is the right to receive cash flows from the

student loans and reserve accounts in excess of the amounts needed to pay servicing,I

derivative costs (if any), other fees, and the principal and interest on the bonds backed by

the student loans."

121. According to MRU's 2007 Form 10-KSB, 'Jtjhe Company estimates the

fair value of the Residual Interest, both initially and each subsequent quarter, based on

the present value of future expected cash flows using management's best estimates of the

following key assumptions — defaults, recoveries, prepayment speeds, interest rates on

the asset hacked bonds, the forward interest rate curve and discount rates commensurate

ivith the risks involved." (Emphasis added).

122. According to MRU's 2007 Form 10-KSB, "Because there are no readily

available prices for such residual assets, GAAP accounting allows the Company to

compute the fair value by discounting projected residual cash flows, which are

determined based upon assumptions regarding collateral performance and discount rates

that the Company believes are reasonable."

123. The presentation of the Income from Securitizadon in MRU's 2007

Annual Report was misleading, as it failed to disclose that the initially negotiated deal

with Merrill Lynch was unlikely to reflect the results of any actual auctions. The interest

rate on the student loan-backed bonds was priced at one basis point (1/100 of 1%) above

LIBOR, MRU knew that this rate was false and misleading and used to false its financial

statements, not to reflect its true financial position. Pricing the interest on the bonds at

.001 above LIBOR made the spread between the interest rate on the student loan pool in

30

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the trust as high as it could be. NMU knew the undisclosed features of the bonds, and in

light of those risks, knew that it would not be possible for the trust to generate the

residual MRU claimed on its financial statements.

124. Such a low interest rate was not going to be available from actual

investors because demand for the bonds was low, the true liquidity risk bond investors

faced was high, and the integrity of the auction rate securities market, which was not a

properly functioning, honest securities market, was compromised. In addition, the

discount rate MRU used was too low, and did not reflect the true instability of the

residual interest income stream or the true interest rate risk.

125. Moreover, the sensitivity analysis in MRU's 2007 Annual Report for the

interest rate on the auction rate bonds was also knowingly misleading because it varied

only by plus or minus 5 or 10 basis points, suggesting a low risk, high stability future

interest rate that defied reality. In the face of, among other things, (i) an 80 basis point

(800°/x) change in the rate in the short time between the closing of the transaction and the

Company's 2407 financial disclosures made in September 2047; (ii) the truth about the

"maximum" rate payable on the bonds; (iii) the "carryover" interest feature that gave

bondholders a right superior to the Company's residual interest to collect interest

exceeding the maximum rate over time if an auction resulted in a rate exceeding the

maximum rate; and (iv) bond investors' true liquidity risk, defendants knew, or were

severely reckless in not knowing, that the presentation of the Company's financials were

highly misleading and violated GAAP throughout the Class Period.

126. Even as MRU wrote the residual interest down, its financial statements

remained falsely and misleading inflated because the assumptions in the discounted rash

31

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flow model used to calculate the net present value of the residual interest were

unreasonable and unrealistic.

127. Having pledged the $11.2 million faked residual as collateral for financing

from two private investment funds, MRU continued to present false and misleading

financial statements and an unrealistically low cost of the auction rate bonds in an effort

to "manage" its financial statements and try not to trigger the default and cross-default

provisions to which it was subject,

i 128. Throughout the Pall of 2008, MRU was negotiating almost daily to avoid

triggering a death spiral of defaults and cross-defaults. The two private investment funds

to whom MRU pledged the faked $11.2 million residual gave MRU waivers and

extensions. But, once it became apparent that MRU sunk itself with false and misleading

financial statements, participation in a fraudulent scheme with Merrill Lynch, and

knowingly overleveraging the Company, MRU's creditors accelerated MRU's debts,

requiring payment in full that MRU could not provide.

MRU'S AUDITOR CONDUCTED NO AUDIT AT ALL OR RECKLESSLY ISSUED

A CLEAN AUDIT OPINION DURING THE CLASS PERIOD

129. BJL, MRU's auditor during the Class Period, recklessly, or knowingly,

certified that MRU's financial statements, filed with the SEC as MRU's 2007 Form 10-

KSB, were accurate and complied with GAAP. BJL ignored reel flags, violated GAAP,

and violated GARS.

130. BJL's unqualified or "clean" audit opinion, filed with the SEC on

September 28, 2007, for MRU's fiscal year 2007 envied financial statement states in

relevant part: "In our opinion, the consolidated financial statements referred to above

32

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present fairly, in all material respects, the financial position of MRU Holdings, Inc. and

Subsidiaries as of June 30, 2007 and 2006 and the consolidated results of their operations

and their cash flows for the years then ended in conformity with accounting principles

generally accepted in the United States of America."

13L BJL allowed MRU to violate GAAP by violating precepts of fair value

accounting and using unreasonable, fraudulent assumptions, and a bogus DCF analysis in

connection with the accounting for the fraudulent 2007 transaction.

r? RED FLAGS

132. There were overwhelming red flags to which BJL turned a blind eye.

133. The fraudulent 2007 transaction closed two days before the end of MRU's

fiscal year.

134. MRU and Merrill timed the transaction so that the only observable

information regarding the interest rate for the 36-year notes was the initial purchase price.

135. The fraudulent 2007 transaction involved auction rate securities, which

MRU's management team had not previously issued or caused to be issued.

136. MRU was a small, young company with a limited operating history.

137. MRU had never done a securitization transaction. The 2007 transaction

was MRU's first securitization. This was the first time that MRU's management team

had accounted for such a transaction.

138. MRU desperately needed income and assets because it had Iiabilities that

its revenue could not service and it needed to comply with its contractual obligations to

its financiers and avoid triggering default and cross-default provisions to which it was

subj ect.

33

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139. There was no observable auction information regarding the amount at

which the MRU bonds would price in an auction.

140. The transaction was presented as making up 58% of MRU's revenue for

FYE 2007.

141. MRU used mark-to-model accounting, a well-known method of falsifying

financial statements.

GAAP VIOLATIONS

142, BJL could not have held the opinion that MRU's financials complied with

GAAP.

143. MRU's financial statements violated GAAP in a number of ways,

including but not limited to in connection with the following topics. (i) Residual Interest

calculations; (ii) fair value assumptions; (iii) impairment; (iv) assumptions concerning

interest rates on the auction rate bonds; (v) discount rate; (vi) Accounts Receivable from

Securitication calculations; and (vii) cost of funds assumption. In each case, MRU's

assumptions were unreasonably and unrealistically optimistic, and did not reflect the true,

undisclosed risks, such that the presentation of its financials was knowingly or severely

recklessly materially false and misleading.

GARS VIOLATIONS

144. B.1L knowingly or recklessly disregarded MRU's accounting deficiencies

and failed to follow Generally Accepted Auditing Standards ("GAAS") in auditing

MRU's financial records. B3L did not have a reasonable basis for its opinion regarding

MRU's FYE 2407 financials because B.IL did not, plan and perform its audit in

accordance with GARS.

34

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i145. GRAS instructs that "[ijn preparing financial statements management is

responsible for making a number of judgments or assumptions that affect significant

accounting estimates and for monitoring the reasonableness of such estimates on an

iongoing basis. Fraudulent financial reporting often is accomplished through intentional

I misstatements of accounting, estimates."

145. BJL violated the third standard of field work by knowingly and recklessly

ignoring audit evidence. GARS requires BJL to obtain and review certain audit

evidence, not just blindly accept management's estimates.

147. Under GRAS, "The auditor must obtain appropriate audit evidence by

performing audit procedures to afford a reasonable basis for an opinion regarding tine

financial statements under audit."

148. BJL's audit evidence must necessarily include the June 2007 fraudulent

transaction's offering materials and other related documents. These documents contained

critical terms and provisions that were wrongfully hidden from investors and were highly

material to the 2007 financial statement accounting.

149. The hidden information about the maximum rate and the carryover interest

was contained in the deal documents, which was audit evidence that BJL had a duty to

review. Failure to review the transaction documents for the largest transaction in MRU's

history that was highly material would have been far more than negligent. It would have

been done knowingly or severely recklessly and no reasonable accountant would have

failed to review it.

150. Information that was or should have been apparent from the Company's

financing documents and BJL's audit, and was ultimately revealed to the investing public

35

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in September 2008, was audit evidence available to BJL that should have caused the

auditor to reject certain of management's unrealistic assumptions, including but not

limited to the following: (i) the maximum rate on the ARSs was not in fact the maximum

rate; (ii) by the time MRU filed its 2007 Annual Report, interest rates on the student loan-

backed auction rate bonds already exceeded the Company's worst-case sensitivityS

analysis; and (iii) MRU's financing covenants placed the Company in an extremely

precarious position, providing management with an extremely strong motive to falsify the

accounting assumptions.

151. Auditors must consider Risk Factors Relating to Misstatements Arising

From Fraudulent Financial Reporting. The Risk Factors are (a) incentives/pressures;

(b) opportunities; and (c) attitudes/rationalisations. In the 2007 10-KSB, MRU's income

from the 2007 Fraudulent Transaction was $16,205,324, or 58% of the Company's total

income, and more than twice the $7,909,515 that the Company earned from interest on

student loans. MRU was heavily in debt with no ability to repay its obligations. BJL

knowingly or severely recklessly accepting management's assumptions even though

many of the risk factors were present.

152, Under GRAS, an "auditor must maintain independence in mental attitude

in all matters relating to the audit." In Iight of, among other things, the substantial red

flags, BJL, as MRU's auditor, should have viewed MRU management's reckless

assumptions with enormous professional skepticism, but instead accepted those

assumptions and certified the Company's 2007 financial statements.

36

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153. BJL, as MRU's purportedly independent auditor, knowing or severely

recklessly violated GARS by failing to exercise professional skepticism regarding

managements' assumptions.

151. BJL failed to exercise professional skepticism in light of the fact that, asi

explained above, certain of MRU management's critical accounting assumptions were

patently unreasonable, especially when viewed in connection with the undisclosed facts

about the auction rate securities markets and the student loan-backed bonds complained

of herein.

155. Further, MRU had never turned a profit, but its mark-to-model accounting

of the 2007 transaction allowed MRU to show $0.8 million, a thin margin that would

quickly disappear with very slight adjustments to managements' assumptions,

156. Under GARS, an "auditor must exercise due professional care in the

performance of the audit and the preparation of the report."

157. In addition, "[a]uditors should ordinarily 'presume that there is a risk of

material misstatement due to fraud relating to revenue recognition. Moreover, GAAS

further instructs that "[ijn preparing financial statements management is responsible for

making a number of judgments or assumptions that affect significant accounting

estimates and for monitoring the reasonableness of such estimates on an ongoing basis.

