UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS

IN RE THE FIRST MARBLEHEAD ) LEAD CASE NO. 08-10612-JLTCORPORATION SECURITIES LITIGATION )

AMENDED CLASS ACTION COMPLAINT

Lead Plaintiffs Pembroke Pines Fire and Police Pension Fund ("Pembroke") and

Universal-Investment-Gesellschaft mbH ("Universal") (collectively, "Plaintiffs") allege upon

personal knowledge as to allegations specifically pertaining to Plaintiffs and Plaintiffs' counsel,

and upon information and belief and in reliance on the investigation of counsel as to all other

matters, as follows:

1. NATURE OF THE ACTION

1. This is a federal securities class action brought on behalf of all purchasers of the

common stock of The First Marblehead Corporation ("First Marblehead" or the "Company")

who purchased their shares of the Company's common stock between August 10, 2006 and April

7, 2008, inclusive (the "Class Period"), seeking to pursue remedies under the Securities

Exchange Act of 1934 (the "Exchange Act")

2. First Marblehead provides outsourcing services for private education lending in

the United States. Throughout the Class Period, Defendants reported quarter after quarter of

seemingly strong financial results while touting the Company's ability to complete additional

securitizations despite a difficult operating environment in the lending industry and emphasizing

the Company's purportedly strict lending standards and strong corporate governance practices.

As a result of Defendants' statements, the stock traded as high as $57.56 per share during the

Class Period.

3. However, Defendants failed to disclose that First Marblehead had embarked on a

fundamental shift in its corporate philosophy. As several former employees of the Company

confirmed, First Marblehead had implemented several programs that lowered its historically

strict credit guidelines in order to increase loan volume and maximize profitability through

securitizations . As one former employee put it, the Company basically began issuing loans to

any applicant regardless of qualifications - the Company had essentially dropped all of its credit

criteria.

4. On December 4, 2007, after the markets closed, Moody's Investors Service

shocked the investing public by announcing that it was performing a review of First Marblehead

and that it might lower ratings on $822 million of securities created by the Company between

2003 and 2007. Moody' s stated in its report that loans originated through the Company's

"direct-to-consumer channel appear to default at a significantly higher rate compared to loans

originated through schoolfinancial aid offices."'

5. The next day, Moody's announced that it might lower ratings on an additional

$113 million of First Marblehead securities. Other analysts and agencies responded by

decreasing their profit forecasts for the Company's near-term financial results, and lowered their

ratings on the Company.

6. The market reacted decisively after the announcement, causing the price of First

Marblehead stock to plunge $5.05 per share, or 20.2%, to $19.93, a far cry from its 52-week high

of $57. 56. On December 7, 2007, after the Company announced that it would cut its dividend by

56% to 12 cents per share and that the Company would not securitize any loans during the

1 Unless indicated otherwise, all emphasis is added.

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quarter, First Marblehead shares dropped to $17.85 after dipping down to a new 52-week low of

$15.69 in mid-day trading.

7. On March 26, 2008, Moody's confirmed the worst fears of investors that had been

weighing on the price of the stock since the announcement of the review, and downgraded the

ratings of 18 classes of notes in 11 First Marblehead student loan securitizations, affecting

approximately $1.09 billion of asset-backed securities. Moody's noted that the "downgrades are

due to the worse than expected performance of underlying student loans."

8. Finally, on April 8, 2008, First Marblehead lost over a third of its value after The

Education Resources Institute, Inc. ("TERI"), the Company' s guarantor of private student loans

operating out of First Marblehead's office space, filed for bankruptcy protection. As a result, the

Company will incur substantial losses arising from defaults on its student loans. Despite the fact

that Defendants were well aware of substantial problems with TERI's cash position during the

Class Period , they concealed this information from the investing public . After the TERI

bankruptcy announcement, First Marblehead's stock sank to $4.89, a decline of 36.5% from the

day before. The Company's stock had already fallen 50% in the several months since the truth

of its precarious financial position was finally revealed.

9. Throughout the Class Period, Defendants failed to disclose material adverse facts

about the Company's financial well-being and future prospects. Specifically, Defendants failed

to disclose or indicate that (1) the Company was not properly protected from the risk of default

in its underlying student loan securitizations; (2) the credit quality of the Company's underlying

student loans was not as strong as the Company had publicly indicated throughout the Class

Period; (3) the default rates on securitizations arranged by First Marblehead were "significantly

higher" than on loans issued through financial aid offices; (4) the securitizations in which the

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Company had a back-end residual interest were materially impaired and, therefore, a portion of

First Marblehead's back-end residuals were impaired; (5) TERI was not properly positioned to

adequately guarantee First Marblehead's student loans; (6) the Company lacked adequate

internal and financial controls; and (7) as a result of the foregoing, the Company 's statements

about its financial well-being and future business prospects were lacking in any reasonable basis

when made.

10. As a result of Defendants' wrongful acts, false and misleading statements and

omissions, and the precipitous decline in the market value of the Company' s securities , Plaintiffs

and other Class members have suffered significant losses and damages.

II. JURISDICTION AND VENUE

11. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the

Exchange Act [15 U.S.C. §§ 78j (b) and 78t(a)] and Rule l Ob-5 promulgated thereunder by the

SEC [17 C.F.R. § 240.10b-5].

12. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331, 1337 and 1367 and Section 27 of the Exchange Act (15 U. S.C. § 78aa).

13. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15

U.S.C. § 78aa) and 28 U.S.C. § 1391(b) and (c). First Marblehead maintains its corporate

headquarters in this District, and many of the acts charged herein, including the preparation and

dissemination of materially false and misleading information, occurred in substantial part in this

District.

14. In connection with the acts and omissions alleged in this complaint, Defendants,

directly or indirectly, used the means and instrumentalities of interstate commerce, including, but

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not limited to, the mails, interstate telephone communications, and the facilities of the national

securities markets.

III. PARTIES

A. Plaintiffs

15. Plaintiff Pembroke, as set forth in the accompanying certification and

incorporated by reference herein, purchased the publicly traded securities of First Marblehead at

artificially inflated prices during the Class Period and has been damaged thereby.

16. Plaintiff Universal, as set forth in the accompanying certification and incorporated

by reference herein, purchased the publicly traded securities of First Marblehead at artificially

inflated prices during the Class Period and has been damaged thereby.

B. Defendants

(a) The Company

17. Defendant First Marblehead is incorporated in Delaware and maintains its

principal executive offices at 800 Boylston Street, 34th Floor, Boston, Massachusetts 02199-

8157. First Marblehead is a financial services corporation that provides clients with an

integrated suite of tailored design, implementation and securitization services for private student

loan programs . The Company ' s common stock was traded on the New York Stock Exchange

("NYSE") under the symbol "FMD" at all relevant times during the Class Period.

(b) The Individual Defendants

18. Defendant Jack L. Kopnisky ("Kopnisky") served as the Company's Chief

Executive Officer, President and Chief Operating Officer from September 2005 and as a director

from November 2006 until his resignation from the Company on August 31, 2008.

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19. Defendant John A. Hupalo ("Hupalo") served as the Company's Chief Financial

Officer and Senior Executive Vice President from November 2006 until his resignation from the

Company on September 22, 2008. Hupalo also served as Executive Vice President and Group

Head, Capital Markets from March 2003 to November 2006.

20. Defendant Peter B. Tarr ("Tarr") has served as the Company's Chairman of the

Board since October 2005 and as General Counsel since July 2005.

21. Defendant William Baumer ("Baumer") has served as the Company's Executive

Vice President, Chief Risk Officer and Senior Vice President, Compliance since July 2004.

22. Defendant Donald R. Peck ("Peck") served as First Marblehead's Executive Vice

President and Chief Financial Officer since April 2003, Treasurer since July 2003, and Secretary

since November 2004, until his resignation from the Company on November 1, 2006.

23. Defendant Stephen E. Anbinder ("Anbinder") has served as Vice Chairman of the

Board since May 2002. Anbinder is a co-founder of the Company and previously served as

President, from December 1995 to May 2002, and Treasurer, from May 2002 to June 2003.

During the Class Period, Anbinder sold 1,030,900 shares of First Marblehead stock for proceeds

of approximately $41 million.

24. Defendant Leslie L. Alexander ("Alexander") has served as a director of the

Company since December 1995. In addition, at all relevant times during the Class Period,

Defendant Alexander served on the Compensation and Nominating and Corporate Governance

Committees. During the Class Period, Alexander sold 2,927,250 shares of First Marblehead

stock for proceeds of approximately $128 million.

25. Defendant William R. Berkley ("Berkley") has served as a lead director of the

Company since December 1995. In addition , at all relevant times during the Class Period,

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Defendant Berkley served on the Compensation Committee and served as the Chairman of the

Nominating and Corporate Governance Committee. During the Class Period, Berkley sold

750,470 shares of First Marblehead stock for proceeds of approximately $38 million.

26. Defendants Kopnisky, Hupalo, Tarr, Baumer, Peck, Anbinder, Alexander and

Berkley are collectively referred to herein as the "Individual Defendants."

27. During the Class Period, the Individual Defendants, as senior executive officers

and/or directors of First Marblehead, were privy to confidential, proprietary and material adverse

non-public information concerning First Marblehead, its operations, finances, financial condition

and present and future business prospects via access to internal corporate documents,

conversations and connections with other corporate officers and employees, attendance at

management and/or board of directors meetings and committees thereof, and via reports and

other information provided to them in connection therewith. Because of their possession of such

information, the Individual Defendants knew or recklessly disregarded that the adverse facts

specified herein had not been disclosed to, and were being concealed from, the investing public.

28. The Individual Defendants are liable as direct participants in the wrongs

complained of herein. In addition, the Individual Defendants, by reason of their status as senior

executive officers and/or directors, were "controlling persons" within the meaning of § 20(a) of

the Exchange Act and had the power and influence to cause the Company to engage in the

unlawful conduct complained of herein. Because of their positions of control, the Individual

Defendants were able to and did, directly or indirectly, control the conduct of First Marblehead's

business.

29. The Individual Defendants, because of their positions with the Company,

controlled and/or possessed the authority to control the contents of its reports, press releases and

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presentations to securities analysts and through them, to the investing public. The Individual

Defendants were provided with copies of the Company's reports and press releases alleged

herein to be misleading, prior to or shortly after their issuance and had the ability and

opportunity to prevent their issuance or cause them to be corrected. Thus, the Individual

Defendants had the opportunity to commit the fraudulent acts alleged herein.

30. As senior executive officers and/or directors and as controlling persons of a

publicly traded company whose common stock was, and is, registered with the Securities

Exchange Commission ("SEC") pursuant to the Exchange Act, and was traded on the New York

Stock Exchange ("NYSE") and governed by the federal securities laws, the Individual

Defendants had a duty to disseminate promptly accurate and truthful information with respect to

First Marblehead's financial condition and performance, growth, operations, financial

statements, business, products, markets, management, earnings, and present and future business

prospects, to correct any previously issued statements that had become materially misleading or

untrue, so the market price of First Marblehead's securities would be based on truthful and

accurate information. The Individual Defendants' misrepresentations and omissions during the

Class Period violated these specific requirements and obligations.

31. The Individual Defendants are liable as participants in a fraudulent scheme and

course of business that operated as a fraud or deceit on purchasers of First Marblehead's publicly

traded securities by disseminating materially false and misleading statements and/or concealing

material adverse facts.

