Judge Dismisses Fraud Lawsuit Against Syncora Holdings Ltd.

A lawsuit charging Syncora Holdings Ltd. with fraudulent misrepresentation was dismissed by the U.S. District Court of the Southern District of New York ­Wednesday.

Syncora, known as Security Capital Assurance when the suit was filed, is the holding company for Syncora Guarantee Inc., a troubled municipal bond insurer that was forced to stop writing new business or paying any claims in April 2009.

The lead plaintiff in the case was the Employees’ Retirement System of the State of Rhode Island, which said it purchased shares of Syncora at “artificially inflated prices” in mid-2007, according to court documents.

The suit, filed in December 2007, alleged that Syncora failed to maintain the proper systems to analyze its exposure to risky structured financial credit derivatives, which caused it to “falsely inflate its reported income, and understate its liabilities,” court documents said.

Judge Deborah A. Batts, in her 84-page ruling, said the company’s stock price moved in line with external events such as housing data releases and rating downgrades, rather than as alleged secrets gradually were released to the market.

She said the plaintiffs “leave wide periods unaccounted for” and “may be cherrypicking dates that suit their argument.”

“Plaintiffs have not with this complaint effectively shown that it was the incremental revelation of defendants’ fraudulent misrepresentations, and not the actions of third parties or other circumstances of the market, that caused the decline in SCA’s share price over the Class Period,” Batts concluded.

The plaintiffs had claimed that when Syncora allegedly discovered its oversized losses, the company released information incrementally to the market, during the Class Period between March 2007 and March 2008, in order to conceal “the truth” regarding its operating results.

After filing a prospectus with allegedly false information in May 2007, Syncora held a secondary offering the following month in which it sold more than 9.6 million shares to the public at $31.00 each, raising more than $300 million.

By mid-March 2008, shares in the company had plummeted to $0.60. In its argument, Syncora said the plaintiffs did not demonstrate that any alleged misrepresentations were the cause of plaintiff’s losses. It noted that the price of the company’s stock declined steadily over the period in question, and that it did not drop sharply once the alleged fraud was revealed to the market.

The plaintiffs have 90 days to file an amended complaint.