Fraudulent financial reporting often is accomplished through intentional misstatements of

accounting estimates."

158, BJL's acceptance of MRU's assumptions was highly unreasonable and

represented an extreme departure from the standards of ordinary care. BJL egregiously

refused to see the obvious and investigate the doubtful, such that the 2007 audit in fact

37

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amounted to no audit at all. No reasonable accountant would have certified MRU's 2007

financial statements when confronted with the same facts.

159. BJL also violated the third standard of field work because its audit testing

was severely reckless. As part of their audit, GARS required BJL to conduct audI€

testing of, for instance, the discounted cash flow model used to fabricate a value for thei

Residual Interest from the 2007 Fraudulent Transactiori. In one instance, the sensitivityf

analyses presented in the financial statements used recklessly small testing variables,

presenting a highly misleading and inaccurate portrait of the 2007 Fraudulent

Transaction. The sensitivity analysis for the interest rate spread on the student loan-

backed auction rate bonds was plus and minus 5 and 10 basis points, white each other

input was subject to sensitivity analyses of 10% and 20%.

150. By the time MRU filed its 2007 Annual Report, the actual interest rates

already exceeded the Company's worst-case sensitivity analysis by 800%.

151. The interest rate spread on the student loan-backed auction rate bonds was

likely the single most important input into the DCF model MRU used to manufacture its

Overstated Income and Phantom Asset. No reasonable auditor could have certified the

2007 financial statements under these circumstances.

162. BJL's false and misleading certification of MRU's 2007 financial

statements knowingly or severely recklessly concealed the risk, which ultimately

materialized, that MRU would go bankrupt if the truth about, among other things, MRU's

business model, its financing obligations, and its 2007 securitization, was known.

38

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MRVS STATEMENTS MADE FALSE AND MISLEADING BY MATERIAL

OMISSIONS

163. On July 9, 2007, Defendants caused the Company to issue a press release

via PRNewswire entitled "MRU Holdings, Inc. Announces Economics on $200 Million

Securitization of Private Student Loan Portfolio":

^ I

NEW YORK, July 9 /PRNewswire-FirstCall/ -- MRU Holdings Inc.(Nasdaq: UNCL), a specialty finance company that provides federal andprivate student loans through its consumer brand MyR.ichUncle(TM),today announced the economic benefits to the Company associated withits first securitization of private student loans, which closed on June 28,2007. The securitization involved the purchase of direct-to-consumerprivate student loans by MRU Student Loan Trust 2007-A (the Trust) andthe related issuance of student loan asset-backed notes by the Trust toqualified institutional buyers.

The Trust issued approximately $200 million in principal amount of asset-backed securities on June 28, 2007. Of the notes issued, $82,75 millionare designated Class A-1 Notes, $82.75 million are Class A-2 notes, $21.5million are Class S Notes, and $13 million are CIass C Notes. The ClassA-1 Notes and Class A-2 Notes are rated AAA and Aaa by S&P andMoody's respectively, and the Class B Notes are rated A and A2 by S&Pand Moody's, respectively, and the Class C Notes are rated Sat byMoody's. The Trust proceeds raised were used to fund the purchase of$137.8 million of private student loans from the Company's existing loanportfolio in the quarter ended June 30, 2007, and will also be used to makeadditional purchases of loans over the next quarter.

The $137.8 million of loans initially sold td the Trust generated anestimated economic value of $19.0 million, comprised of an estimatedgain on sale of $16.3 million and an estimated increase to equity of $2.7million, which will be recognized in the Company's 2007 fourth fiscalquarter ending June 30, 2007. Included within the calculation of theeconomic value is the reversal of $2.4 million of reserves for bad debt. Inaddition to the revenues and adjustments above, the Company hasrecognized revenue of approximately $1.3 million from owning the loanportfolio prior to securitization. The overall yield of approximately 13%represents total economics to the Company as a percentage of the $137.8million loan balance sold. In addition, through the release of capital andsale of the loans at a premium to the securitization trust, the securitizationtransaction generated $8.0 million in net cash proceeds after transactionexpenses for the Company.

39

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"MRU's first securitization is an important milestone for the Company. Itconfirms the Company's business model and provides a strong platformfor the Company's continuing growth in originating student loans. TheCompany has generated excellent economics on its first deal consideringthat it was subject to a turbulent market environment and had to bear manyfirst time issuer costs which we expect to reduce in future transactions.Offsetting these factors was the excellent reception by the market of theCompany's business model, and the strength of the Company's underlyingportfolio and its highly scalable operating and underwriting model," notedVishal Garg, Co-Founder and CFO.

164. The July 9, 2007 press release failed to disclose the true nature of the

securitization, namely that nearly all of the issued securities were ARSs, that the liquidity

of the ARS market existed at the whim of the broker-dealers, and that the broker-dealers

manipulated the market to suit their own purposes. This information was material to

investors because the Company's ability to obtain favorable terms in future

securitizations was crucial to the Company' s business model. Consequently, the July 9,

2007, press release was false and misleading when made because it did not disclose:

a. that the securities issued in the securitization were ARSs;

b. that certain of management's critical accounting assumptions were unreasonable

and unrealistic, rendering MRU's financial statements false and misleading,

c. that the ARS market was illiquid and existed at the whim of the broker-dealers;

d. that the illusion of liquidity created by the broker-dealers allowed the Company to

pay a lower interest rate on the notes issued by the 2007 Trust than the Company

would have to pay if the true nature of the ARS market was known to ARS

investors;

e. that the spread created by this lower interest rate allowed the Company to realize

the reported $16.3 million gain;

40

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f. that once the true nature of the ARS market became known, the terms of future

securitizations by the Company would not be favorable to the Company; and

g. that without the favorable terms available in the ARS market as a result of

manipulation by broker-dealers, the Company would not have sufficient capital to

originate loans, making the Company's business model untenable.

I 165. On August 16, 2007, the Company filed with the SEC certain investor

I

presentation slides, entitled "Filling the Growing Funding Gap in Education Financing,"

on Form 8-lf, as exhibit number 99.I, signed by Garg. The presentation slides stated,

among other things, that (i) "MRU's Model Validated by Securitization Market, . .

Highly competitive cost of funds * Comparable to long-standing issuers;" (ii) "MRU's

Business Model * Primary revenue drivers ... * Premiums or NPV of residuals from

securitization;" (iii) "Economic Model Scales Rapidly towards Profitability —

Revenue NPV of Future Interest Spread 8.5% Approximate Business Economics on

Current Prime Loans Originated by MRU;" (iv) "Growth in Originations 'WiII Fuel

Future Profitability;" and (v) "MRU ley Investment Characteristics , , . Securitization

business model ...."

166. The August 16, 2007 investor presentation slides failed to disclose the true

nature of the securitization model, namely that the issued securities were ARSs, that the

Iiquidity of the ARS market existed at the whirr of the broker-dealers, and that the

broker-dealers manipulated the market to suit: their own purposes. This information was

material to investors because the Company's ability to obtain favorable terms in future

securitizations was crucial to the Company's business model. Consequently, the August

41

;^ ^r^• -ti ,.ry - r,^`ri•z . py ;; : w.N:;n.^j^,.r"r'''•T:r', ^fi,. -"'"•'^'.'.` ..",ids"^- r , a^•r;, •: ^:a • 7- r".t "- cr ...:' =r"" `..: . !":,5S?:zf`>-Gr' u.p^C ^:ir•'r.=„f:-r;r.^^'^Se..J-r^ :;^.r.: C^c2^r`^ ^,?r.. _^.•-..n ,L' 'w°;;^, ,^,,,. ^J'” ^ ,-, ,d. M •,y.^' ;c. Yr, 4^ ^.,.,^.a_^:. 3 K• sae .,-^'":: g: ,v:^=^:"?.. ^,^r^^ì- - :4f-5,,.:..^c,:^•1. Y.^ • •` r' _. N-^ 3^.x'^+k,' s, : Y-1 .^, ^^., + - ^,e ^.r^- ,.rr:4:raYy.^ %r ?sit N ,^ y.{:. - ^c.dî'^+^^w .M+..: r.. , t: ` ..^^^ .fY;'?+ • v^ ( i r,.' r'1t r ^f ^.^ .. •^,y- Crs.- "=.y., ...1,•;^ w^!i.:;^;. ,,.^^-^;-=.',k.^J. od ....^. st, ;, • . ;.r. ,.•' ! r• •^^`^{^' .r^r:': -3.'>. •',^^-^", .i-^. ^'` Y.a^:F ^°: -i^^ ^;:;1-?i" • E•-,,. ..-s. i n.. ..[ : -.., C'. .-:Y.i^.h .. :-^.-fr'2vcZ:;+ L w.x , ?R'.:^x. w+^Î'G..,.,i..^.- . .7 c2w..-wi R . ^ . -n^ C^R' "•ti:.....^.,..:^-^ ^'.,?:.::.... ............._....:..,.>Y:.^.:".:^;...•.:.w:..,.,.:)+•,Y:? J ,.x.:nn:;.;v .;.m:X.:.ik.,...:ea•.rt.:^^°..•z^._w.,.+s ..r.d^.- :.^:..•....^,...•..i..."..x,.,.s..v.Yx:.i::Cu.,E.. ...t,>^.^7..i'L,.snSc,;rww.N'.' .,',n.n..ww..s^^"i.'{s^c.'..o-.5`.F ^.


16, 2007 investor presentation slides were false and misleading when made because they

did not disclose:

a. that the securities issued in the securitization were ARSs;


and unrealistic, rendering MRU's financial statements false and misleading;

c. that the ARS market was illiquid and existed at the whim of the broker-dealers;

d. that the illusion of liquidity created by the broker-deaIers allowed the Company to

pay a lower interest rate on the notes issued by the 2007 Trust than the Companyi


investors;

e. that the spread created by this lower interest rate allowed the Company to realize

the reported $16.3 million gain;

f. that once the true nature of the ARS market became known, the terms of future

seduritizations by the Company would not be favorable to the Company; and

g. that without the favorable terms available in the ARS market as a result of

manipulation by broker-dealers, the Company would not have sufficient capital to

originate loans, making the Company's business - model untenable.

167. On September 28, 2007, the Company fled with the SEC its Annual

Report on Form 10-KSB for the fiscal year ended June 30, 2047, signed by McGuinn,

Garg, and Kahn. The 10-KSB stated:

RISK FACTORS

The Company completed its first securitization in June 2007, in which itrecognized a gain of $16.2 million from the sale of $137.8 million ofprivate student loans to a trust established by the Company. It is our intent

42

.v .z^, ^,r, pd' :`rir 9.-mvr ^ryi•::;y F'pyP F x" ° _, o:^{ ;°., 4,`"

• Mti sa^:kx:.a...Ti .:::r ^' +..?P*s;-.w,......er'. ...:"S.v.....;..z.rl 's,. ,• °'.' .i.`'"3`'! »e.^.'..,.


to continue to securitiee our student loans from time to time as sufficientvolumes of loans are originated to efficiently execute such transactions.