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IV. SUBSTANTIVE ALLEGATIONS

A. Background

32. First Marblehead, together with its subsidiaries,2 provides outsourcing services for

private education lending in the United States. The Company provides an integrated suite of

design, implementation, and securitization services for student loan programs to national and

regional financial institutions and educational institutions, as well as businesses, education loan

marketers, and other enterprises.

33. The Company's services include program design and marketing; borrower inquiry

and application; loan origination and disbursement; loan securitization; and loan servicing

activities, as well as other services in connection with private label loan products. First

Marblehead primarily focuses on loan programs for undergraduate, graduate, and professional

education, as well as on the primary and secondary school market. The Company was founded

in 1991 and is headquartered in Boston, Massachusetts.

(a) Private Student Lending Programs

34. First Marblehead is engaged in the business of providing outsourcing services for

financial institutions engaged in lending money to students . As First Marblehead stated in its

annual report filed with the SEC on Form 10-K for the fiscal year ended June 30, 2006 (`2006

Form 10-K"), the Company focuses "on facilitating private student loans for undergraduate,

graduate and professional education," while also providing "service offerings for continuing

2 First Marblehead conducts business through the following direct or indirect subsidiaries:First Marblehead Education Resources, Inc.; GATE Holdings , Inc.; The National CollegiateFunding LLC; First Marblehead Data Services, Inc.; First Marblehead Securities Corporation Iand II; TERI Marketing Services, Inc.; Union Federal Savings Bank; and UFSB Private LoanSPV, LLC.

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education programs, the primary and secondary school market, career training and study abroad

programs."

35. Concerning the Company's facilitation of private student lending programs, First

Marblehead's typical borrower was a student with minimal income, minimal assets, and not

much in the way of a credit history. Many of the borrowers turned to the Company after they

had exhausted scholarships, grants, and lower-cost federal loans. Further, by the terms of the

loans , the students did not need to begin repayment until after graduation, which was up to five

years in the future. The loans themselves carried very long terms (i.e., 20 years), and were not

backed by collateral . The risk of default was high in these situations.

36. First Marblehead claimed to be able to profitably underwrite these loans by

adhering to an extremely rigid policy of screening out applicants with FICO Scores lower than

700. For instance, during a January 25, 2007 conference call, Defendant Kopnisky stated, "the

FICO scores remain pretty consistently in that 710 to 720 range." Similarly, during a conference

call held on June 6, 2007, Defendant Tarr stated that "the `typical' private loan borrower in the

programs we administer is an undergraduate student with a 50-year-old parental cosigner with an

average FICO score in excess of 700."

37. First Marblehead also claimed to lessen the risk of default in the loans it

underwrote by using a proprietary database containing more than 20 years' worth of payment

histories of student borrowers. According to the Company, screening out loan applicants with

FICO scores under 700 and understanding past student borrowers' behavior enabled the

Company to predict future payment behavior and minimize risks of default and cancellation.

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(b) Securitizations

1. Overview

38. First Marblehead "sold" its unique student lending ability to financial institutions

by structuring and administering securitizations. The Company described its function in this

regard in the 2006 Form 10-K as follows:

We provide our clients with a continuum of services, from the initial phases ofprogram design through application processing and support to the ultimatedisposition of the loans through securitization transactions that we structure andadminister. We have developed loan processing and support systems that aredesigned to accommodate new clients, additional loan products and incrementalloan volume. We also own a proprietary database of more than 20 years ofhistorical information on private student loan performance, which helps us tofacilitate the structuring and pricing of our clients' loan programs and to supervisethe servicing and default management processes for the securitized loans. Inaddition, our proprietary database increases the efficiency of the securitizations ofour clients' loans by enabling us to provide to participants in the securitizationprocess historical payment, default and recovery data on which to base estimatesas to credit losses and reserves .... We offer prospective clients the opportunityto outsource all of the key components of their loan programs by providing a fullcomplement of services, including program design, application processing,underwriting, loan documentation and disbursement, technical support, customersupport and facilitation of loan securitization.

39. First Marblehead also helps banks package their student loans into pools to sell

them as bonds. The Company charges fees for advising on the deals and helping funnel the

payments from the students to the bondholders. The 2006 Form 10-K provides the following

regarding the Company' s dependence on structural advisory fees to maintain profitability:

Our level ofprofitability depends on our ability to earn structural advisory feesand residuals fromfacilitating securitizations ofprivate label and GATE loans.We may in the future enter into arrangements with private label lenders underwhich we provide outsourcing services but do not have the exclusive right tosecuritize the loans that they originate. We also receive fees as the administratorof the trusts that have purchased the private label and GATE loans, and in thiscapacity monitor the performance of the loan servicers.

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40. The Company considers itself a "leader" in the securitization of private student

loans and derives a significant amount of revenue from these securitizations, as stated in its 2006

Form 10-K:

In addition to providing loan program design, marketing coordination, applicationand origination services, we also serve as an intermediary between our clients andthe capital markets. We form bankruptcy remote, qualified special purposestatutory trusts to purchase private label and GATE loans from the originatinglenders. The proceeds from bonds issued by the trusts are used to purchasestudent loans, which are used as security for repayment of the bonds. Thesecuritizations that we structure and administer provide our lender clients with theability to limit or eliminate credit and interest rate risk, and generate liquidity fortheir private student loan programs. In addition to structural advisory andadministrative and other fees, we are entitled to a residual interest in thesecuritization trusts as part of our compensation in connection with thesecuritizations.

2. Securitization Compensation

41. As consideration for its securitization services, First Marblehead's clients agreed

to compensate the Company as follows:

a. Through the payment of structural advisory fees which were to be paid in twoportions. The up-front portion was paid when the securitization trustpurchased the loans, or shortly thereafter. The "additional structural advisoryfee" consisted of a contingent back-end right to an additional payment basedon the amount of loans outstanding in the trust over the life of the trust;

b. Through the payment of a second contingent back-end right to an additionalpayment from a residual interest, if such an interest was created by the trust.Proceeds emanating from this interest, if created, was contingent upon theperformance of the trust; and

Through administrative fees from the trusts ranging from 5 to 20 basis pointsper year of the student loan balance in the trust.

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3. Securitization Revenue Recognition

(i) Recognition of Advisory Fees

42. First Marblehead recognized the objectively measurable up-front structural

advisory fees as revenue at the time the securitization trust purchased the loans, and it recognized

the objectively measurable administrative fees on a monthly basis.

43. Although the amount of the back-end rights (the "additional structural advisory

fees" and the residual interests) were unknown and were non-objectively measurable at the time

of the securitization, the Company assigned a worth to these rights, and recognized the assigned

worth as revenue at the time of securitization.

44. First Marblehead's assigned worth for these contingent and non-quantifiable

back-end rights were determined by the Company's (i) estimating the dollar amount of future

student loan prepayments over the 20 year life of the loan pool, the interest rates (including the

forward LIBOR rates) that would be in effect over the 20 year life of the loan pool, the spread

between LIBOR and auction rates over the 20 year life of the loan pool, the amount of loan

defaults over the 20 year life of the loan pool, and the amount of loan default recoveries over the

20 year life of the loan pool; and then (ii) discounting these amounts to a present value by

applying a judgmental discount rate. The net result of these "estimates" were reflected on First

Marblehead's financial statements as "service receivables" as follows:

SECURITIZATION FEES

As Of Advisory Fees Residuals Total

6/30/2006 88,297 452,823 541,120

9/30/2006 106,848 521,486 628,334

12/31/2006 116,637 583,666 700,303

3/31/2007 123,412 612,199 735,611

6/30/2007 133,644 665,115 798,759

9/30/2007 160,807 767,979 928,786

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45. First Marblehead purportedly applied the same estimation methodology to its

contingent (back-end) "service receivables" at the end of each quarter, and reflected any

Company estimated valuation change in earnings for that period.

46. First Marblehead disclosed in the 2006 Form 10-K that the estimates which the

Company used to assign a value to its contingent back-end future cash was based upon "our

proprietary historical data, third-party data and our industry experience, adjusting for specific

program and borrower characteristics such as loan type and borrower creditworthiness." The

2006 Form 10-K also stated: "We also monitor trends in loan performance over time and make

adjustments we believe are necessary to value properly our receivables balances at each balance

sheet date."

47. Because First Marblehead's "proprietary historical data" was "proprietary" in

nature, and since this data was the cornerstone of the Company's valuation methodology, there

was never any way for the investment community to objectively determine whether the worth

that First Marblehead assigned to its back-end rights was reasonable. Investors were forced to

accept as true the Company' s assertions regarding the validity of its estimates and assumptions.

(ii) The Company' s Revenue Recognition Assertions

48. First Marblehead repeatedly represented that the back-end valuations which the

Company assigned to its advisory fees were reasonable (i.e., not materially misstated) because

the securitizations were performing as expected in all material respects:

"We do not believe that it is necessary at this time to alter our assumptionsregarding future prepayments that we use to estimate the fair value of thesereceivables. We continue to monitor the performance of trust assets against ourexpectations, and will make such adjustments to our estimates as we believe arenecessary to value properly our receivables balance at each balance sheet date."(August 10, 2006 press release)

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"We continue to incorporate prepayment assumptions specific to particular pointsin time, over the life of the student loans, and estimate that the averageprepayment speed would be about 7% over the 20-year life. So again, we willcontinue to monitor trust performance; we will make appropriate adjustments ascircumstances warrant." (Defendant Peck, October 26, 2006 Earnings ConferenceCall)

"We do not believe it is necessary at this time to alter our assumptions regardingfuture prepayments that we use to estimate the fair value of these receivables. Wecontinue to monitor the performance of trust assets against our expectations, andwill make such adjustments to our estimates as we believe are necessary to valueproperly our receivables balances at each balance sheet date." (September 30,2006 Form 10-Q as filed with the SEC on November 8, 2006)

"We do not believe that it is necessary at this time to alter our assumptionsregarding future prepayments that we use to estimate the fair value of thesereceivables. We continue to monitor the performance of trust assets against ourexpectations, and will make such adjustments to our estimates as we believe arenecessary to value properly our receivables balance at each balance sheet date.Certain of these adjustments partially offset the effect of the higher prepaymentrates during the three and six months ended December 31, 2006. (January 25,2007 press release)

"In light of the historical context of a 20-year asset and our ongoing monitoringprogram analysis, we have concluded that it is not necessary to alter any of ourassumptions at this time. However, we carefully continue to monitor and evaluatethe appropriateness of each of the assumptions we make, including theprepayment rate, and will modify one or more of them in the future if and whenappropriate." (Defendant Hupalo, January 25, 2007 Earnings Conference Call)

"In light of recent prepayment rates and other factors, including the currentinterest rate environment, we altered our assumption regarding the annual rate ofstudent loan prepayments during the third quarter of fiscal 2007. The increase inour prepayment assumption from 7% to 8% resulted in decreases in the estimatedfair value of our structural advisory fees and residuals receivables.... We believethat market developments have now provided us with a meaningful basis for thediscount rate to be applied in estimating the fair value of the pre-fiscal 2007

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private label securitization trust residuals. The aggregated average discount ratefor this period is 11.52%.

