As Puerto Rico’s dire economic health continues its downward spiral, a proposed class action complaint was filed against Ambac Financial Group, Inc. (“Ambac”), and four individual company officials – including the current and former chief executive officer, the current chief financial officer, and the chairman of the board – in New York federal court on June 28. The proposed shareholder class includes all investors who purchased or acquired Ambac stock between November 13, 2013, and June 30, 2015 (the “Class Period”). The complaint accuses Ambac and its executives of violating the Securities Exchange Act by concealing the declining value of its bond portfolio, which includes approximately $2.5 billion in Puerto Rican bonds, causing investors to lose money and suffer damages.

The complaint alleges that Ambac stock traded at artificially inflated prices during the Class Period as a result of “numerous materially false and misleading statements and [the omission of] material facts concerning [] the Company’s losses and loss exposure on its public finance bond portfolio” contained in Ambac’s SEC and other public filings. Complaint ¶ 3, 6. According to the complaint, Ambac knew but concealed from investors that the bondholder’s “credit risk surveillance strategies were inadequate…and [that] Ambac failed to maintain adequate internal controls over financial reporting.” Id. ¶ 7.

Investors allegedly learned the truth when Puerto Rico’s governor announced on June 29, 2015, that the commonwealth’s approximately $70 billion in debt was not payable, and that Puerto Rico would likely default on interest payments. This first alerted investors that if the U.S. territory was likely to default, Ambac was potentially liable for up to $2.5 billion of Puerto Rico’s debt it insured. Id. ¶ 8. According to the complaint, after the governor’s announcement, Ambac’s stock price fell by roughly 29 percent, causing investors to sustain significant losses.

The case is Joseph Pirinea v. Ambac Financial Group Inc. et al., case number 1:16-cv-05076, in the U.S. District Court for the Southern District of New York.