Item 6. Management's Discussion and Analysis or Plan of Operation.OVERVIEWIn .Tune 2007, the Company completed its first securitization of privatestudent loans. Securitization refers to the technique of pooling loans andselling them to a special purpose, bankruptcy remote entity, typically atrust, which issues securities to investors backed by those loans. The debtinstruments that the trust issues to finance the purchase of these studentloans are obligations of the trust, and not obligations of the Company. Ona going forward basis, the Company plans to either sell or securitieestudent loan portfolios, which will generate a gain on sale for theCompany for this asset. The timing of such an event is dependent on

' severaI factors, including but not limited to the following; the size of theCompany's student loan portfolios, the financial ability of the Company tohold this asset, the market at the time of the transaction for this asset class,and the ability of the Company to support the requirements for a sale orsecuritization transaction. The Company believes that it is likely to haveone or two securitization transactions before the conclusion of its fiscalyear on June 30, 2008.

OTHER INCOMEIn fiscal 2007, the Company's net other income was $16,859,741compared to $435,568 in fiscal 2006. The increase was driven bysecuritization income of $15,205,32 .4 generated by the Company's firstsecuritization of its private student loan portfolio in .tune 2007 (seefootnote 15 for more information on the securitization).

On June 28, 2007, the Company closed its first securitization of its privatestudent loan assets. The transaction was accounted for as a sale of the$138 million of private student loans securitized. In connection with thesale, the Company booked a gain of $15.2 million based upon the excessof the proceeds and value of the Residual Interest received over the

carrying value of the assets sold. The Company values the retainedResidual Interest at $11.2 million, all of which are referred to as theCompany's Accounts Receivable from Securitization. The ResidualInterest is the right to receive cash flows from the student loans andreserve accounts in excess of the amounts needed to pay servicing, otherfees, and the principal and interest on the bonds backed by the studentloans. The residual cash flows are expected to be received by theCompany over approximately 28 years. The investors in the securitizationtrusts have no recourse to the Company's other assets should there be afailure of the student loans to pay when due.

Auction Rate Market

43

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^'J,;>;"tio^........:-`<')f 7'.-;;ru :v...wxx y.':is! L:=•:...^c}1,+,. .f,r,.wre:srn^G^'''..=I^"w.......^...«.^..7",..a,,...sr'l..xr. ..,c^S a.n :C.,::^"':.x.^.....SCo:47,..:uS,^•î'^' ':r.•.i ,er'-5^.,es..^.. ,... ^.,.;rru::k........

. ............................... ....... .


In August 2007, the rapid deterioration of subprime mortgages andcollateralized debt obligations Iead to disruptions in the money marketswhich in turn impacted the market for auction. rate student Ioan notes.Since that time, similar to the experience of other issuers of student loanauction rate notes, the interest rate on the Company's student loan auctionrate notes has widened to approximately 0.80% over Libor. As discussedabove in "Note 16 - Securitization - Residual Interest in SecuritizedReceivables", an increase in the spread between Libor and Auction RateIndices would reduce the estimated fair value of the Company's ResidualInterests.

On a quarterly basis, the Company is required to re-evaluate the fair valueof its Retained Interest in its securitization. As such, the Company willtake the outlook for the interest rates for auction rate securities intoaccount when next evaluating the fair value of its Retained Interest. Basedupon conversations with market makers in auction rate securities, theCompany believes that the higher interest rates in the student loan auctionrate market are a temporary phenomenon. To date the increased rates onthe Company's auction rate notes have lead to interest expense in excessof projections of approximately $150,000.

168. The Company's financial statements, as contained in the September 28,

2007 10-KSB, reported accounts receivables from securitizations of $11,191,957 for

2007 and 0 for 2006 (restated). Total assets of $54,192,2I'4 in 2007 and $65,943,175 for

2006 (restated). And other income under securitization income of $16,205,324 for 2007

and 0 for 2006 (restated). All dollars in thousands.

169. Although Defendants finally disclosed that the securitization was

accomplished by issuing ARSs, Defendants again failed to disclose the true nature of the

ARS market, or the fact that the favorable terms received in the .tune 2007 securitization

were a result of manipulation of the ARS market by broker-dealers, including Merrill

Lynch. Consequently, the September 28, 2007 Form 10-KSB was false and misleading

when made because it did not disclose:

a. that the ARS market was illiquid and existed at the whim of the broker-dealers;

44

Aat -:^^^=^^c' •,^^^ ' N A ^:c'w e^.- ; Nir c?.^r;,:.,.: ^`.i ^^• :w,S^'`.pi'èi, -^ r^".rry ^^ tX';e ' .?ti` ',1 s ^-' 3.r. ti ^,v=':î`. ".'"'` y^ " 'i .P-v'^ •s„^Y,;:..

^w4't^.i'-''7-,y..+ .rY:. ^î hi ^^' ^.^ '"'; ê-*[' "^^' •= "L%^ i ^ [wa`^f ^•[^4'^C^Y' ,^' ^'.'Y'S.^T;. LYi• `'^ v Mme} ~'^+' '-'^'+'u'})v ;i_ 4^. 3'^ •, n^^^s'.î” T_ .^-` T .: ^Jµ':F.=r:.-^ h.^r.i^'s^. ^ ,C L.ci...^^"a"'e^::...r.,.»ukG^:^S..ve^ J`."d' ^;.,....0,5.:za;,^^.^M1^r7-'^'^.::M1fi.^-.w."s`:tae?wl:'.^ '`..t^..ia'5,,:^'.r ^,..^^.ir$^„-:v'Sìw•.,^..uv.:^..^^^"n.â-.,^..^w,..^...,t^'^:5...^^^,k..

................... .............................



i and unrealistic, rendering MRU's financial statements false and misleading;

c. that the illusion of liquidity created by the broker-dealers allowed the Company to

pay a lower interest rate on the notes issued by the 2007 Trust than the Company


investors;

d. that the spread created by this lower interest rate allowed the Company to

securitize its student loans on favorable terms;

e. that once the true nature of the ARS market became known, the terms of fixture

securitizations by the Company would not be favorable to the Company;

f, that without the favorable terms available in the ARS market as a result of

manipulation by the broker-dealers, the Company would not have sufficient

capital to originate loans, making the Company's business model untenable; and

g. that the value of the Residual Interest was overstated because once the true nature

of the ARS market became known, the 2007 Trust would be forced to pay higher

interest rates on the ARSs it issued.

170. In addition, the Company's Risk Factor disclosures in its 2007 Annual

Report were insufficient to place investors on notice of the true risks that an investment

in MRU entailed. For instance, the following risks, each of which were known to

defendants to exist, were not, but should have been, specifcalIy disclosed: (i) the risk

that the Company would knowingly or severely recklessly make fraudulent critical

accounting assumptions that would materially impact the Company's financial

statements; (ii) the risk that changes in interest rates would materially impact MRU's

45

_ , z.^::N : v :.5.w-ts•c:F;'= rM = .^^y::- ^ ••a •; ^^r,:; :^: sax... ''F : a^° - G ' i°^ "v.•, `'••-• ^.,."7^+ :`^' . ^ ^^;^" -i.'''^ y,.• .. • ' sr. ?y^^,^^..^^,^4 • :ti-r-^^:;, ..^^s^ ^:'%:nor-^i^r:;^`.^'`'^`,'•^+'!A•.^..;.^r.• :Gn•= .,?ll rC-,..'^f"' roc- ^.^' .^^7-"`}^ ^w'•..var .^ •Y ^^ ^."n,.,^M}ci. „., "a3S'..^-{s° .r:-.^ .sa: ,7z• , ^^.....sr. :..sue max.. c ^' ;rt-2's^ ^• ^•' .:^^^t:n-vr, '; r .,.^ ^: ='='..f ' .'r. •,^••.^ ^^ r.,, . r,-.^ ^ L sir c^ .1-z-..-... },F:'.r!^ ^"]_•...-..:^..:...'^sE"^=';'„`;,':.,.•.;:^'<<.•J:.^.^;v.-.'....:!^:,^:.:^'.s.:Zt^:.:....';.a..:.^....,....,-r^JKc.....•:.Y:i;^;-rk^r..::cw.,:.ts ^:.^..,ina,:^ .}"^''rl.:Y:u^'^^n,.... ^^..:...^'^-...,^ ^.,,a-^! ^ ti4


financial performance and conditions; (iii) the risk that a change in the rating agency's

assessment of the existing student loan-backed bonds would trigger material increases in

the interest rate to be paid on those existing bonds, materially changing the Company's

financial statements; (iv) the risk that Merrill Lynch would stop voluntarily supporting

and manipulating the auction rate market; and (v) the risk that key financing default

metrics would be triggered if the Company's reckless accounting "judgments" turned out

to be bogus (as they did),

171. On October 1, 2007, Defendants caused the Company to issue a press

release via PRNewswire announcing its financial results for the fiscal year ended rune 30,

2007. Among other things, Defendants stated:

NEW YORK, Oct. 1 IPRNewswire-FirstCall/ -- MRU Holdings Inc.(Nasdaq: UNCL), a specialty finance company that provides federal andprivate student loans through its consumer brand MyRichUncle(TM) andthrough private label partners, today announced results for its fourthquarter and fiscal year ended June 30, 2007.

During the fourth quarter of fiscal 2007, the Company completed its firstsecuritization of private student loans resulting in securitization income of$16.2 million, which is included in Other Income on the company'sincome statement.

Other Income for fiscal year 2007 includes securitization income of $15.2million.

x x ^

Originations OutlookAs previously reported, the Company expects to originate approximately$365 million in private and federal student loans in the fiscal year endingTune 30, 2408 and approximately $630 million for the fiscal year endingJune 30, 2049.

172. Defendants made no mention of the ARS market in this press release,

despite the fact that the Company's ability to originate loans was wholly dependent on

the favorable terms afforded by the manipulation of that market by the broker-dealers.

46

;:v..^ir'S-"-f•e'." ` '`S..'Y ^y.

2, .y .^cr.w i N .c• va F to a,. z :'c .'e:- :r•o-,z:.,••-„s. "y 4. jr

a:^ ^^` »» :: yy^ Ml r^ _... :si^ ^.^°' ^'hz53i. ''c7,-`'....".?'S:a ^.,na^^:.^,, nc, ^ a.^..^x^ .^?s.::S^y^.v, r F.'^ •t ^i'r^:c`:^,..6.sCA.,"^^,,,,G+S".r'7.'t^9` ^ti:e•e..C'....,..s;:.r 4.:,''.l::L^ ^ •5,..• r^"-",..M „..u~^-`.