We continue to monitor the performance of trust assets against our expectations,and will make such additional adjustments to our estimates as we believe arenecessary to value properly our receivables balances at each balance sheet date."(April 26, 2007 press release)

"To arrive at a fair value we consistently consider a number of factors including,but not limited to -- trends in the underlying loan portfolio; macroeconomicconditions; the immediate past, current and projected interest rate environment;the effect of the passage of time; and attributes unique to student loans. Theseattributes when combined with the 20-year repayment terms that includeforbearance and deferment periods, drive any decision to modify our assumptionpackage. Using this methodology we determined it appropriate to increase theprepayment assumption from 7% to 8% and to modify the discount ratecalculation used to value our residuals.

Next, let's discuss the discount rate. Since the IPO and prior to the developmentof our BBB financing structure, First Marblehead has employed an across theboard 12% discount factor when valuing our residuals ....

We believe that market developments have now provided us with a meaningfulbasis for the discount rate to be applied in estimating the fair value of the prefiscal 2007 private-label securitization trust residuals. Beginning this quarter FirstMarblehead will apply a discount rate of one month LIBOR plus 175 basis pointsto value the portion of the residuals that are likely to be investment-grade in theoutstanding trust. That portion of the residual that has not yet migrated toinvestment-grade will be discounted at 13% as they are in the BBB structures.The aggregated average discount rate in this period is approximately 11.5%."(Defendant Hupalo, April 26, 2007 Earnings Conference Call)

"During the third quarter of fiscal 2007, the Company altered its assumptionregarding the annual rate of prepayments that it uses to estimate the fair value ofits residual and structural advisory fee receivables. The increase of thisassumption from an average over the life of the loan of 7% to 8% resulted in adecrease in the fair value of the residual receivable of $36.2 million and adecrease in the fair value of the additional structural advisory fee receivable of$3.5 million.

Except for the changes to the prepayment rate and the discount rates applied toresiduals and additional structural advisory fees, the Company did not change any

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valuation assumptions during the first nine months of fiscal 2007 or fiscal 2006.The Company will continue to monitor the performance of the trust assets againstits expectations, and will make such adjustments to its estimates as it believes arenecessary to value properly its receivables balances at each balance sheet date."(March 31, 2007 Form 10-Q as filed with the SEC May 10, 2007)

"The Company is not making any changes to any of the five components of thepackage of assumptions we use to value the residuals and additional structuraladvisory fees on the balance sheet. As we have been reporting, when viewedaggregately across the portfolio, prepayment rates are flattening. Our currentassumption of an average of 8% prepayment rate remains appropriate .... Theassumptions we use for the other four valuation drivers, defaults, recoveries,interest rates, and the discount rate, also remain appropriate ...." (DefendantHupalo, August 9, 2007 Earnings Conference Call)

"Except for the changes to the prepayment rate and the discount rates applied toresiduals and additional structural advisory fees, we did not materially change anyvaluation assumptions during fiscal 2007 or 2006. During the second quarter offiscal 2006, we increased our estimate of the fair value of structural advisory feesby approximately $0.5 million and increased our estimate of the fair value ofresiduals receivable by approximately $3.1 million as a result of refinements toour prepayment rate assumptions and the use of an enhanced cash now model.We will continue to monitor the performance of the trust assets against ourexpectations, and will make such adjustments to our estimates as we believe arenecessary to value properly our receivables balances at each balance sheet date."(June 30, 2007 Form 10-K as filed with the SEC August 28, 2007)

"In light of recent developments in the asset-backed securities market, we applieda discount rate of 12% as of September 30, 2007 in estimating the fair value ofour residuals receivable from securitization trusts that have not issued Triple Brated securities. We continued to apply a discount rate of 13% in estimating thefair value of our residuals receivable from fiscal 2007 securitization trusts thathave issued Triple B rated securities. The weighted average discount rate for ourentire securitized portfolio was 12.25% as of September 30, 2007, up from11.59% as of June 30, 2007.

We continue to monitor the performance of trust assets against our expectations,as well as other inputs necessary to estimate the present value of our structuraladvisory fee and residuals receivables. We will make such additional adjustments

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to our estimates as we believe are necessary to value properly our receivablesbalances at each balance sheet date." (October 25, 2007 press release)

"This is a good transition to our quarterly comments on the package of five keyassumptions used for valuing our residuals. In short, we are not making anychanges to any of the other four assumptions -- prepayments, defaults, recoveries,and the forward Libor curve.

In aggregate, the portfolio continues to perform generally within the range of ourexpectations, and we continue to carefully monitor prepayments, defaults, andrecoveries. Although still elevated, prepayments have generally been trendingfavorably." (Defendant Hupalo, October 25, 2007 Earnings Conference Call)

"[T]he Company believed that market developments had provided it with ameaningful basis to revise its input for the discount rate to be applied inestimating the fair value of pre-fiscal 2007 private label securitization trustresiduals. Beginning with the third quarter of fiscal 2007, the Company applied amarket based discount rate equal to the trailing 12 month average of the onemonth LIBOR + 1.75% to value the portion of the residuals that it believedqualified as investment grade in pre-fiscal 2007 private label trusts. That portionof the residuals that the Company believed did not qualify as investment gradewas discounted at 13%, as it was in the securitization trusts that issued Triple B-rated securities . . . the Company has adjusted its input in determining thediscount rate applied in estimating the fair value of residuals from securitizationtrusts that have not issued Triple B-rated securities to 12%. This increase in theaggregate average discount rate resulted in a decrease in the estimated fair valueof our residual receivable of $25.2 million which was recognized in the firstquarter of fiscal 2008.

Except for the changes to the discount rates applied to residuals and additionalstructural advisory fees, the Company did not materially change any valuationassumptions during the first quarter of fiscal 2008 or fiscal 2007. The Companywill continue to monitor the performance of the trust assets against itsexpectations, as well as other inputs necessary to estimate the fair value of itsstructural advisory fees and residuals receivables. The Company will make suchadjustments to its estimates as it believes are necessary to value properly itsreceivables balances at each balance sheet date." (September 30, 2007 Form10-Q as filed with the SEC November 9, 2007)

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49. As discussed in greater detail below, the veracity of the foregoing statements

would be called into serious question as First Marblehead plunged into financial distress due to

inadequate loss reserves associated with the Company 's securitizations.

(c) Risk Factors and Assumptions

50. First Marblehead disclosed several factors that could materially affect the

Company's financial results, including the demand for private education financing; the

competition for providing private education financing; the education financing preferences of

students and their families; applicable laws and regulations, which may affect the terms upon

which the Company's clients agree to make private student loans and the cost and complexity of

First Marblehead's loan facilitation operations; the private student loan securitization market,

including the costs or availability of financing; the general interest rate environment, including

its effect on the Company's discount rates; borrower default rates; and prepayment rates on

private student loans , including prepayments through loan consolidation.

51. First Marblehead considers five assumptions when assessing the performance of

its securitizations: discount rates, prepayment rates, trends in interest rates, default rates, and

recovery rates. In addition, the Company acknowledged in the 2006 Form 10-K that an increase

in default rates and/or a downgrade of its credit rating would have a material adverse affect on its

business and operations:

A number offactors, some of which are beyond our control, may adverselyaffect our securitization activities and thereby adversely affect our results ofoperations.

Our financial performance and future growth depend in part on our continuedsuccess in structuring securitizations. Several factors may affect both our abilityto structure securitizations and the revenue we generate for providing ourstructural advisory and other services, including the following:

19

• degradation of the credit quality or performance of the loan portfolios ofthe trusts we structure, which could reduce or eliminate investor demandfor future securitizations that we facilitate ....;

• any material downgrading or withdrawal of ratings given to securitiespreviously issued in securitizations that we structured, or any occurrenceof an event of default with respect to such securities, which could reducedemand for additional securitizations that we structure.

(d) TERI Relationship

52. First Marblehead has several key relationships that it relies upon for continued

business growth and success. One of these relationships is with TERI, which serves as the

guarantor on the Company's student loans pursuant to which TERI agrees to reimburse lenders

for all unpaid principal and interest on defaulted student loans, in exchange for a fee based on the

loan type and risk profile of the borrower.

53. Despite the Company's characterization of TERI as "independent," First

Marblehead and TERI are intertwined and each has extensive knowledge of the other's business

and operations. In fact, TERI operated out of First Marblehead's office space throughout the

Class Period. Moody's has questioned whether the two entities are truly separate when TERI has

guaranteed more than $15 billion in First Marblehead student loans. In addition, First

Marblehead purchased TERI's operating assets in 2001 and, according to the Master Service

Agreement made public regarding this transaction, the Company agreed to "manage TERI

portfolio risk profile and recommend guarantee fee structure," provide "default management

services," perform "default prevention, default processing and administrative services," and

"guarantee claims management and administrative services."

54. Pursuant to its agreements with First Marblehead and other parties to the student

loans it guarantees, TERI is required to maintain an escrow or "Pledged Account" to secure

20

TERI' s obligation to purchase defaulted student loans . TERI is permitted to keep a portion of

guaranty fees as an administrative fee rather than place them in the Pledged Account.

55. Pursuant to one of the agreements between First Marblehead and TERI, TERI is

permitted to reduce the amount of funds in the Pledged Account below a set level (this level was

redacted from the public filings), and "[First Marblehead] agrees to consult with the Rating

Agencies from time to time regarding reduction of such percentage below [**] and to cause such

reduction to be included in the terms of future Securitization Transactions to the extent that it can

be effected without adverse effect upon either the credit rating or the financial terms of such

transactions."

56. Accordingly, excessive reduction in the amount of funds deposited into the

Pledged Accounts would adversely affect TERI's credit rating or the financial terms of its

securitization transactions.

57. In the Company's 2006 Form 10-K, First Marblehead provided the following

description of its relationship with TERI:

In 2001, we entered into a strategic relationship with TERI, intended to enhancesignificantly our risk management and loan processing capabilities. We acquiredTERI's historical database and loan processing operations, but not its investmentassets or guarantee liabilities. In addition, 161 members of TERI's staff becameour employees. TERI remains, however, an independent, private not-for-profitorganization with its own management and board of directors. We issuedpromissory notes totaling $7.9 million and paid approximately $1.0 million incash to TERI in connection with the transaction. Under the terms of a master loanguaranty agreement that we entered into with TERI in 2001, we also agreed toprovide a beneficial interest for TERI of 25% of the residual value of TERI-guaranteed program loans owned by the securitization trusts that purchase theloans, and a right of first refusal to guarantee our private label clients' existingand future loan programs.

In connection with the transaction , we also entered into a series of agreementswith respect to loan processing services , database updates and the securitization ofTERI-guaranteed loans . These include a master servicing agreement and adatabase purchase and supplementation agreement with TERI. Pursuant to the

21

master servicing agreement, TERI engages us to provide loan origination, pre-claims, claims and default management services. Under TERI's agreements withlenders, lenders delegate their loan origination functions to TERI, and TERI hasthe right to subcontract these functions. Pursuant to the database purchase andsupplementation agreement, TERI provides updated information to us about theperformance of the student loans it has guaranteed, so that we can continue tosupplement and enhance our database.