Consequently, the October 1, 2007 press release was false and misleading when made

ibecause it did not disclose:

a. that the ARS market was illiquid and existed at the whim of the broker-

dealers;

b. that certain of management's critical accounting assumptions were

unreasonable and unrealistic, rendering MRU's financial statements false

and misleading;1

€ c. that the illusion of liquidity created by the broker-dealers allowed the

Company to pay a lower interest rate on the notes issued by the 2007 Trust

than the Company would have to pay if the true nature of the ARS market

was known to ARS investors;



e. that once the true nature of the ARS market became known, the terms of

future securitizations by the Company would not be favorable to the

Company; and

f. that without the favorable terms available in the ARS market as a result of

manipulation by the broker-dealers, the Company would not have

sufficient capital to originate loans, making the Company's business

model untenable.

171 On November I4, 2007, the Company filed with the SEC its Quarterly

Report on Form 10-Q for the period ending September 30, 2007, signed by McGuinn and

Garg. The 10-Q stated:

47

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7e .:F ^ $"" .NN•?a v ^w ^.. -a`.c fcJ: j,_ .^.. - ^. rL••-' v1`^ r: i"^'n^^:^'- ^. -n] a ^ .'ti L ^ ":^-3'^ - .^- ^ .. ^ l • :^,'.^ ^ 17,^,^:._. ;:r. .. F:`--'. nw'`,".'iw.^.a9^4i• ^f.. _, .•S ^... 2^• . -' :'tw ^. ..Y ^Mc+^.. T^-''^... ^' _Gn.,t .,.c':^-..,".r ..`^++._ ^:-^"^'::w.Ss^,r^S=1'=, ..:.:.^ :...............>µ..u7;^ 7:Gii:: :` +}c': -. a.,.-w_w.-..rM^:::;''.G m^::.^ ^•.:...n.^^:5.... K--..r, F a.....^.,,w......._.....,:y^:^;].],::;.lf..a.,.u^ t.3.n.,....r...^•.! mar._, 2 .^, w;.;^,:^'î^.^":.:r ,x^:.+4'`rf•:Z ..Y^..

................ .


SecuritizationOn June 28, 2007, the Company closed its first securitization of its privatestudent loan assets. The transaction was accounted for as a sale of the$137.8 million of private student loans securitized. In connection with thesale, the Company booked a gain of $16.2 million based upon the excessof the proceeds and value of the Residual Interest received over thecarrying value of the assets sold. On September 25, 2007, the Companysold an additional $32A million of private loans to the trust and booked again of $4.1 million. The Company values the retained Residual Interest at$13.9 million, all of which are referred to as the Company's accountsreceivable from the Securitization.

The Company completed its first securitization in June 2007, in which itrecognized a gain of $16.2 million from the sale of $I37.8 million ofprivate student loans to a trust established by the Company; in September2007, the Company sold $32.4 million of additional private student loansthe trust and recorded a gain of $4.1 million. It is our intent to continue tosecuritize our student loans from time to time as sufficient volumes ofloans are originated to efficiently execute such transactions.

174_ The Company's financial statements, as contained in the November 14,

2007 10-Q, reported as accounts receivable from securitizations as of September 30, 2007

of $13,937,315 and as of June 30, 2007 $11,191,957. Total assets for those two quarters

were reported as $109,090,955 and 54,192,2I4, respectively. Securitization income was

reported as $4,065,582 and 0, respectively. All dollars in thousands.

175. Defendants again failed to disclose the true nature of the ARS market, or

the fact that the favorable terms received in the June 2007 securitization were a result of

manipulation of the ARS market by broker-dealers, including Merrill Lynch.

Consequently, the November 14, 2007 Form 10-Q was false and misleading when made

because it failed to disclose:


dealers;

48

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',t` r • • v- - ,P . t "'^' S 2" '^.. 'aY^'^^'•y ••- :.ag r wf ' ^ r 2 .,;;. ^.. L. .^5'{i.. w ^ ] ^ ^ ti^ -•1^ s ^.

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...................... ................


b, that certain of management's critical accounting assumptions were

unreasonable and unrealistic, rendering MRU's financial statements falsei

and misleading;

c. that the illusion of liquidity created by the broker-dealers allowed the

ii Company to pay a lower interest rate on the notes issued by the 2007 Trust

I







Company;




model untenable; and

g. that the value of the Residual Interest was overstated because once the true

nature of the ARS market became known, the 2007 Trust would be forced

to pay higher interest rates on the ARSs it issued..

175. Also on November 14, 2007, Defendants caused the Company to issue a

press release via PRNewswire regarding financial results for the first quarter of 2008.

Among other things, Defendants stated:

NEW YORK, Nov 14, 2007 /PRNewswire-FirstCall via COMTEX NewsNetwork/ -- MRU Holdings, Inc. (Nasdaq: UNCL), a specialty finance

49

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^î^ ^ ^^ ^

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company that provides federal and private student loans through itsconsumer brand MyRichUncle(TM) and its relationships with private labelpartners, today announced results for its fiscal 2008 first quarter endedSeptember 30, 2007.Other income for the fiscal 2008 first quarter includes securitizationincome of $4.1 million associated with the sale of the second pool of loansto the securitization Trust which was established at the time of Company's

1 first securitization in June 2007.

Recent Accomplishments

-- Completed its first securitization of $200 million in private studentj loans in June 2007, with a portion of the loans being sold to the

securitization Trust at a premium in the fiscal 2007 fourth quarter,generating a gain of $16.2 million. During the fiscal 2008 first quarter thesecond pool of loans was sold to the securitization Trust generating a gainof $4.1 million.

Loan Origination OutlookAs previously reported, MRU expects to originate approximately $365million in private and federal student loans in the fiscal year ending June30, 2008 and approximately $630 million for the fiscal year ending June30, 2009.

177. Again Defendants made no mention of the ARS market in this press

release, despite the fact that the Company's ability to originate loans was wholly

dependent on the favorable terms afforded by the manipulation of that market by the

broker-dealers. Consequently, the November 14, 2007 press release was false and

misleading when made because it failed to disclose:


dealers;



and misleading;

50

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r'h-, -z"r5^^t`'=` ^r., '.::: s:^^,v` 9:?•:•;^s••`x 'y=` ^ ^`:'' ca =^ .x ^^ ,` C?' .^,^^^ ..^ ^^« 5.. ^s`^ '-'^^ ,^ ^ r^3-"''.Â;•J^•v. 3:'S ;^^^^ ^^,.. .:. G,,... . N, •;:^:r^ .'^.. ^sn.,...: a ..û l: .^w^:' ^ ^3,:.... 4.._ .ar'.'+..,...^-. ^^à55:'.^...`se:.-.-.^.z^:::cKF°''' ^.y.^:.v"ârA.f.:,3,1.-.î û.•^r.x•..fi`'r.?•,'..:.. -.ate.....,".x^`x, a_


c. that the illusion of Iiquidity created by the broker-dealers allowed the

Company to pay a lower interest rate on the notes issued by the 2007 Trustf

ithan the Company would have to pay if the true nature of the ARS market


d, that the spread created by this lower interest rate allowed the Company to

securitize its student loans on favorable terms;I



Company;




model untenable; and

g. that the value of the Residual Interest was overstated because once the trite

nature of the ARS market became known, the 2007 Trust would be forced

to pay higher interest rates on the ARSs it issued.

178. On February 4, 2008, the Company furnished a copy of its January 2008

investor presentation to the SEC via a Form 8-K, signed by Katz, which contained the

following excerpts: "Economies of Scale Benefits Future Securitization Revenue;"

"Long-Terre Economic Model (as % of Private Loans Originated);" * 13% of loans

originated recognized as revenue in first securitization in June 2007;" and "*

Securitization revenue expected to increase to 1 5% from 13% due to more efficient risk-

based pricing on assets and improvements in servicing fees." Having chosen to speak

51

.^'4n '^:"•^C::ly" `+^-,its:^«^x,,,,.p,... :a+v-.m'^7^.a-;C:w's...^ ^: .rrx9csa^ ;ec:Gt^,"..^.:: r...... e ^...:,w '•'.:.^R4..,".P.tn• .. s..w .M ....e xd]<.'„ .c •Mti . '• .w• .:, s 'n" +,.. °n,a..d^^::; ±.^


about the Company's securitizations, defendants had a duty to disclose all material

information on that topic to investors,

179. On February 7, 2008, the Company furnished a copy of its February 7,

2008 investor presentation to the SEC via a Form 8-K, signed by Katz, which containedii

the same pages excerpted above.

` 180, The February 4 & 7, 2008 investor presentations discussed above were

f false and misleading because they failed to disclose:


dealers;



and misleading;









Company; and


manipulation 'by the broker-dealers, the Company would not have

52

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. ................... .



model untenable.

i 181. On February 13, 2008, the ARS market , collapsed, with 87% of all ARS

auctions fail€ng.

182. On February 14, 2008, the Company filed its Quarterly Report on Form

10-Q for the quarter ended December 31, 2007, signed by McGuinn and Garg. The 10-Q

stated:

On June 28, 2007, the Company closed its first securitization of itsprivate student loan assets. The transaction was accounted for as asale of the $137.8 million of private student loans securitized. Inconnection with the sale, the Company booked a gain of $16.2million based upon the excess of the proceeds and value of theResidual interest received over the carrying value of the assetssold. On September 25, 2007, the Company sold an additional$32.4 million of private loans to the trust and booked a gain of$4.1 million. On November 29, 2047, the Company sold anadditional $0.38 million of private loans to the trust. The Companyvalues the retained Residual Interest at $.I 13 million, all of whichare referred to as the Company's accounts receivable from theSecuritization.

The senior tranches of the Company's seeuritization are auctionrate notes. The interest rate on auction rate notes is reset throughan auction process periodically (currently every 28-days). Basedupon market conditions at the time of each auction, the spread toLIBOR of the interest rate required by investors could be more orless than the initial spread to LIBOR at which the transaction waspriced. Since November 2007, the interest rate on the Company'sstudent loan auction rate notes has widened to approximately1.65% over LIBOR. In booking the gain on the loans sold inSeptember 2007 and November 2407 'and in valuing the ResidualInterest, the Company has assumed that these higher spreads willcontinue through .Tune 2008 and then return over the next twelvemonths to approximately 0.275% over LIBOR for the remaininglife of the transaction.. The spread indicated above is the weightedaverage over the life of the transaction.