58. The 2006 Form 10-K provided the following regarding the effect to the Company

if TERI's ratings were downgraded:

Our business could be adversely affected if TERI's ratings are downgrade)

In its role as guarantor in the private education lending market, TERI agrees toreimburse lenders for unpaid principal and interest on defaulted loans. TERI isthe exclusive provider of borrower default guarantees for our clients' private labelloans. As of June 30, 2006, TERI had a Baa3 counterparty rating from Moody'sInvestors Service, which is the lowest investment grade rating, and an insurerfinancial strength rating of A+ from Fitch Ratings. If these ratings are lowered,our clients may not wish to enter into guarantee arrangements with TERI. Inaddition, we may receive lower structural advisory fees because the costs ofobtaining financial guarantee insurance for the asset-backed securitizations thatwe structure could increase. Finally, the inability of TERI as student loanguarantor to meet its guaranty obligations could reduce the amount of principal orinterest paid to the holders of asset-backed securities, which could adverselyaffect our residual interests in securitization trusts or harm our ability to structuresecuritizations in the future. In each such case, our business would be adverselyaffected.

(e) The Company's Ethical and Business Standards

59. First Marblehead also claims to have the highest ethical and business standards in

harmony with its focus on the long-term benefit of its stockholders. The Company's website

provides the following regarding First Marblehead's corporate governance practices:

First Marblehead Corporation strives to maintain the confidence of ourstockholders by adhering to the highest ethical and business standards . Duringthe past year, we have been reviewing our corporate governance policies andprocedures and comparing them against those identified as best practices byvarious authorities in corporate governance and the practices of other publiccompanies. We have also been mindful of the provisions of the Sarbanes-OxleyAct of 2002, the new and proposed rules of the SEC and the requirements of the

22

New York Stock Exchange. In December 2005, we amended our Code ofConduct to establish a more stringent policy with respect to gifts and gratuities.

We will continue to review and, when appropriate, take additional steps in thefuture to strengthen our corporate governance practices to ensure that we arefocused on the long-term benefit of our stockholders.

60. Despite these assurances of adhering to the "highest ethical and business

standards," committing to "strengthen" the Company's corporate governance practice, and

focusing "on the long-term benefit of our stockholders," the Company embarked on a fraudulent

scheme to defraud shareholders through the dissemination of false and misleading financial

statements and omissions during the Class Period, as alleged in greater detail herein.

B. The Company' s Fraudulent Scheme

(a) The "Expanded Tier Program"

61. First Marblehead's scheme sprouted in 2005 when Defendant Kopnisky took over

as Chief Executive Officer after Daniel M. Meyers abruptly resigned from the Company.

According to the Former Senior Vice President for Applications Development3 employed at First

Marblehead from 2005 through 2007 ("Former VP of Applications"), First Marblehead took on a

much more aggressive approach to student lending under Defendant Kopnisky.

62. In particular, Defendant Kopnisky advocated the implementation of several

programs, including an "Expanded Tier Program," that catered to students with lower credit

ratings. First Marblehead had historically required solid credit credentials from its applicants

and co-signers before facilitating a private student loan. Defendants' representations prior to and

during the Class Period indicated that students and co-signers were required to possess a FICO

3 To protect their identity, all former First Marblehead employees are referred to in themasculine regardless of their actual gender. In addition, all witnesses described in thisComplaint identified as "Former" are former employees of Defendant First Marblehead unlessotherwise noted.

23

score above 700 in order to qualify for a private student loan. Under this program, however, the

Company embarked on a riskier approach through lower credit guidelines, characterized by the

Former VP of Applications as "going downstream," in order to expand loan volume and

maximize securitization profitability.

63. The implementation of the "Expanded Tier Program" and others like it was

confirmed by a Former Senior Process Analyst employed at First Marblehead from 2004 through

2008 ("Former Process Analyst"). The Former Process Analyst stated that Defendant Kopnisky

implemented a program in 2006 in which students with bad credit were allowed to take up to

three lifetime loans with a maximum of $4,000 granted per loan. According to the Former

Process Analyst, in carrying out this program and others like it, the Company's credit rules were

being "bent" and applicants were allowed to take out excessive loans with terms beyond First

Marblehead's historical criteria.

64. These programs allowed First Marblehead to reap significant short-term financial

rewards, but they also exposed the Company to significant and potentially devastating risks

should problems arise during repayment of these loans. Although they were required to do so,

Defendants failed to disclose to the investing public that they had enacted a dramatic shift in

credit criteria - a fundamental and material aspect of their business.

65. While upper management emphasized a focus on expanding credit criteria for

student loan applicants, the risk management department raised concerns about lowering credit

guidelines. According to the Former VP of Applications, the risk management department's

alarm was generally overlooked by First Marblehead's management. In fact, at executive

meetings attended by the Former VP of Applications, discussion of corporate strategy and risk

management was eschewed. Rather, the focus at these meetings was entirely on "hitting

24

numbers" and meeting Wall Street expectations for First Marblehead, regardless of the long-term

implications for the Company.

(b) Cancellation and Default Rates Rise

66. First Marblehead's increased focus on maximizing loan and securitization profits

came at the expense of the Company's purported commitment to strict credit and risk

management. While First Marblehead enjoyed substantial short-term revenue as a result of its

new credit-lax initiatives, risk managements' concerns grew to fruition beginning in 2007.

1. Cancellation Rates Soar Under the New Programs

67. A Former Loan Funding Division Manager employed at First Marblehead from

2004 through 2008 ("Former Loan Manager") stated that his group was responsible for, among

other things, producing disbursement reports to lender clients, processing payments and

disbursements, and tracking exceptions and change management. The most important metric

tracked by the loan funding division was the cancellation rate on loans. According to the Former

Loan Manager, beginning in early 2007, the Company saw a sharp increase in disbursement

volumes. This was due to the increased focus on maximizing loan and securitization profitability

through the implementation of programs that widened the Company's historical credit criteria.

68. The Former Loan Manager stated that as the disbursement volumes were

escalating, the cancellation rates were increasing "even faster." The Former Loan Manager

began producing reports tracking cancellations in early 2007. He would submit these reports to

his supervisor, Darren McInnis, on a regular basis, who would then send them to upper

management, including Executive Vice President Andrew Hawley and Defendant Baumer.

These reports would break down the numbers according to the reasons for the cancellations (e.g.,

fraud, high interest rate offered, etc.).

25

69. Using the information for cancellation rates and the reasons behind the

cancellations, the Former Loan Manager would try to predict the number of cancellations for a

given period based on the Company's historical figures, but found such predictions extremely

difficult to pin down and exceedingly unreliable in nature. Because of First Marblehead's

decision to veer away from its historical credit criteria and its emphasis on facilitating loans to

applicants with bad credit, the cancellation data jumped remarkably in 2007.

70. Starting in the summer of 2007, the cancellation rate went "off the charts,"

according to the Former Loan Manager. For instance, in comparing July 2006 cancellations to

July 2007 cancellations, the Former Loan Manager found that cancellations had skyrocketed

174%. This level of volatility did not allow him to produce accurate predictions for

cancellations . By September 2007, the problem was "huge," with 5,000 cancellations in that

month alone.

2. Default Rates Skyrocket

71. An even more ominous development to First Marblehead ' s fortunes arose in 2007

when the Company's default rates began to dramatically increase. According to the Former

Chief Information Security Officer employed at First Marblehead from 2004 through 2008

("Former CISO"), First Marblehead's default rates were soaring because the Company

drastically lowered its credit guidelines in order to increase loan volume. The Company

basically began issuing loans to any applicant regardless of qualifications - the Company had

essentially dropped all of its credit criteria.

72. According to the Former Supervisor in the Borrower Output Division employed at

First Marblehead from 2004 through 2008 ("Former Output Supervisor"), the Company told

employees at an annual reporting meeting in August 2007 that their default rates and fraud rates

26

were increasing. In addition, although First Marblehead had just finished a "tremendous year"

with substantial profits, the Company announced that it was unable to auction off their paper on

the market.

73. These developments were confirmed by a Former Business Development

Relationship Manager employed at First Marblehead from 2006 through 2008 ("Former

Relationship Manager"). According to the Former Relationship Manager, by late 2007, there

was a growing awareness among employees in the Company that First Marblehead's forecasting

models were no longer able to accurately predict default and cancellation rates. The Former

Relationship Manager was forced to inform the Company's clients in December 2007 that it was

going to need to "tighten up" its credit criteria.

74. As a result of the increased default and cancellation rates, First Marblehead was in

dire straits by the end of 2007. According to the Former VP for Applications, First Marblehead

was intentionally concealing its default numbers in December 2007. While the Company

publicly disclosed default rates of 8%, First Marblehead's actual default rate was approaching

double that - approximately 16%. This was confirmed by the Former CISO, who stated that by

the end of 2007 and the beginning of 2008, First Marblehead's default rates had climbed as high

as 14 or 15%. The Former CISO further stated that risk management employees projected

default rates as high as 18% in the short-term. While First Marblehead was suffering from the

predictable consequences of its decision to lower its credit guidelines, the worst was yet to come.

75. First Marblehead ' s upper management was well aware of the negative rate trends

associated with the Company's lower credit guidelines. In addition to the reports the Former

Loan Manager would submit to his superiors, the Former CISO confirmed that loan assumptions

and default rates were monitored and analyzed by the Risk Management Department, which was

27

headed by Jerome Narolewski. The Former CISO stated that both he and Narolewski reported

directly to Defendant Baumer, the Company's Chief Risk Officer.

76. According to the Former CISO, the data for monitoring and analyzing

assumptions was culled from a loan database which tracked the history of all First Marblehead

loans, including default rates and other assumptions over time. The loan database had originally

been developed by TERI, but had been acquired by First Marblehead as part of the companies'

master servicing agreement when First Marblehead acquired TERI's loan operations assets.

(c) The TERI Relationship

77. As discussed above, TERI served as the guarantor on First Marblehead loans and

was closely aligned with the Company. Accordingly, TERI's financial stability was of critical

importance to First Marblehead because the liability for defaulting student loans would fall on

the Company should TERI become insolvent. For this reason, First Marblehead kept a close eye

on TERI's financial status.

78. According to a Former Business Development Analyst employed at First

Marblehead from 2006 through 2007 ("Former Business Analyst"), TERI and First Marblehead

were so intertwined that an outsider "would think that they were the same company." TERI

shared office space with First Marblehead in Boston where the Company's senior executives,

Capital Markets Department, and the Business Development Department were housed.

79. TERI and First Marblehead ' s relationship was so close that, according to the

Former VP for Applications, not only did the two companies share office space, but First

Marblehead's information technology department "supported TERI's general ledger" and

executives from the two companies frequently met.

28

80. The Former VP for Applications also confirmed that First Marblehead executives

and certain employees from collections and loan operations had access to all of TERI's financial

data, termed the "Guarantee Database." The "Guarantee Database" catalogued data about the

history of each individual loan that First Marblehead facilitated and TERI guaranteed.

81. In addition to having regular access to TERI's financial database, certain First

Marblehead employees shared dual roles between the two companies. The Former CISO stated

that he and several other First Marblehead employees would identify themselves as "an agent of

TERI" in certain interactions with outside parties. Accordingly, the level of interaction between

First Marblehead and TERI was so extensive that financial information flowed freely between

the two companies.

82. Despite the fact that First Marblehead and TERI were very much intertwined and

shared information at vital levels, the relationship became antagonistic during the Class Period.

According to the Former VP for Applications, the relationship between the two companies was

extremely strained and "almost hostile." The Former CISO described the dealings between First

Marblehead and TERI as a "bad marriage," and stated that there seemed to be a great deal of

animosity between the executives of each company.

83. This dynamic in their relationship was never more evident than at the end of

2007. According to the Former CISO, in November 2007, Defendant Baumer informed him that

the Company was beginning to see a real trend in loan defaults as a result of the lowered credit

guidelines. As discussed above, the default and cancellation rates were soaring, and TERI was

struggling under the weight of this liability. The Former CISO stated that the TERI trust was

modeled to accommodate only a six to eight percent default rate, whereas First Marblehead was

29

experiencing double those figures. He stated that as the guarantor on the First Marblehead loans,

TERI was put in the position of bankruptcy by the rising default rates in the Company 's loans.

84. The Former CISO further stated that it was clear to First Marblehead executives

by November 2007 that TERI would have major solvency issues if the negative default trends

continued. First Marblehead executives, including Defendants Kopnisky and Tarr, were well

aware of TERI's cash position many months before TERI filed for bankruptcy in April 2008.

85. In fact, according to the Former CISO, Defendants Kopnisky and Tarr met with

TERI's Chief Executive Officer, Willis Hullings, in December 2007. At this meeting, Hullings

informed Defendants Kopnisky and Tarr that the TERI trust was running out of funds due to a

systemic increase in loan defaults. Hullings asked Defendants Kopnisky and Tarr on behalf of

TERI for a cash infusion in order to maintain TERI's operations. Despite the fact that First

Marblehead's financial stability was dependant on TERI's guarantees, Defendants completely

ignored Hullings' warnings and refused to offer TERI any assistance.

86. In the following months, the rising tide of defaults was too much for TERI to

bear, and Defendants' refusal to provide assistance sealed the company's fate. On April 8, 2008,

TERI filed for bankruptcy protection, further calling into question First Marblehead's ability to

remain a growing concern.

(d) Defendants' Scheme Collapses the Company

87. During the Class Period, Defendants engaged in a concerted effort to increase

loan volume and maximize profits on its securitizations . In order to effectuate this plan, they

secretly lowered their credit guidelines to encompass a far greater swath of student loan

applicants. While Defendants were publicly touting the Company's substantial profits,

commitment to strict lending standards, and strong prospects for continued growth and

30

profitability, behind the scenes First Marblehead was crumbling. Even as loan default rates

started to skyrocket and it became readily apparent that TERI would fail, Defendants remained

silent and continued to mislead the investing public.

88. Throughout the Class Period, Defendants repeatedly issued false and misleading

statements regarding First Marblehead's credit criteria, revenue from securitizations, future

growth prospects, default rates, and TERI's viability. Moreover, Defendants omitted to disclose

the details of their clandestine arrangements in order to maximize short-term profits.

89. Not until the full truth was finally exposed with TERI's bankruptcy filing did the

investing public realize what had happened: Defendants had mortgaged First Marblehead's

future and concealed the bill of sale from the Company's unsuspecting shareholders. As a result,

First Marblehead is facing complete devastation with hundreds of millions of dollars in losses

and a current share price hovering around $1.00. Considerable doubts remain over whether the

Company can survive the repercussions of Defendants' massive fraud.

C. False and Misleading Statements

(a) Fiscal 2006 Statements

90. The Class Period begins on August 10, 2006 when First Marblehead issued a

press release after the markets closed announcing its financial and operating results for the fourth

quarter of fiscal 2006 and for the fiscal year ended June 30, 2006. For the quarter, the Company

reported total service revenues of $148.8 million, the securitization of $756 million of private

student loans, which generated $115.4 million of service revenues, and net income of $70.8

million, or $1.12 per diluted share. The press release stated in pertinent part as follows:

BOSTON--(BUSINESS WIRE)--Aug. 10, 2006--The First MarbleheadCorporation (NYSE: FMD) today announced its financial and operating resultsfor its fourth quarter of fiscal 2006 and for the fiscal year ended June 30, 2006.

31

Total service revenues for the fourth quarter of fiscal 2006 increased to $148.8

million, up 24% from $120.2 million in the fourth quarter of fiscal 2005. During

the fourth quarter of fiscal 2006, the Company facilitated the securitization of

$756 million of private student loans, which generated $115.4 million of service

revenues. During the same fiscal quarter last year, the Company facilitated the

securitization of $740 million of private student loans, which generated $90.5

million of service revenues.

Net income rose to $70.8 million, or $1.12 per diluted share, in the fourth quarter

of fiscal 2006, an increase of 65% in net income and 72% in diluted earnings per

share. In its fourth quarter of last fiscal year, the Company reported net income of

$43.0 million, or $.65 per diluted share.

Total service revenues for the fiscal year ended June 30, 2006 increased 35% to$563.6 million from $418.0 million in the same prior-year period, assecuritization volumes and yields improved between the periods.

First Marblehead's full year operating margins continued to grow. Operatingincome for fiscal 2006 increased to $375.8 million, or 67% of revenue, comparedto operating income of $273.8 million, or 66% of revenue last year.

During the fourth quarter of fiscal 2006, the Company adopted tax allocationstrategies that resulted in a reduction of the Company's effective tax rate for thefiscal year to approximately 38.5% in fiscal 2006 from 42.4% in fiscal 2005.

Net income for the fiscal year ended June 30, 2006 increased to $236.0 million, or$3.68 per diluted share, an increase of 48% in net income and 54% in dilutedearnings per share. For fiscal 2005, the Company reported net income of $159.7million, or $2.39 per diluted share.

The volume of loans facilitated during the fourth quarter of fiscal 2006 that areavailable for securitization increased 51% to $569 million, compared with $376million facilitated and available for securitization during the fourth quarter lastfiscal year. The rolling twelve month volume of loans available for securitizationincreased 34% to $2.92 billion for the twelve months ended June 30, 2006,compared with $2.18 billion for the twelve months ended June 30, 2005.

91. Commenting on the financial results in the press release, Defendant Kopnisky

stated the following:

Fiscal year 2006 was one of the strongest years in First Marblehead's history, asrevenue, earnings and EPS all exceeded our expectations. We continue todemonstrate that our team can consistently deliver strong operating results.Looking forward, we are confident in our business model and believe afoundation is in placefor significant growth into thefuture.

32

92. In a conference call on August 10, 2006 discussing the Company's financial

results, Defendant Peck stated the following regarding First Marblehead's securitizations:

We do anticipate that there will be some volatility and residual valuations fromquarter to quarter, potentially up or down, as the timing of prepayments, defaults,and recoveries varies from how they are modeled for a particular quarter. Thetrusts continue, generally, to perform consistent with our expectations , as theyhave all year, and we have not altered our assumptions regarding futureprepayments, defaults, and recoveries . As with all of our assumptions, we willcontinue to monitor trust performance, and we will make appropriate adjustmentsas circumstances warrant.

93. On September 8, 2006, First Marblehead issued a press release announcing a

planned $1.56 billion securitization of private student loans guaranteed by TERI. The press

release stated in pertinent part as follows:

BOSTON--(BUSINESS WIRE)--Sept. 8, 2006--The First MarbleheadCorporation (NYSE: FMD) today announced the scheduled closing of asecuritization enabling the purchase of private student loans by The NationalCollegiate Student Loan Trust 2006-3 (the Trust) and the related issuance ofStudent Loan Asset Backed Notes by the Trust. The National Collegiate FundingLLC, as sponsor and depositor of the securitization, has filed with the Securitiesand Exchange Commission a Free Writing Prospectus regarding this transaction.The Company expects the transaction to close on or about September 28, 2006.

The loans were originated by several different banks under various loan programsthat were structured with the assistance of First Marblehead. The Trust expects toraise approximately $1.56 billion from the sale of asset-backed securities, andplans to acquire private student loans with a principal and accrued interest balanceof approximately $1.18 billion in the transaction. The Trust expects thatapproximately 70% of the loans to be purchased at closing will be "Direct toConsumer" loans, and that the remaining 30% of the loans to be purchased atclosing will be "School Channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), thenation ' s oldest and largest guarantor of private student loans.

94. On September 12, 2006, First Marblehead filed its 2006 Form 10-K. The 2006

Form 10-K, which was signed and/or certified by Defendants Kopnisky, Peck, Tarr, Anbinder,

33

Alexander and Berkley, stated the following regarding the Company's dependency on its

securitization services:

Our level ofprofitability depends on our ability to earn structural advisory feesand residuals fromfacilitating securitizations ofprivate label and GATE loans.We may in the future enter into arrangements with private label lenders underwhich we provide outsourcing services but do not have the exclusive right tosecuritize the loans that they originate. We also receive fees as the administratorof the trusts that have purchased the private label and GATE loans, and in thiscapacity monitor the performance of the loan servicers.

95. The 2006 Form 10-K also provided the following description of its securitization

services:

We receive several types of fees in connection with our securitization services:

Structural advisory fees. We charge structural advisory fees that are paid in twoportions:

Upfront. We receive a portion of the structural advisory fees at the timethe securitization trust purchases the loans , or shortly thereafter. Inexchange for these fees , we structure the debt securities sold in thesecuritization , coordinate the attorneys , accountants , trustees, loanservicers , loan originators and other transaction participants and preparethe cash flow modeling for rating agencies as needed . In securitizationswe facilitated in fiscal 2006 and fiscal 2005 , these fees ranged from 1.6%to 8.5% of the aggregate principal and capitalized interest of the loanssecuritized; and

Additional. We receive a portion of the structural advisory fees overtime, based on the amount of loans outstanding in the trustfrom time totime over the life of the trust. This portion accumulates monthly from thedate of a securitization transaction at a rate of 15 to 30 basis points peryear. We begin to receive this additional portion, plus interest, once theratio of trust assets to trust liabilities, which we refer to as the "parityratio," reaches a stipulated level, which ranges from 103.0% to 105.0%.The level applicable to a particular trust is determined at the time ofsecuritization. We currently expect to receive the additional feesbeginning five to seven years after the date of a particular securitizationtransaction.

Residual. We also have the right to receive a portion of the residual interests thatthese trusts create. This interest is junior in priority to the rights of the holdersofthe debt sold in the securitizations and entitles us to receive:

34

in connection with the securitizations of exclusively private label loans,75% to 88% of the residual cash flows once a parity ratio of 103.0% to103.5%, depending on the particular trust, is reached and maintained;

in connection with securitizations in the NCT trusts, our share of residualcash flows once all of the debtholders of the securitization trust have beenrepaid, plus, in the case of GATE loans securitized in fiscal years prior tofiscal 2005, an additional 10% of the residual cash flows. We are entitledto receive 100% of the residual cash flows for GATE loans securitized infiscal 2005 and for GATE and Chela Loans securitized in fiscal 2006.

Our residual interest derives almost exclusively from the services weperform in connection with each securitization rather than from a directcash contribution to the securitization trust. In the case of securitizationsof exclusively private label loans, we currently expect to receive theresiduals beginning approximately five to six years after the date of aparticular securitization. In the case of securitizations in the NCT truststhat occurred prior to fiscal 2005, we expect to receive the residualsbeginning 12 to 15 years after the date of a particular securitization. In thecase of the securitization in the NCT trusts that occurred in fiscal 2005 andfiscal 2006, we currently expect to receive residuals beginning five to sixyears after the date of securitization.