Increase in Student Loan Auction Rate Bbnd Auction Failures

53

^^C:e:"' y 4 i Nam' ^ rte. t ^ oCt'` "r -, ii:..•. N'-f^`^.a' ....w ^fi::^n. ti . n.:w'a.P'^«eT^.°^^f.. ^ywJ''. ^^ .ah^F c. ^"^cir .,o,.... .,... .,:Gw^^..S.i --.L'r.,C:?s..,r^... ! Sti :la^J': ',-w^! ^ ,urn d=xlaSy d..n3.4RW:., .n.L^• .; n


I

On February 7, 2008, several auction-rate broker-dealersdiscontinued supporting the auctions for student loan auction ratenotes, leading the auctions to fail in the absence of a clearing bid.The auction for the subordinate notes of the Company'ssecuritization that was held on the same day was, however,successfully completed, This recent deterioration in the auctionrate market casts doubt upon the potential for market normalizationin the near term.

As discussed in Note 16 - Securitization, the Company adjusted itsauction rate assumptions used to value its Residual Interest in its

f securitization, resulting in a $3.0 million adjustment to othercomprehensive income. Primarily, we extended the period throughwhich the auction rate securities would price at the maximum ratethrough the next six months and assumed that rates wouldthereafter decline over twelve months to a rate in excess of thelevels that the Company's securities priced at the inception of thetransaction. The Company believes that these were reasonableassumptions as of December 31, 2007, the date of valuation, basedupon market conditions at that tune. Pursuant to FAS 140, theCompany is required to revalue its Residual Interest each quarter,If other broker dealers fail to support their auctions and liquidity inthe market worsens further; at a subsequent valuation date theCompany might find it necessary to further adjust its assumptions,likely resulting in a further impairment and potential write-down ofits Residual Interest.

The Company is currently working on a Securitization that it plansto execute, subject to market conditions, prior to the conclusion ofits current fiscal year on June 30, 2008.

Securitization refers to the technique of pooling loans and sellingthem to a special purpose, bankruptcy remote entity, typically atrust, which issues securities backed by those loans. The Companycompleted its first Securitization in June 2007, in which itrecognized a gain of $16.2 million from the sale of $137.8 millionof private student loans to a trust established by the Company; inSeptember 2007, the Company sold $32.4 million of additionalprivate student loans to the trust and recorded a gain of $4.1million; in November 2007, the Company sold $0.38 million ofadditional private student loans to the trust without gain. It is ourintent to continue to securitiee our student loans from time to timeas sufficient volumes of loans are originated to efficiently executesuch transactions.

54

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'4 ^.^ ^C?F-.k"r r^^cif ^^n^ • ' ^r'..;s-w+ ,r'-•^^=. 3^' u... - c . - f7'r` gr, c.:.. - ,^ ^ ^ ti .'^`.x.•c..amss,: ^M

is ^,=.,.v.R ua-n.tx, :......:.sMa ,^ ..?=: '^tiv..a,...^.GF.w..ca.`rc.. •..w.n,w .. ^' `^o..v- ^ ^:ti... ..^ c • - w^7^'+ .. .,....-.


183. The financial statement, as contained in the February 14, 2008 10-Qi

reported accounts receivable from securitizations of $11,342,357 and 11,191,957 as ofi

December 31, 2007 and .Tune 30, 2007 respectively. Total assets were reported as

$167,057,123 and $54,192,214 and securitization income of 0 for the periods. All dollars

i in thousands.

j 184. Although Defendants did discuss the ARS market in the February 14,

2008 Form 10-Q, Defendants still failed to disclose the true nature of the ARS market, or

the fact that the favorable terms received in the June 2007 securitization were a result of

manipulation of the ARS market by broker-dealers, including Merrill Lynch,

Consequently, the February 14, 2008 Form 10-Q was false and misleading when made



dealers;



and misleading;







55

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Company;

f. that without the favorable terms available in the ARS market as a result off



model untenable.

185. On February I4, 2008, the day after the ARS market collapsed,

Defendants caused the Company to issue a press release via PRNewswire announcing

financial results for the six month period ending December 31, 2007:

Student Loan Originations Increase 127% to Approximately $187 Millionfor the First Half of FY 2008 vs. Increase of 17% in Core Operating Costs,Demonstrating Growing Scale of Business ModelEmbark.corn Launched with Tremendous Success, Generates over375,000 Registered Users in Under Five Months of LaunchNEW YORK, Feb 14, 2008 /PRNewswire-FirstCall via COMTEX NewsNetwork/ -- MRU Holdings;--Inc. (Nasdaq: UNCL), a specialty financecompany that provides federal and private student loans through itsconsumer brand MyRichUncle(TM) and its relationships with private labelpartners, today announced results for the first half of its fiscal year2008....

Ed McGuinn, Chairman and CEO added, "While we continue to be in adifficult environment for financial services firms, we firmly believe thatthe core demand for student loans is sound and that the Company is welI-situated to capitalize on it. Our management team has been focused andexecuted a number of strategic transactions admirably over the pastquarter while growing the size and efficiency of our business. As themarkets are recognizing the quality and outperformance of our assets vis-a-vis our peers, we believe the Company is well-positioned to access thecapital markets to grow its portfolio of loans in the future."

186. Defendants made no mention of the ARS market in this press release,

despite the collapse of the greater ARS market the day before and the fact that the

56


Company's ability to originate Ioans was wholly dependent on the favorable terns

afforded by the manipulation of that market by the broker-dealers. Consequently, the

February 14, 2008 press release was false and misleading when made because it failed to1

disclose:

a. that the ARS market was illiquid and existed at the whim of the broker

dealers;



and misleading;

c. that the illusion of Iiquidity created by the broker-dealers allowed the





securitize its student loans on favorable terns;

e. that once the true nature of the ARS market became known, the teams of


Company; and

f that without the favorable terms available in the ARS market as a result of



model untenable.

57

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187. On May 15, 2008, the Company filed its Quarterly Report on Form 10-Q

for the period ending March 30, 2008, signed by McGuinn and Garg, The 10-Q stated:

On June 28, 2007, the Company closed its first securitization of its privatestudent loan assets. The transaction was accounted for as a sale of the$137.8 million of private student loans securitized. In connection with thesale, the Company booked a gain of $16.2 million based upon the excessof the proceeds and value of the Residual Interest received over thecarrying value of the assets sold. On September 25, 2007, the Company

i sold an additional $32.4 million of private loans to the trust and booked again of $4.1 million, On November 29, 2007, the Company sold anadditional $0.38 million of private loans to the trust. The Company valuesthe retained Residual Interest at $9.3 million, all , of which are referred toas the Company's accounts receivable from the Securitization.

Subordinate Student Loan Auction Rate Bond Auction Failures. SinceMarch 31, 2008, the two auctions that have been held for the subordinate,single-A-rated auction rate notes in the Company's securitization havefailed (i.e. , there was no clearing bid from investors and the broker-dealerdid not otherwise provide a clearing bid). The economic impact of thefailure of the subordinate, single-A-rated auction rate note auctions hasbeen immaterial as the bonds had previously been pricing at very close tothe maximum rate (LIBOR + 2.50%), where they priced upon the failureof the auction. The senior, triple-A-rated auction rate notes in theCompany's securitization have never experienced an auction failure butcontinue to price very near at the maximum rate (LIBOR + 1,50%).

For the quarter ended March 31, 2008, the Company adjusted its auctionrate assumptions used to value its Residual Interest in its securitization,leading to a $2.4 million reduction in the value of its residual, whichresulted in a $0.1 million adjustment to other comprehensive income and a$2.3 million write-dawn, recorded as a negative Securitization Income.

Broker-dealers may submit orders in auctions for their own account. As aresult of such bidding, a broker-dealer may prevent a failed auction, or theinterest rate resulting from an auction may be lower than the rate thatwould have prevailed had the broker-dealer not bid. A failed auctionoccurs when an existing owner does not have its notes purchased throughthe auction procedures because the amount of notes submitted for saleexceeds the amount of purchase orders. Broker dealers, which have servedas underwriters of our securitization, have bid, and may continue to bid, inauctions relating to our trust's auction rate notes. These bids in the pasthave both prevented failed auctions and supported interest ratesdetermined at auction. Broker-dealers have no-obligation to submit ordersin auctions, and to the extent broker-dealers do not submit such bids in the

58


future, the interest rates on our trusts' auction rate notes could be higherthan they have been historically, including higher than the maximum rate,which would result in carryover interest, and there could be failed auctionsfor such notes.

As of March 31, 2008, we had not had any failed auctions, However, sincethat time two of the auctions of our single-A rated auction rate notes havefailed, These auctions may continue to fail and there can be no assurancethat the auctions of our triple-A rated auction rate notes will not fail in thefuture, given that triple-A auction rate securities of other student loanissuers have been experiencing auction failures since February 2008.Because the auctions of our single-A rated auction rate note failed, theirinterest rate was set at the maximum rate for their rating category, which is

j one-month LIBOR plus 2.50%. While our triple-A rated auction rate noteshave not experienced a failed auction, they have been pricing at verynearly the maximum rate for their rating category, which is one-monthLIBOR plus 1.50%. During the third quarter of fiscal 2008, we revised ourassumption with regard to the future cost of funding of auction rate notes.We assumed at March 31, 2008 that-all outstanding auction rate notes willcontinue to bear interest at the current spreads over one-month LIBOR forIS months in the case of AAA/Aaa-rated securities and 24 months in thecase of A21A-rated securities and thereafter decline over 18 and 24months, respectively, to spreads that are lower but higher than historicallevels for auction rates. As a result, during the third quarter of fiscal 2008,we decreased the estimated fair value of our securitization receivable by$2,4 million.

188. The Company's financial-statement, as contained in the May 15, 2008 10-

Q, reported that accounts receivable from securitizations was $9,253 and $11,193 for

March 13, 2008 and ,tune 30, 2007, respectively. For the same periods, $186,674 and

$54,192 in total assets and securitizations income (loss), net of ($2,270) and 0. All

dollars in thousands.

189. The May 15, 2008 10-Q marks the first time that Defendants revealed that

broker-dealers had prevented auctions from failing in the past (including Merrill Lynch,

the underwriter for MRU's A.RSs) and that the broker-dealers had no obligation to

continue to do so. Notwithstanding this discussion, Defendants still failed to disclose that

the favorable terms received in the June 2007 securitization were a result of manipulation

59

•:'.^<)^•^37 ti+ `'!^. ^ r ^°w'+ ^ •'^'r JV. ^' o ^ F : % K. N•• ':F ate' ri ' ^ ^k

`. ^^y ^ti5. '^^- .Lai

"x irS^ ^+ ^ ^^ r`z •`F ^:::.c. ^ * ``'••" ,a µ . , a,ec..^ ` ^. v ^V'


j

of the ARS market by broker-dealers, including Merrill Lynch. Consequently, the May

15, 2008 Form 10-Q was false and misleading when made because it failed to disclose,

among other things, that without the favorable terms available in the ARS market as ai

result of manipulation by the broker-dealers, the Company would not have sufficient

capital to originate loans, making the Company's business model untenable, and that

certain of management's critical accounting assumptions were unreasonable and

unrealistic, rendering MRU's financial statements false and misleading.