Administrative and other fees. Our administrative and other fees representprimarily the administrative fees we receive from the trusts for their dailymanagement and services we provide in obtaining information from the loanservicers and reporting this and other information to the parties related to thesecuritization . We receive fees ranging from 5 to 20 basis points per year basedon the student loan balance in the trust . Our administrative and other fees alsoinclude the reimbursement of out of pocket costs we receive from thesecuritization trusts related to marketing coordination services performed forsome of our clients.

96. In addition, in the 2006 Form 10-K, the Company acknowledged that an increase

in default rates in its student loans or a downgrade of its credit rating would have negative

consequences on its business and operations:

A number offactors, some of which are beyond our control, may adverselyaffect our securitization activities and thereby adversely affect our results ofoperations.

Our financial performance and future growth depend in part on our continuedsuccess in structuring securitizations. Several factors may affect both our ability

35

to structure securitizations and the revenue we generate for providing ourstructural advisory and other services, including the following:

degradation of the credit quality or performance of the loan portfolios ofthe trusts we structure, which could reduce or eliminate investor demandfor future securitizations that we facilitate ....;

any material downgrading or withdrawal of ratings given to securitiespreviously issued in securitizations that we structured, or any occurrenceof an event of default with respect to such securities, which could reducedemand for additional securitizations that we structure.

97. The 2006 Form 10-K also stated the following regarding the Company's loan

performance assumptions regarding default rates:

Except for the change to the discount rate applied to additional structural advisory

fees to account for the change in the market rate of 10-year U. S. Treasury Notes,

we did not materially change any loan performance assumptions regarding

default rates, recovery rates or discount rates in valuing projected trust cash

flows duringfiscal 2006 orfiscal 2005.

During the second quarter of fiscal 2006, we increased our estimate of the fairvalue of structural advisory fees by approximately $0.5 million and increased ourestimate of the fair value of residuals receivables by approximately $3.1 millionas a result of refinements to our prepayment rate assumptions and use of anenhanced cash flow model. During the fourth quarter of fiscal 2006, loans in thesecuritization trusts experienced higher prepayment rates than we had estimatedwould occur during this period of time, which reduced the positive net accretionthat comes from updating the carrying value of our structural advisory fees andresiduals receivables for the passage of time. We do not believe it is necessary atthis time to alter our assumptions regarding future prepayments that we use toestimate the fair value of these receivables. We continue to monitor theperformance of trust assets against our expectations, and will make suchadjustments to our estimates as we believe are necessary to value properly ourreceivables balance at each balance sheet date.

98. The 2006 Form 10-K also provided the following regarding the Company's

strategic relationship with TERI, including discussing TERI' s reduction in funds deposited into

the Pledged Account:

Strategic Relationship with The Education Resources InstituteTERI is the nation's oldest and largest guarantor of private student loans. As anot-for-profit corporation, TERI's main operating purpose is to provide students

36

with access to educational opportunities through educational finance andcounseling services. To help accomplish this, TERI offers guarantee products forstudent loan programs pursuant to which TERI agrees to reimburse lenders for allunpaid principal and interest on their defaulted student loans, in exchange for afee based on the loan type and risk profile of the borrower. Since its inception in1985, TERI has guaranteed approximately $13.5 billion of private education loansfor students at more than 6,800 schools nationally and internationally.

In 2001, we entered into a strategic relationship with TERI, intended toenhance significantly our risk management and loan processing capabilities.We acquired TERI's historical database and loan processing operations, butnot its investment assets or guarantee liabilities. In addition, 161 members ofTERI's staff became our employees. TERI remains, however, an independent,private not-for-profit organization with its own management and board ofdirectors. We issued promissory notes totaling $7.9 million and paidapproximately $1.0 million in cash to TERI in connection with the transaction.Under the terms of a master loan guaranty agreement that we entered into withTERI in 2001, we also agreed to provide a beneficial interest for TERI of 25% ofthe residual value of TERI-guaranteed program loans owned by the securitizationtrusts that purchase the loans, and a right of first refusal to guarantee our privatelabel clients' existing and future loan programs.

In connection with the transaction, we also entered into a series of agreementswith respect to loan processing services, database updates and the securitizationof TERI-guaranteed loans. These include a master servicing agreement and adatabase purchase and supplementation agreement with TERI. Pursuant to themaster servicing agreement, TERI engages us to provide loan origination, pre-claims, claims and default management services. Under TERI's agreementswith lenders , lenders delegate their loan origination functions to TERI, andTERI has the right to subcontract these functions. Pursuant to the databasepurchase and supplementation agreement, TERI provides updated information tous about the performance of the student loans it has guaranteed, so that we cancontinue to supplement and enhance our database.

Under the master loan guaranty agreement, we agreed to create a market for

our private label clients to sell TERI-guaranteed loans through securitizations

that wefacilitate. Under our agreement, we must use our best efforts to cause a

securitization ofa limited category of TERI-guaranteed loans at least twice per

year, subject to the lender having a specified minimum loan volume at the semi-

annual purchase date. In October 2004, we renewed our master servicing

agreement, master loan guaranty agreement and certain additional agreements

with TERI, in each case for an additional term through June 2011.

The master loan guaranty agreement generally provides that the guarantee feesearned by TERI upon the disbursement of student loans are placed in a segregatedreserve account which is held as collateral to secure TERI's obligation to

37

purchase defaulted student loans. This account is held by a third-party financialinstitution for the benefit of the program lender until the student loans aresecuritized, at which point the account is pledged to the securitization trust thatpurchases the loans. The master loan guarantee agreement, as implementedthrough guaranty agreements with individual lenders, entitles TERI to retain aportion of its guaranty fees as an administrative fee rather than place them in thepledged account.

In October 2005, we entered into a supplement to the master loan guaranty

agreement Under the terms of the 2005 supplement, for securitizations of

TERI-guaranteed loans during fiscal 2006, TERI's administrative fee of 150

basis points increased, and the amount deposited by TERI into the pledged

account decreased, by 90 basis points . In addition, TERI's residual interest in the

trusts created at the time of the securitizations was correspondingly reduced to

account for the 90 basis point reduction in the pledged account. As a result, the

administrative fee for securitizations of TERI-guaranteed loans in fiscal 2006 was

240 basis points multiplied by the principal balance of the loans originated and

securitized. For securitizations completed during fiscal 2006, TERI's ownership

of the residual value of the TERI-guaranteed loans securitized ranged from 12 to

15 percent.

In August 2006, we entered into a supplement to the master loan guarantyagreement that provides as follows:

For each securitization closing between August 1 , 2006 and June 30, 2007,

TERI will be entitled to elect to adjust the amount of its administrative fee, and

adjust the amount deposited into the pledged account, within specified

parameters. As a result, the amount of the administrative fee applicable to

securitizations closing between August 1, 2006 and June 30, 2007 may range

from 150 basis points to 240 basis points, at TERI's election. We have agreed

to attempt in good faith to structure our securitization transactions to

accommodate TERI's election.

For each securitization for which TERI elects to adjust the administrative fee, wewill make a corresponding adjustment to our relative ownership percentages ofthe residual interests in the applicable securitization trust. To the extent TERIelects to increase the amount of its administrative fee above 150 basis points, suchan adjustment would result in an increase in our ownership percentage and adecrease in the ownership interest of TERI, by a percentage that will result in anequivalent dollar reduction in the fair value of TERI's residual ownership interestat the time of the securitization, using a 12 percent discount factor.

TERI has elected to receive an administrative fee of 175 basis points for thesecuritization transaction we plan to complete in the first quarter of fiscal 2007.Through June 2006, we paid TERI a monthly fee of approximately $62,000pursuant to the database purchase and supplementation agreement. Beginning in

38

July 2006, monthly payments pursuant to the database sale and supplementationagreement were reduced to approximately $21,000. TERI also maintains aperpetual right to access the data we own solely for use in its guarantee business.

We do not solicit or assist borrowers directly, but rather work with schools andBank ofAmerica in establishing a program operated by them.

Our business could be adversely affected if TERI' s ratings are downgraded.

In its role as guarantor in the private education lending market, TERI agrees toreimburse lenders for unpaidprincipal and interest on defaulted loans. TERI isthe exclusive provider of borrower default guarantees for our clients ' privatelabel loans. As of June 30, 2006, TERI had a Baa3 counterparty rating fromMoody's Investors Service, which is the lowest investment grade rating, and aninsurerfinancial strength rating ofA+from Fitch Ratings. If these ratings arelowered, our clients may not wish to enter into guarantee arrangements withTERI. In addition, we may receive lower structural advisory fees because thecosts of obtaining financial guarantee insurance for the asset-backedsecuritizations that we structure could increase. Finally, the inability of TERIas student loan guarantor to meet its guaranty obligations could reduce theamount ofprincipal or interest paid to the holders of asset-backed securities,which could adversely affect our residual interests in securitization trusts orharm our ability to structure securitizations in the future. In each such case,our business would be adversely affected,

Except for the change to the discount rate applied to additional structural advisoryfees to account for the change in the market rate of 10-year U. S. Treasury Notes,we did not materially change any loan performance assumptions regardingdefault rates, recovery rates or discount rates in valuing projected trust cash flowsduring fiscal 2006 or fiscal 2005.

99. Implicit in First Marblehead's agreement to allow TERI to reduce the funds

deposited into the Pledged Account was the Company's prior agreement to consult with ratings

agencies regarding such reductions and to avoid any adverse effect upon either the credit rating

or the financial terms of the transaction.

39

(b) Fiscal 2007 Statements

100. On September 14, 2006, First Marblehead issued a press release announcing that,

in connection with the planned $1.56 billion securitization of private student loans announced on

September 8, 2006, the Company expected to receive up-front structural advisory fees of

approximately $175 million. The press release stated in pertinent part as follows:

BOSTON--(BUSINESS WIRE)--Sept. 14, 2006--As previously announced, TheFirst Marblehead Corporation (NYSE: FMD) has scheduled the closing of asecuritization enabling the purchase of private student loans by The NationalCollegiate Student Loan Trust 2006-3 (the Trust) and the related issuance ofStudent Loan Asset Backed Notes by the Trust. The Company expects thetransaction to close on or about September 28, 2006.

In connection with that securitization, the Trust filed today with the Securities andExchange Commission a Term Sheet providing additional preliminary detailsregarding the anticipated transaction. In that filing, the Trust announced that theamount that it expects to raise from the sale of asset-backed securities hasincreased to approximately $1.84 billion, and that the principal and accruedinterest balance of private student loans that it expects to acquire has increased toapproximately $1.39 billion. The Trust expects that 71% of the loans to bepurchased at closing will be "Direct to Consumer" loans, and that the remaining29% of loans to be purchased at closing will be "School Channel" loans.

At the closing of the transaction, First Marblehead expects to receive up-frontstructural advisory fees of approximately $175 million, or 12.6% of the privatestudent loan balance securitized. This revenue estimate is preliminary and subjectto change based on a number of factors, including the variance, if any, betweenthe estimated and actual amount of private student loans purchased by the Trust atthe time of closing, as well as the pricing of the debt securities to be issued in thistransaction, which pricing has not yet been completed. First Marblehead expectsto be in a position to estimate the discounted present value of its additionalstructural advisory fees and residual revenue related to this transaction atapproximately the time of closing.

101. After this announcement, First Marblehead ' s stock price rose $9 . 10 per share, or

17%, to close at $61.45.

102. On September 26, 2006, First Marblehead issued a press release announcing that,

as part of the previously announced $1.84 billion securitization of private student loans, the

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Company expects to receive up-front structural advisory fees of approximately $173.3 million,

structural advisory fees with an estimated discounted present value of approximately $17

million, as well as residual revenue with an estimated discounted present value of approximately

$53 million. The press release stated in pertinent part as follows:

BOSTON, Sep 26, 2006 (BUSINESS WIRE) -- The First MarbleheadCorporation (NYSE: FMD) today announced its estimated additional structuraladvisory fees and residual revenue in connection with a previously announcedsecuritization involving The National Collegiate Student Loan Trust 2006-3 (theTrust). The Trust expects to raise approximately $1.84 billion from the sale ofasset-backed securities, and expects to acquire private student loans with aprincipal and accrued interest balance of approximately $1.39 billion, in atransaction that is expected to close later this week.

At the closing of the transaction, First Marblehead expects to receive up-frontstructural advisory fees of approximately $173.3 million, or 12.5% of the privatestudent loan balance securitized. In addition, over the term of the Trust, FirstMarblehead expects to receive additional structural advisory fees from the Trustwith an estimated discounted present value of approximately $17 million, or 1.2%of the loan balance securitized, as well as residual revenue with an estimateddiscounted present value of approximately $53 million, or 3.8% of the loanbalance securitized.

First Marblehead used discounted cash flow modeling techniques involvingseveral key assumptions, including discount rates and estimates of futureprepayments, credit losses and recoveries, to approximate the present fair value ofthe expected additional structural advisory fees and residual revenue. Theserevenue estimates are also subject to change based on a number of factors,including the variance, if any, between the estimated and actual amount of privatestudent loans purchased by the Trust at the time of closing.

103. Commenting on the announcement, Defendant Kopnisky stated the following:

We are very pleased with the results of this securitization, which is our largestsecuritization of private student loans to date. Current market conditionspresented our Capital Markets Group the opportunity to structure thissecuritization with a class of investment grade notes expected to be rated Baa2 byMoody's Investors Service, Inc., BBB by Standard & Poor's Ratings Services andBBB by Fitch, Inc., thereby generating higher cash yields for First Marblehead.

104. After this announcement, First Marblehead ' s stock price rose $2 . 98 per share, or

approximately 5%, to close at $68.98 per share.

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105. On October 26, 2006, First Marblehead issued a press release announcing the

Company's financial results for the first quarter of fiscal 2007. For the quarter, the Company

reported total service revenues of $301. 8 million and net income of $141. 0 million, or $2.23 per

diluted share. The press release stated in pertinent part as follows:

BOSTON--(BUSINESS WIRE)--Oct. 26, 2006--The First MarbleheadCorporation (NYSE: FMD) today announced its financial and operating resultsfor its first quarter of fiscal 2007, which ended on September 30, 2006.

Total service revenues for the first quarter of fiscal 2007 were $301.8 million,compared to total service revenues of $35.1 million during the first quarter offiscal 2006. This past quarter, the Company facilitated the securitization of $1.39billion of private student loans -- the largest securitization transaction in itshistory. This transaction generated $247 million of service revenues, including$173.3 million of up-front structural advisory fees received in cash at the time ofthe securitization closing. During the first quarter of fiscal 2006, the Companydid not complete a securitization transaction.

Net income for the first quarter of fiscal 2007 was $141.0 million, or $2.23 perdiluted share, compared to a net loss during the first quarter of fiscal 2006 of $5.4million, or $0.08 per diluted share.

The Company also just completed a record summer processing season, withvolume of loans facilitated during the first quarter of fiscal 2007 that are availablefor securitization increasing 38% to $1.52 billion, compared with $1.10 billionfacilitated and available for securitization during the first quarter last fiscal year.The rolling twelve month volume of loans available for securitization alsoincreased 38% to $3.34 billion for the twelve months ended September 30, 2006,compared with $2.41 billion for the twelve months ended September 30, 2005.

106. Commenting on the financial results, Defendant Kopnisky stated the following:

We are pleased with the strong results from this past quarter. Our teamcontinues to maximize value derived from our securitizations, deliver strongloan volume growth and expand our market leadership position . With ourcontinued addition of new clients and expanded programs, we are poised to seizefuture growth opportunities and will continue our relentless focus on deliveringoptimal value to our shareholders.

107. During a conference call on October 26, 2006 discussing the financial results,

Defendant Kopnisky participated in the following exchange:

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<Q> On the forbearance data, can you just let us know how that's trackingrelative to your expectations and how - what is the duration of a loan that's inforbearance before it either becomes a delinquency or is secured?

<A - Jack Kopnisky>: Well, I can. What we see generally is there are twoopportunities there in the 20 year period to seek a forbearance. And eachforbearance period lasts up to six months. In detail, what we see is that - theforbearance is not as required for delinquency and indeed many students generallytake up forbearance right after they get out of college and pass through their graceperiod, they need some more time to get their feet under them and indeed theybecome very good payers after they come out of forbearance.

<Q>: And how are these numbers tracking relative to your expectations andprice?

<A - Jack Kopnisky>: It's spot on.

108. On November 13, 2006, First Marblehead issued a press release announcing a

planned $1.0 billion securitization of private student loans guaranteed by TERI. The press

release stated in pertinent part as follows:

BOSTON, Nov 13, 2006 (BUSINESS WIRE) -- The First MarbleheadCorporation (NYSE: FMD) today announced the scheduled closing of asecuritization enabling the purchase of private student loans by The NationalCollegiate Student Loan Trust 2006-4 (the Trust) and the related issuance ofStudent Loan Asset Backed Notes by the Trust. The National Collegiate FundingLLC, as sponsor and depositor of the securitization, has filed with the Securitiesand Exchange Commission a Free Writing Prospectus regarding this transaction.The Company expects the transaction, which is scheduled to close on or aboutDecember 7, 2006, to be substantially similar in structure to the transaction thatclosed in September 2006.

The loans were originated by several different banks under various loan programsthat were structured with the assistance of First Marblehead. The Trust expects toraise approximately $1.025 billion from the sale of asset-backed securities, andplans to acquire private student loans with a principal and accrued interest balanceof approximately $725 million in the transaction. The Trust expects thatapproximately 93% of the loans to be purchased at closing will be "Direct toConsumer" loans, and that the remaining 7% of the loans to be purchased atclosing will be "School Channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), thenation ' s oldest and largest guarantor of private student loans.

43

109. On December 5, 2006, First Marblehead issued a press release announcing that

the expected revenue on the Company's $1.0 billion private student loan securitization. First

Marblehead expected to receive up-front structural advisory fees of approximately $89.6 million,

additional structural advisory fees with an estimated discounted present value of approximately

$8.8 million, and residual revenue with an estimated discounted present value of approximately

$48.7 million. The press release stated in pertinent part as follows:

BOSTON, Dec 05, 2006 (BUSINESS WIRE) -- The First MarbleheadCorporation (NYSE: FMD) today announced its estimated revenues in connectionwith a previously announced securitization involving The National CollegiateStudent Loan Trust 2006-4 (the "Trust"). The Trust expects to raiseapproximately $1.025 billion from the sale of asset-backed securities, and expectsto acquire private student loans with a principal and accrued interest balance ofapproximately $725 million, in a transaction that is expected to close later thisweek.

At the closing of the transaction, First Marblehead expects to receive up-frontstructural advisory fees of approximately $89.6 million, or 12.4% of the privatestudent loan balance securitized. In addition, over the term of the Trust, FirstMarblehead expects to receive additional structural advisory fees from the Trustwith an estimated discounted present value of approximately $8.8 million, or1.2% of the loan balance securitized, as well as residual revenue with anestimated discounted present value of approximately $48.7 million, or 6.7% of theloan balance securitized. The blended yield for the securitization, representingtotal securitization revenues as a percentage of the total principal and accruedinterest balance of loans securitized, is expected to be approximately 20.3%.

The Trust expects that approximately 93% of the loans to be purchased at closingwill be "direct to consumer" loans and that the remaining 7% of the loans to bepurchased will be "school channel" loans. Up-front structural advisory feesattributable to direct to consumer loans are expected to represent approximately12.7% of the direct to consumer loan balance securitized, and additional structuraladvisory fees and residual revenues attributable to direct to consumer loans areexpected to represent approximately 1.2% and 7.1%, respectively, of the direct toconsumer loan balance securitized. Up-front structural advisory fees attributableto school channel loans are expected to represent approximately 7.3% of theschool channel loan balance securitized, and additional structural advisory feesand residual revenues attributable to school channel loans are expected torepresent approximately 1.2% and 2.1%, respectively, of the school channel loanbalance securitized.

44

First Marblehead uses discounted cash flow modeling techniques involvingseveral key assumptions, including discount rates and estimates of futureprepayments, credit losses and recoveries, to estimate the present fair value ofthese expected additional structural advisory fees and residual revenue. Theserevenue estimates are also subject to change based on a number of factors,including the variance, if any, between the estimated and actual amount of privatestudent loans purchased by the Trust at the time of closing. In addition, theannounced yields by marketing channel represent an estimated allocation ofrevenues and costs based on various estimates and assumptions regarding therelative profitability of the loans and are subject to change as a result of the finalreconciliation of the transaction. These yields may not be indicative of yields thatFirst Marblehead may be able to achieve in future securitizations.

110. Commenting on the announcement, Defendant Kopnisky stated, "Our

securitizations continue to be well-received by investors worldwide. This is our second

consecutive transaction with BBB-rated securities , and we are very pleased with the results of

this securitization."

111. Following this announcement, First Marblehead's stock price fell $23.00 per

share, or 30%, to close at $53.50 per share. However, Defendants continued to conceal the truth

about TERI's ability to guarantee the Company's loans that would go into default.

112. On January 25, 2007, First Marblehead issued a press release announcing the

financial and operating results for the second quarter of fiscal 2007. The press release stated in

pertinent part as follows:

BOSTON, MA, Jan 25, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its financialand operating results for the second quarter of fiscal 2007 and for the six-monthperiod ended December 31, 2006.

Total revenues for the six months ended December 31, 2006 were $500.7 million,up 87% from $268.4 million for the same period last year. Net income for the sixmonth period was $222.2 million, or $2.34 per diluted share, an increase of 110%in net income, and 115% in diluted earnings per share, over the same period lastyear. For the second quarter of fiscal 2007, total revenues were $197.8 millionand net income was $81.2 million, or $0.85 per diluted share. Quarter to quartercomparisons may be less informative during this period given the Company'stransition to a quarterly securitization cycle.

45

First Marblehead facilitated two securitization transactions during the six monthsended December 31, 2006, completing a securitization of $1.4 billion of privatestudent loans in the first quarter of fiscal 2007 and a securitization of $724 millionof private student loans in the second quarter of fiscal 2007. These transactionsgenerated aggregate service revenues of $392.4 million, including $261.9 millionof up-front structural advisory fees. In contrast, the Company facilitated onesecuritization of $1.3 billion of private student loans during the six months endedDecember 31, 2005. This transaction, which closed in the second quarter of fiscal2006, generated service revenues of $188.6 million, including $95.7 million ofup-front structural advisory fees.