190. On May 15, 2408, Defendants caused the Company to issue a press release

via PRNewswire announcing results for the nine months ending March 31, 2008.

Defendants stated, among other things:

Student Loan Originations Increase 92% to Approximately $230 Millionfor the First 9 Months of FY 2008 vs. Increase of 13% in Core OperatingCosts, Demonstrating Growing Scale of Business ModelNEW YORK, May 15, 2008 IPRNewswire via COMTEX News Network/-- NEW YORK, May 15 /PRNewswire-FirstCall1-- MRU Holdings, Inc.(Nasdaq: UNCL), a specialty finance company, that provides federal andprivate student loans through its consumer brand MyRichUncle(R) and itsrelationships with private label partners, today announced results for thefirst 9 months of its fiscal year 2008 ....

"Our goal this quarter was to generate highly securitizable . loans at a yieldthat reflected the new market environment in terns of cost of funds. Webelieve that we are one of the few private student loan originators thatcurrently have liquidity to lend during the upcoming peak season and aswe get a securitization or sale of our existing portfolio completed, webelieve we will have a significant competitive advantage in originatingnew private student loans. That will be the appropriate time to ramp upmarketing," said Vishal Garg, Chief Financial Officer, MRU Holdings.

191, The May 15, 2008 press release was false and misleading when made


a. that the Company did not have sufficient "liquidity to lend during the

upcoming peak season," that is, the quarter ending September 30, 2008;

50

"nr^'•'.rr?:^;^Yj:„'^,^•• u:.^ Ft^+wsi'," '4 r " .•iy;' ra:UN.ti.+->;â;,^, L 'sf'.Kî^5-^1',^``'^ .rr -` tc;^• ^^(a,,^, ^" ^: .,^à^;7r '^ r.y—x sL.. 9F ` yyL ..:V•.:^^ ^ -ti. .â'^^''i3 ^ L. V.. .-'.M"' .C.nn.+"w' :r. °^ 4` i+ ` ^ 3'%FC° ^'i. ^ '•'aµ'S' ^ ^ G /^ Gti , k1,^., ^x L `3. ^y^

a".•^^;tio^^'^ "^CSrl^.e iw^+w'"ash,:^'Q^.c:-n;•:lr^,•C;^„xa,`rkh.^.^;.1.:..^.:^c^.^'i5.:S^L e^k,.,.rx,..^^.N,.['^ ^ ti . .t.^" lAt4t-,6 .û k:. ^.sn,.;.^ S:^û.. ..r-:4^^^'^:v Y:-..c ^;^r ^.'7,'..r




and misleading;i

c. that the terms of future securitixations by the Company would not be

favorable to the Company nor provide it with "a significant competitive

advantage"; and

i d. that without the favorable terms available in the ARS market as a result of



model untenable.

192. On July 3, 2008, Defendants caused the Company to issue a press release

via PRNewswire entitled "MRU Holdings Announces Pricing of $144 MM Private

Student Loan Securitization Transaction":

NEW YORK, July 3 /PRNewswire-FirstCall/ -- MRU Holdings, Inc.(Nasdaq: UNCL), a specialty finance company that provides privatestudent loans through its consumer brand MyRichUncle(R) and itsrelationships with private label partners, today announced that it hadpriced $140 million of asset-backed securities, backed by its privatestudent loan portfolio.

"This is a landmark transaction for the Company. Our ability to executethis transaction demonstrates that our market-leading underwritingplatform generates loans which have not only superior performancerelative to its competitors but also superior marketability to ABSinvestors. The goal of this transaction was to establish market access anddemonstrate the resilience of the Company's business model in spite ofwhat can only be called a period of unprecedented market dislocation,"said'Vishai Garg, Co-founder and Co-President of MRU Holdings, Inc.

"This securitization is another step in the Company's continued growthand affirms to parents and students that MRU will continue to honor itscommitment to provide them with the best information and options on

61

.................... ............................................... ...................................... .. ............ ........... .


paying for college throughout these turbulent economic times," addedRaza Khan, Co-Founder and Co-President of MRU Holdings, Inc.

193. The July 3, 2008, press release was false and misleading when made


a. that the terms of the announced securitization would not be favorable to

the Company;

b. that certain of management's critical , accounting assumptions were


and misleading; and

c. that without the favorable terms available in the ARS market as a result of



model untenable.

d. that MRU stopped originating certain loans in July 2008. This was

significantly in advance of the Company's public announcement in

September 2008 that it was "pausing" its loan originations. Defendants'

highly positive statements about its business and prospects were thus false

and misleading.

e. That MRU had begun massive layoffs of its employees in July 2008.

Defendants' highly positive statements about MRU's business and

prospects were wholly unjustified.

THE TRUTH IS SLOWLY REVEALED

194. After MRU took an enormous, and entirely unwarranted, gain for the

fraudulent 2007 securitization on its 2007 financial statements, corrective information

62


trickled out to investors slowly over the next twelve months. By the time MRU disclosed

the truth about its ARS securitization in September 2008 in its 2008 Annual Report,

MRU common stock was trading at around $0.40 and MRU's bankruptcy a few months

later was inevitable. Plaintiffs contend that the value of their MRU shares decreased, and1

their damages accrued, slowly throughout the Class Period and ending with the

Company's inevitable bankruptcy, as corrective information entered the marketplace,

Moreover, Plaintiffs further contend that Defendants should not benefit from their active

concealment of their fraud and refusal to correct their misleading statements, fraudulent

omissions, and manipulative acts until after the market had shed more than 90% of the

MRU share price. And, Plaintiffs will show that general market dislocation cannot

explain the drop in MRU's stock price, and the Company's ultimate bankruptcy.

Moreover, some partial corrective disclosures, made during the CIass Period, followed by

significant one-day drops, are described below.

195. On July 7, 2008, prior to the closing of the securitization, the Company

furnished a copy of its July 7, 2008 investor presentation to the SEC via a Form 8-K,

signed by Garg, which revealed that the bonds to be issued in the pending securitization

would be issued at a discount, and that rather than generating revenue, the securitization

would result in a significant write-down of assets. The Company stated, among other

things:

Financing Provided By Transaction

Principal of bonds issued: $140.9 MMBond proceeds: $123.00 MM

- Bond proceeds are less than principal balance of bonds due to saleof securities at a discount.

Financial Impact of the Transaction

63

r,... • .n :^... .. ^ ,.:,y:.sJ.=YC ' H ^.LU's:^..0 .. ri.w: ^ sarx.:.;.^^^.'%i.- " ^`^ F,rt:..- .i.)-:" 3'; . " ti^.i:..v':L8' ^ ^' •n:.^s = ^` . ".•.'Ga ;, .:^:^-x:7Xv.• ....t:::a-a.., .:y^ - ,... •.;:.;,;.


Because MRU accounts for private student loans at lower of cost ormarket (LOCOM), we project that we may need to reduce the carryingbasis of our private loan portfolio given the cost of funds of thesecuritization - Projected LOCOM adjustment: ($10-12 million) -LOCOM adjustments are charged to earningsWe also anticipate increasing the discount rate used to value the residualinterest on our prior securitization which may lead to a residualwritedown, and charge to earnings of $3-4 MM

196. The price of the Company's. shares dropped 9% to close at $2.27 on July

7, 2008, and continued to drop rapidly thereafter, closing at $1.85 on July 11, 2008, down

26% from the closing price of $2.50 on July 6, 2008.

197. On August 18, 2008, Moody's Investors Services placed the ARSs issued

by the 2007 Trust on review for downgrade, prompted by the failure of the ARS market.

Unbeknownst to MRU's investors, , such a rating downgrade would materially change

MRU's financial statement accounting because it would materially increase the

misnamed "maximum rate" payable on the student loan-backed bonds. Thus, even as

corrective information worked its way into the marketplace, MRU's determination to

conceal the truth from its investors prevented the stock's trading price from reflecting

accurately the true value of the Company.

198. Nonetheless, the partial correction caused significant drops in the stock

price. The price of the Company's shares dropped 6.5% to close at $1.14 on August IS,

2008, and continued to drop the next day, closing at $1.05 on August 19, 2008, down

16% from the closing price of $1.22 on August 15, 2008.

199. After the close of trading on September 5, 2008; the Company issued a

press release via PRNewswire entitled "MRU Holdings, Inc. Pauses Origination of

Student Loans:"

64

r;..N^^:r. ^` ^a Fi t a+ Eiti r a

°r .ti ^• ^ w n _a, • a 1 . a


NEW YORK, Sept 05, 2008 /PRNewswire-FirstCaIl via COMTEX NewsNetwork) -- MRU Holdings, Inc. (Nasdaq: UNCL) is pausing theorigination of private student loans, available through its MyRichUncIe(R)website, www.myrichuncle.com , and its private label partners, effectivetoday.

"The decision to pause our student loan program is the result ofunprecedented and continued disruptions in the capital markets," said Co-founder and Co-president Rata Khan. "We hope to resume originations

I soon, but we are compelled to pause at this time as we are reachingfunding capacity limits, due to continued demand. To address this, we areworking closely with a number of financial institutions to try to obtainfunds that would enable us to continue to accept new customers. 'While weregret that we will have to pause receiving new applications, we continueto work with our existing families in 2008," said Mr. Khan.

I 200. While even this disclosure failed truly to apprise investors of the

magnitude of the Company's financing and liquidity problems, the price of the

Company's shares nonetheless closed at $0.71 on September 6, 2008, down 26% from

the closing price of $0.97 on September 5, 2008.

201. After the close of trading on September 19, 2008, the Company issued a

press release via PRNewswire entitled "MRU Holdings, Inc. Announces Receipt of

`Going Concern' Opinion:"

NEW YORK, Sept 19, 2008 /PRNewswire-FirstCall via COMTEX NewsNetwork/ -- MRU Holdings, Inc. (Nasdaq: UNCL) announced today thatits Annual Report on Form 10-K, filed with the Securities and ExchangeCommission on September 15, 2008, included an audit report thatcontained a going concern qualification from its independent registeredaccounting firm.

NASDAQ Marketplace Rules require Nasdaq-listed companies to publiclyannounce the receipt of a "going concern" audit opinion. MRU Holdingsalso announced today that it received a letter, dated September 18, 2008,from The Nasdaq Stock Market notifying MRU Holdings that based on itsAnnual Report on Form 10-K for the period ended June 30, 2008, Nasdaqhas determined that MRU Holdings' stockholders' equity does not complywith the minimum $10.0 million stockholders' equity requirement forcontinued listing on The Nasdaq Global Market set forth in MarketplaceRule 4450(a)(3). The Nasdaq staff is reviewing MRU Holdings' eligibility

65

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^` ,^ggqqqq7J x °^î "gam^ , b

^^•-

^ y•• r;

5 '' re:G•"+`/ r a."au. '.. & ^'i.î ^.•' e +î... ^.w ,MS .T m :SSSY.n /'+^ .+n$' „=Ai',I.^.. ".:^À .. x.ao. , .."'a;F]'a"?^.i--:u:.+`!.M


for continued listing; on The Nasdaq Global Market and has asked theCompany to provide, on or before October 3, 2008, a specific plan toachieve and sustain compliance with all of the Nasdaq Global Marketlisting requirements, including a time frame for completion of the plan.The Company intends to respond formally to the Nasdaq request for a planon or before the October 3, 2008 deadline.

202. The price of the Company's shares dropped 20% to close at $0.40 on

September 20, 2008.

203. In its 2008 10-K, MRU announced the following: "We have paused thefi

1 origination of PrePrime T" s student loans." & "To provide a "one-stop shop" for higher

education finance, we also provided FFELP loans until July 2008," MRU's funding

sources had already virtually disappeared, yet MRU covered up the fact that it had

stopped providing FFELP loans in July 2008, just as it was announcing positive news

regarding its asset-backed securitization.

204. On February 9, 2009, the Company filed a voluntary petition for

bankruptcy protection under Chapter 7 of the Bankruptcy Code,

205. During the CIass Period. MRU never disclosed that the bonds were subject

to material hidden features, including the fake "maximum rate" and the "cars over"

interest.

ADDITIONAL SCIENTER ALLEGATIONS

205. During the Class Period, the Company's - internal statements and actions

differed markedly from its public ones. Over the - summer of 2008, even as MRU

maintained publicly an optimism about the Company's future, internally, the Company

was considering, and then implementing, massive staff layoffs and facing serious

financing and liquidity problems, ultimately resulting in the Company's secretly

66

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"pausing" certain of its loan originations months before it announced in September 2408

that it was "pausing" private loan originations.

207. Counsel's investigator interviewed several former employees of MRU.

Confidential Witness Number 1 ("CW P), a manager for loan originations and customer1

care who worked for MRU from approximately July 2006 to August 2008, stated thatr3

r MRU stopped originating certain loans in July 2008, This was significantly in advance

of the Company's public announcement in September 2008 that it was "pausing" its loan

originations. Confidential Witness 2 ("CW 2"), a manager in the disbursement

department who worked for MRU from approximately August 2404 to August 2008,

confirmed that MRU was laying off large numbers of employees in August 2008. And,

comparing MRU's 2007 and 2008 Annual Reports shows that MRU had approximately

70 fewer employees only one year later,

208. As alleged herein, Defendants knew or were reckless in not knowing that

the public documents and statements issued or disseminated in the name of the Company

were materially false and misleading, knew that such statements or documents would be

issued or disseminated to the investing public, and knowingly and substantially

participated or acquiesced in the issuance or dissemination of such statements or

documents.

209. The Company's securitizations were a core component of its business, as

demonstrated by the complete failure of the Company after the unfavorable July 2008

securitization. In fact, more than half of the revenue generated by the Company was

generated through its securitizations and utilization of the ARS market. Because the

securitizations were a core component of the Company's business, and because the

67


Company's securitizations were orchestrated using ARSs, Defendants either knew or

were reckless in not knowing that there were not enough buyers to support the ARS!

market, and that as a result the market for ARSs existed at the white of the broker-

dealers.

210. Defendants also knew that without the favorable terms available in the

ARS market, the Company would not be able either to generate sufficient capital to

originate loans or to satisfy certain financing covenants and obligations and to preventi

defaults on existing financings, making the Company's business model untenable.

Despite this knowledge, Defendants continued throughout the CIass Period to project

dramatic growth in student loan originations and overstated the Company's Accounts

Receivable from Securitizations, without disclosing the true nature of the ARS market.

211. No individual defendant made a substantial purchase of MRU shares

during the Class Period, Two of the individual defendants were subject to lock-up

provisions contractually obligating them to refrain from selling; MRU stock for at least

some part of the Class Period.

212. MRU cashed out, in whole or in part, certain private investment funds in

October 2007, December 2007, and March 2008,

213. As a result of Defendants' false and misleading statements, MRU's

securities traded at inflated levels during the Class Period. However, as described above,

as corrective information trickled into the marketplace, MRU's stock dropped by more

than 94% from its Class Period nigh.

2I4. In addition to the significant underwriting fees that Merrill Lynch received

in connection with the issuance of the student loan-backed bonds and Merrill Lynch's

68

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interest in maintaining its fictitious auction rate securities market, Merrill Lynch owned a

significant number of MRU warrants, Merrill Lynch Bank USA extended a credit facility

to MRU, and had the right of first offer on financing MRU's private student loan

portfolio for a period of 3 years and up to $500 million in loan volume. Merrill Lynch

also had an enormous financial motive to operate its fraudulent auction rate securities

market for the benefit of issuers such as MRU.

215. The use of the proceeds of the 2007 transaction to repay nearly all of the

amount MRU owed Merrill Lynch's banking subsidiary, and the manipulation of the

transaction to ensure the highest rating on nearly all of the paper for the purpose of

allowing Merrill Lynch to sell the auction rate securities as liquid, safe, short-terns

investments that were the "same as cash" demonstrate Merrill Lynch's and MRU's

scienter.

215. MRU's violations of GAAP also suggest that the Defendants acted with

scienter. The impact of the GAAP violations on MRU's financial statements and

financing obligations described herein was highly significant. Changing the critical

accounting assumptions to comply with GAAP would likely have resulted in the

disappearance of the phantom revenue the Company claimed, and Iikely would have

triggered defaults and cross-defaults on the Company's financings, and, in turn, the stock

would have more quickly shed its artificially inflated value, leading to difficulties

maintaining its Nasdaq listing requirements (as actually occurred).

217. Neither MRU's management nor BJL believed that MRU's FYE 2007

financial statements were accurate or free from material misstatements. Nor could they

69

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have believed that management's accounting assumptions and BJL audit procedures andi

opinion were based on the exercise of any reasonable judgment.

NO SAFE HARBOR

218. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in

this complaint. Many of the specific statements pleaded herein were not identified as

"forward-looking statements" when made. To the extent there were any forward-looking

statements, there were no meaningful cautionary statements identifying important factors

that could cause actual results to differ materially from those in the purportedly forward-

looking statements. Alternatively, to the extent that the statutory safe harbor does apply

to any forward-looking statements pleaded herein, defendants are liable for those false

forward-looking statements because at the time each of those forward-looking statements

was made, the particular speaker knew that the particular forward-looking statement was

false, and/or the forward-looking statement was authorized and/or approved by an

executive officer of MRU who knew that those statements were false when made.

RELIANCE PRESUMPTIONS

Affiliated We Presumption of Reliance

219. Neither Plaintiffs nor the Class need prove reliance --- either individually or

as a class -- because under the circumstances of this case, which primarily involve

omissions of material fact as described above, positive proof of reliance is not a

prerequisite to recovery, pursuant to the ruling of the United States Supreme Court in

Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128; 92 S. Ct. 1456; 31 L.-Ed.

2d 741; 1972 U.S. LEXIS 163; Fed. Sec. (1972). All that is necessary is that the facts

70

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withheld be material in the sense that a reasonable investor might have considered the

omitted information important in deciding whether to buy or sell the subject security.

Fraud-on-the-Market Presumption of Reliance

220. At all relevant times, the market for MRU securities was an efficient

market for the following reasons, among others:

(a) During the Class Period MRU's stock met the requirements for listing on

the NASDAQ, and was listed and actively traded on the NASDAQ, a highly

efficient and automated market;

(b) During the class period, on average, approximately 500,000 shares of MRU stock

were traded on a weekly basis. During the Class Period approximately 31.7 million

MRU shares were outstanding, with an outstanding float of 243 million shares.

Approximately 1,50/o of the outstanding shares and 2.0% of the float (shares

available for public sale) were traded on a weekly basis, demonstrating a very active

and broad market for MRU stock and permitting a strong presumption of an efficient

market;

(c) As a regulated issuer, MRU filed periodic public rdports with the SEC and

the NASDAQ;

(d) During the Class Period, MRU was eligible and did file registration statements

on Form S-3 with the Securities & Exchange Commission;

(e) MRU regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of

press releases on the national circuits of major newswire services and

through other wide-ranging public disclosures, such as communications

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with the financial press and other similar reporting services;

(f) MRU was followed by several securities analysts employed by third

party research firms and by brokerage firms who wrote reports which

were distributed to the sales force and certain customers of their

respective brokerage firms, as well as available publicly, during the Class

Period. These included: Roth Capital Partners, Fitch Research, Risk

Metrics Group, Zacks Investment Research, Revere Research,Stock

Diagnostics, and Pechala's Reports among others. Each of these reports

was publicly available and entered the public marketplace for review and

action by investors;

(g) More than 20 NASD member firms were active market-makers in MRU stock

at all times during the Class Period; and

(h) Unexpected material news about MRU was rapidly reflected and incorporated

into the Company's stock price during the Class Period.

221. As a result of the foregoing, the market for MRU's securities promptly

digested current information regarding MRU from all publicly available sources and

reflected such information in MRU's stock price. Under these circumstances, all

purchasers of MRU securities during the Class Period suffered similar injury through

their purchase of MRU securities in an efficient market at artificially inflated prices and

a presumption of reliance applies.

72

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FIRST CLAIMViolations of Section 10(h) of

The Exchange Act Against and Rule 10b-5Promulgated Thereunder Against Each of the Defendants

222. Plaintiffs repeat and reallege each and every allegation contained above asi

E if fully set forth herein.

223. During the Class Period, Defendants carried out a plan, scheme, and

course of conduct which was intended to and, throughout the Class Period, did.

(i) deceive the investing public, including Plaintiffs and other CIass members, as alleged

herein; and (ii) cause Plaintiffs and other members of the Class to purchase MRU

securities at artificially inflated prices. In fiu rtherance of this unlawful scheme, plan and

course of conduct, Defendants, and each of them, took the actions set forth herein.

224. Defendants (a) employed devices, schemes, and artifices to defraud;

(b) made untrue statements of material fact and/or omitted to state material facts

necessary to make the statements not misleading; and (c) engaged in acts, practices, and a

course of business which operated as a fraud and deceit upon the purchasers of the

Company's securities in an effort to maintain artificially high market prices for MRU's

securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5. All

defendants are sued either as primary participants in the wrongful and illegal conduct

charged herein or as controlling persons as alleged below.

225, Defendants, individually and in concert, directly and indirectly, by the use,

means or Instrumentalities of interstate commerce and/or of the mails, engaged and

participated in a continuous course of conduct to conceal adverse material information

about the business, operations and future prospects of MRU as specified herein.

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226. These defendants employed devices, schemes and artifices to defraud,

1while in possession of material adverse non-public information and engaged in acts,

practices, and a course of conduct as alleged herein in an effort to assure investors ofE

1 MRU's value and performance and continued substantial growth, which included theE

making of, or the participation in the making of, untrue statements of material facts and

j omitting to state material facts necessary in order to make the statements made about

MRU and its business operations and future prospects in light of the circumstances under

which they were made, not misleading, as set forth more particularly herein, and engaged

in transactions, practices and a course of business which operated as a fraud and deceit

upon the purchasers of MRU's securities during the Class Period.

227. Each of the Individual Defendants' primary liability, and controlling

person liability, arises from, inter alia, the following facts: (1) the Individual Defendants

were high-level executives and/or directors at the Company during the Class Period and

members of the Company's management team or had control thereof; (2) each of these

defendants, by virtue of his responsibilities and activities as a senior officer and/or

director of the Company was privy to and participated in the creation, development and

reporting of the Company's internal budgets, plans, projections and/or reports; (3) each of

these defendants enjoyed significant personal contact and familiarity with the other

defendants and was advised of and had access to other members of the Company's

management team, internal reports and other data and information about the Company's

finances, operations, and sales at all relevant times; and (4) each of these defendants was

aware of the Company's dissemination of information to the investing public which they

knew or recklessly disregarded was materially false and misleading.

74


228. Merrill Lynch's primary liability arises from, inter alga, the following

facts: (i) Merrill Lynch misrepresented to the investing public that ARS were safe,

highly liquid investments equivalent to money market instruments and cash; (ii) Merrilli

Lynch did not make adequate public disclosures that the liquidity of these securities was

based on Merrill Lynch supporting the auctions it managed when there was not enough

demand, but that it had no obligation to support the auctions; {iii} Merrill Lynch

continued to tout the purported liquidity of ARS to customers despite its awareness of the

escalating liquidity risks in the weeks and months preceding the collapse of the ARS

market; (iv) Merrill Lynch's misstatements and omissions regarding the true nature of the

auction rate securities markets, as well as its manipulated operation of those markets,

affected the integrity of the securities markets and investors' understandings of auction

rate securities; (v) Merrill Lynch engaged in manipulative conduct and a fraudulent

scheme in violation of Rule 10b-5(a) & (c); and (vi) it was easily foreseeable, indeed,

intended, that the stockholders of Merrill Lynch's issuer clients would rely on the

integrity of the auction rate securities markets that Merrill Lynch operated.

229. BJL's primary liability arises from- , inter alia, the following facts:' (i) BJL,

as MRU's auditor, should have viewed MRU management's reckless assumptions with

enormous professional skepticism, but instead accepted those assumptions and certified

the Company's 2007 financial statements; (ii) the acceptance of these assumptions was

highly unreasonable and represented an extreme departure from the standards of ordinary

care; (iii) BJL egregiously refused to see the obvious and investigate the doubtful, such

that the 2007 audit in fact amounted to no audit at all; (iv) no reasonable accountant

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would have certified MRU's 2007 financial statements when confronted with the sameI

facts.

230. Specifically, information that was or should have been apparent from the

Company's financing documents and BJL's audit, and was ultimately revealed to theI

investing public in September 2008, was available to BJL and should have caused the

auditor to reject certain of management's unrealistic assumptions, including but not

limited to that (i) the maximum rate on the ARSs was not in fact the maximum rate;

(ii) by the time MRU filed its 2007 Annual Report, interest rates on the student loan

backed auction rate bonds already materially exceeded the Company's worst-case

sensitivity analysis; (iii) MRU could not state that its financial statements complied with

SFAS 157, even though that Accounting Standard had been issued in September 2006,

approximately twelve months prior to the Company's filing of its 2007 Form 10-K in

September 2007; and (iv) MRU's financing covenants placed the Company in an

extremely precarious position.

23L The defendants had actual knowledge of the misrepresentations and omis-

sions of material facts set forth herein, or acted with reckless disregard for the truth in

that they failed to ascertain and to disclose such facts, even though such facts were

available to them. Such defendants' material misrepresentations and/or omissions were

done knowingly or recklessly and for the purpose and effect of concealing MRU's

operating condition and future business prospects from the investing public and

supporting the artificially inflated price of its securities. As demonstrated by defendants'

overstatements and misstatements of the Company's business, operations and earnings

throughout the Class Period, defendants, if they did not have actual knowledge of the

76


misrepresentations and omissions alleged, were severely reckless in failing to obtain such

knowledge by deliberately refraining from taking those steps necessary to discover

whether those statements were false or misleading.

S 232. As a result of defendants' dissemination of the materially false and

3misleading information and failure to disclose material facts, use of manipulative andi

deceptive devices, schemes and artifices to defraud, and engagement in acts, practices,

and a course of business which operated as a fraud and deceit, as set forth above, the

market price of MRU's securities was artificially inflated during the Class Period. The

Class's economic loss occurred as relevant truth began to leak out and after the truth

made its way into the market place. Additionally, risks that MRU concealed throughout

the Class Period materialized, damaging the members of the Class, Merrill Lynch's

operation of the fraudulent auction rate market and B.IL's materially false and misleading

statements harmed the Class.

233. In ignorance of the fact that market prices of MRU's securities were

artificially inflated, and relying directly or indirectly on the false and misleading

statements made by defendants, or upon the integrity of the market in which the common

stock trades, and/or on the absence of material adverse information that was known to or

recklessly disregarded by defendants but not disclosed in public statements by defendants

during the Class Period, Plaintiffs and the other members of the Class acquired MRU

securities during the Class Period at artificially high prices and were damaged thereby

when the shares lost all of their value as the corrective information became known and

the Company inevitably collapsed into bankruptcy.

77

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234. At the time of said misrepresentations and omissions, Plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true. Had

PIaintiffs and the other members of the Class and the marketplace known the truth

regarding MRU's financial results, which were not disclosed by defendants, Plaintiffs

and other members of the Class would not have purchased or otherwise acquired their

MRU securities, or, if they had acquired such securities during the Class Period, they

j would not have done so at the artificially inflated prices which they paid.

235. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule l Ob-5 promulgated thereunder.

236. As a direct and proximate result of defendants' wrongful conduct,

Plaintiffs and the other members of the Class suffered damages in connection with their

respective purchases and sales of the Company's securities during the Class Period.

SECOND CLAIMViolation of Section 20(a) of

The Exchange Act Against Each of the Individual Defendants

237. Plaintiffs repeat and reallege each and every allegation contained above as

if filly set forth herein.

238. The Individual Defendants acted as controlling persons of MRU within the

meaning of § 2O(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions with the Company, their ownership of MRU securities, and their ownership and

contractual rights, participation in and/or awareness of the Company's operations and/or

intimate knowledge of the false financial statements filed by the Company with the SEC

and disseminated to the investing public, the Individual Defendants had the power to

influence and control and did influence and control, directly or indirectly, the decision-

78


making of the Company, including the content and dissemination of the variousi

statements which Plaintiffs contend are false and misleading, The Individual Defendants

were provided with or had unlimited access to copies of the Company's reports, press

releases, public filings and other statements alleged by Plaintiffs to be misleading prior to

k and/or shortly after these statements were issued and had the ability to prevent the

issuance of the statements or cause the statements to be corrected.

i 239. The Individual Defendants were each culpable participants in the

violations alleged above by their acts and omissions. As a direct and proximate result of

their wrongful conduct, Plaintiffs and the other members of the Class suffered damages in

connection with their purchases of the Company's securities during the Class Period.

240. Therefore, the Individual Defendants are each liable jointly and severally

with and to the same extent as MRU for the Company's violations of § 10(b) of the11

Exchange Act.

WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

(a) Determining that this action is a proper class action and certifying

Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure

iand plaintiffs' counsel as Class Counsel;

(b) Awarding compensatory damages in' favor of Plaintiffs and the other

Class members against all defendants, jointly and severally, for all damages sustained as

za result of defendants' wrongdoing, in an amount to be proven at trial, including interest

Ithereon;

(c) Awarding plaintiff and the Class their reasonable costs and expenses

incurred in this action, including counsel fees and expert fees; and

79


(d) Such other and farther relief as the Court may deem just and proper.i

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: August 20, 2010 Respectfully submitted,

THE ROSEN LAW FIRM, P.A.

f

Laurence Rosen, Esq. (LR 5733)Phillip Kim, Esq. (PK 9384)Timothy W. Brown, Esq. (TB 1008)Julie Vamps, Esq. (JK 5041)350 Fifth Avenue, Suite 5508New York, NY 10118Phone: (212) 585-1060Fax: (212) 202-3827email: [email protected] email: [email protected] email: t6ravvnerosenlegal.com email: [email protected]

Lead Counsel for Lead Plaintiff

1

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK x

Case No. 09-CV-3807 (RMB)In re: MRU Securities Litigation

CERTIFICATE OF SERVICE

i x

I, Ilya Glinchenko, employed by the Rosen Law Firm, P.A., hereby certify under penalty of

perjury that I served the Consolidated Second Amended Class Action Complaint, dated August 20, 2010,

by placing a true and correct copy thereof in a sealed envelope addressed as set forth below and caused

such envelope, with first class postage thereon fully prepaid, to be placed in the U.S.P.S. Mail and certify

E that such envelope was placed for collection and mailing following ordinary business practices.f

I certify that the foregoing is true and correct.

BATED: August 20, 2014 at New York, New York

By: r_/Ilya linchenko

1

Case 1:09-cv-03807-RMB Document 40 Filed 08/20/10 of 82S

SERVICE LIST3

Barry G. Sher SHEARMAN & STERLING LLPKeith W. Miller Herbert S. Washer

l Lawrence J. Conlan Daniel LewisPaul, Hastings, Janofsky & Walker LLP 599 Lexington AvenuePark Avenue Tower New York, NY 1002275 E. 55th Street, First Floor (212) 705-9120New York, NY 10022

attorneys far .Defendants Edwin J. McGuinn, attorneys far ,Defendant Merrill Lynch & Co., InJr., Yishal Garg, Yariv Katz and Roza Khan

WILSON ELSER MOSKOWITZ EDELMAN& DICKER, LLPPeter LarkinThomas Manisero150 East 42nd StreetNew York, NY 10017.5639(212) 494-3000

attorneys far £Defendant Bagell, Josephs,Levine & Company, LLC

2

Case 1:09-cv-03807-RMB Document 40 Filed 08/20/10 Page 1...

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