The volume of loans facilitated during the second quarter of fiscal 2007 that areavailable for securitization increased 26% to $687 million over the same periodlast year. The rolling twelve month volume of loans available for securitizationincreased 39% to $3.5 billion for the twelve months ended December 31, 2006over the same period a year ago.

During the quarter the Company completed its acquisition of Union FederalSavings Bank. Union Federal is a federally chartered thrift with 13 employeesand total assets of $41 million located in North Providence, Rhode Island.

113. Commenting on the financial results, Defendant Kopnisky stated the following:

The Company had an excellent quarter and first six months of fiscal 2007. Ourfacilitated loan volume remained strong, we added meaningful new clients, andwe executed against our plan to complete quarterly securitizations. We remainfocused on providing an excellent experience for our clients and value to ourshareholders.

114. In a conference call on January 25, 2007, Defendant Kopnisky emphasized First

Marblehead's rigid screening policy applied to evaluating applications for loans, stating that the

FICO scores of the borrowers of the Company 's loans "remain pretty consistently in that 710 to

720 range."

115. Also in a conference call on January 25, 2007, Defendant Hupalo participated in

the following exchange:

<Q >: The default rate on that or the gross default rate is up to 531, which Iassume is compare or your overall is 9% for the entire life of the loan. Like isthat basically in line with your assumptions at this point even though the pool isbasically only two years old?

46

<A - John Hupalo>: Let me -- I will make a general statement and that applies tothat particular trust . When we have gone back and looked at each one of the fivedrivers including the default rates, we have found that they are in line withwhat our expectation is for this point in their development. I think your pointthough about any particular trust it's really important. There are some variationstrust-to-trust with regards to some performance, either prepayment performanceor credit performance or recovery performance, whatever it might be. And we domonitor that carefully to run it against what our expectation is.

116. On February 15, 2007, First Marblehead issued a press release announcing a

planned $1.12 billion securitization of private student loans guaranteed by TERI. The press

release stated in pertinent part as follows:

BOSTON, MA, Feb 15, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced a plannedsecuritization involving the purchase of private student loans by The NationalCollegiate Student Loan Trust 2007-1 (the "Trust") and the related issuance ofStudent Loan Asset-Backed Notes by the Trust. The National Collegiate FundingLLC, the sponsor and depositor of the securitization, has filed with the Securitiesand Exchange Commission a Free Writing Prospectus regarding this transaction.The Company expects the transaction, which is scheduled to close on or aboutMarch 8, 2007, to be substantially similar in structure to the Company's two mostrecent securitization transactions.

The private student loans were originated by several different banks under variousloan programs that were structured with the assistance of First Marblehead. TheTrust expects to raise approximately $1.12 billion from the sale of asset-backedsecurities and plans to acquire private student loans with a principal and accruedinterest balance of approximately $780.4 million in the transaction. The Trustexpects that approximately 74% of the loans to be purchased at closing will be"direct to consumer" loans, and that the remaining 26% of the loans to bepurchased at closing will be "school channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), thenation ' s oldest and largest guarantor of private student loans.

117. On February 27, 2007, First Marblehead issued a press release announcing a

preliminary estimate of up-front structural advisory fees of approximately $102 million in

relation to the previously-announced $1.12 billion securitization of private loans . The press

release stated in pertinent part as follows:

47

BOSTON, MA, Feb 27, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its estimatedup-front structural advisory fees in connection with the proposed securitization ofprivate student loans to be purchased by The National Collegiate Student LoanTrust 2007-1 (the "Trust"). As previously announced, the Trust expects to issueapproximately $1.12 billion in principal amount of asset-backed securities andplans to acquire private student loans with a principal and accrued interest balanceof approximately $780.4 million, in a transaction that is scheduled to close on orabout March 8, 2007.

In connection with the securitization, the Trust filed today with the Securities andExchange Commission a Term Sheet providing additional preliminary detailsregarding the anticipated transaction. As disclosed in the filing, First Marbleheadexpects to receive up-front structural advisory fees of approximately $102million, or 13% of the private student loan balance securitized, at the closing ofthe transaction. This revenue estimate is preliminary and subject to change basedon a number of factors, including the variance, if any, between the estimated andactual amount of private student loans purchased by the Trust at the time ofclosing, as well as the pricing of the debt securities to be issued in this transaction,which has not yet been completed. First Marblehead expects to be in a position toestimate the discounted present value of its additional structural advisory fees andresidual revenue related to this transaction at approximately the time of closing.

The loans to be securitized in this transaction were originated by several differentbanks under various loan programs that were structured with the assistance ofFirst Marblehead. The Trust expects that approximately 74% of the loans to bepurchased at closing will be "Direct to Consumer" loans and that the remaining26% of the loans to be purchased at closing will be "School Channel" loans.

118. On March 7, 2007, First Marblehead issued a press release announcing that, in

addition to the $102 million that the Company expects to receive in up-front structural advisory

fees from its planned $1.12 billion private student loan securitization, the Company expects to

receive additional structural advisory fees with an estimated discounted present value of

approximately $9.5 million, as well as residual revenue with an estimated discounted present

value of approximately $36.9 million. The press release stated in pertinent part as follows:

BOSTON, MA, Mar 07, 2007 (MARKET WIRE via COMTEX News Network) -- The First Marblehead Corporation (NYSE: FMD) today announced its estimatedrevenues in connection with a previously announced securitization involving TheNational Collegiate Student Loan Trust 2007-1 (the "Trust"). The Trust expectsto raise approximately $1.12 billion from the sale of asset-backed securities, and

48

expects to acquire private student loans with a principal and accrued interestbalance of approximately $780 million, in a transaction that is expected to closelater this week. This transaction is similar in structure to the Company's twomost recent securitizations, including BBB-rated securities.

As previously announced, at the closing of the transaction First Marbleheadexpects to receive up-front structural advisory fees of approximately $102million, or 13.1% of the private student loan balance securitized. In addition,over the term of the Trust, First Marblehead expects to receive additionalstructural advisory fees from the Trust with an estimated discounted present valueof approximately $9.5 million, or 1.2% of the loan balance securitized, as well asresidual revenue with an estimated discounted present value of approximately$36.9 million, or 4.7% of the loan balance securitized. The blended yield for thesecuritization, representing total securitization revenues as a percentage of thetotal principal and accrued interest balance of loans securitized, is expected to beapproximately 19%.

The Company expects that approximately 75% of the loans to be purchased atclosing will be direct-to-consumer loans with the remaining 25% from schoolchannel programs. Up-front structural advisory fees attributable to direct-to-consumer loans are expected to represent approximately 14.6% of the direct-to-consumer loan balance securitized while additional structural advisory fees andresidual revenues on these loans are expected to represent approximately 1.2%and 5.6% respectively. Up-front structural advisory fees attributable to schoolchannel loans are expected to represent approximately 8.4% of the school channelloan balance securitized while additional structural advisory fees and residualrevenues on these loans are expected to represent approximately 1.2% and 2.1%respectively.

119. Commenting on the announcement, Defendant Kopnisky stated the following:

This transaction was in the market at a time when the Dow saw its biggest dropsince March 2003 while the asset-backed market was experiencing substantialvolatility amidst increased supply . Despite these less than optimal conditions,overall, the deal priced at more favorable terms than our December transactiondemonstrating the continued strength of our securitization program andconsistent demandfor the asset-backed securities that wefacilitate.

120. On April 25, 2007, First Marblehead issued a press release announcing that the

Company's Board had authorized the repurchase of up to 10,000,000 shares of the Company's

common stock. The press release stated in pertinent part as follows:

BOSTON, MA, Apr 25, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced that its board

49

of directors has authorized the repurchase of up to 10,000,000 shares of theCompany's common stock from time to time in the open market or in privatelynegotiated transactions. The 10,000,000 shares now authorized for repurchaseincludes 3,393,300 shares that remain available for repurchase pursuant to aprogram approved by the board of directors on September 29, 2005.

The timing and amount of any share repurchases will be determined by acommittee of the board of directors based on its evaluation of market conditionsand other factors. Repurchases may also be made under a Rule 10b5-1 plan,which would permit shares to be repurchased when the Company might otherwisebe precluded from doing so under insider trading laws. The repurchase programmay be suspended or discontinued at any time, and it does not have a fixedexpiration date. Any repurchased shares will be available for use in connectionwith the Company's stock plans and for other corporate purposes.

The repurchase program will be funded using the Company's working capital. Asof December 31, 2006, the Company had cash, cash equivalents and investmentsavailable for the repurchase program totaling approximately $226 million.

The Company had 94,491,025 shares of common stock outstanding at the close ofbusiness on April 24, 2007. As of April 24, 2007, the Company had repurchased4,106,700 shares pursuant to its prior repurchase program.

121. On April 26, 2007, First Marblehead issued a press release announcing its

financial and operating results for the third quarter of fiscal 2007, along with an accompanying

Form 8-K filed with the SEC and signed by Defendant Hupalo. For the quarter, the Company

reported total revenues of $180 million, and net income of $71 million, or $0.75 per diluted

share. The press release stated in pertinent part as follows:

BOSTON, MA--(MARKET WIRE)--Apr 26, 2007 -- The First MarbleheadCorporation (NYSE: FMD-News) today announced its financial and operatingresults for the third quarter of fiscal 2007 and for the nine months ended March31, 2007. Total revenues for the nine months ended March 31, 2007 were $681million, up 63% from $419 million for the same period last year. Net income forthe nine-month period was $293 million, or $3.09 per diluted share, an increase of78% in net income, and 81% in diluted earnings per share over the same nine-month period last year. For the third quarter of fiscal 2007, total revenues were$180 million, up 20% from $151 million for the same period last year. Netincome for the third quarter was $71 million, or $0.75 per diluted share, anincrease of 20% in net income, and 21% in diluted earnings per share, over thesame period last year.

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The operating results also reflect adjustments to certain of the assumptionsused by the company in estimating the value of its service receivables. Based onthe current interest rate environment and securitization market, the companyadjusted its prepayment and discount rate assumptions. The net effect of theseadjustments reduced service receivables as well as the quarter 's securitizationrevenues by a total of $16 million, or $.11 per diluted share.

The volume of loans facilitated during the third quarter of fiscal 2007 that areavailable for securitization increased 24% over the same period last year to $872million. The rolling twelve-month volume of loans available for securitizationincreased 34% to $3.6 billion for the twelve months ended March 31, 2007.

122. Notably, the Company reported adjustments in its expectations concerning

prepayment rates, but suggested no such change in outlookfor default orforbearance rates.

123. Commenting on the financial results, Defendant Kopnisky stated the following:

First Marblehead had a very strong third quarter and a terrific first nine months offiscal 2007. Our facilitated loan volume continues to grow, we continue todiversify our client base, and we remain dedicated to our mission of helpingstudents finance their education dreams.

124. In a conference call on April 26, 2007 discussing the financial results, Defendant

Hupalo stated the following:

Since our IPO in 2003 investors have heard First Marblehead consistentlyspeak about the package offive key assumptions, which we outline on the nextslide. They are default performance, discount rate, interest rates, prepaymentperformance and recovery performance. We have talked about them as apackage because we firmly believe that this is the most appropriate way forinvestors to gain insight into how the company determines the fair value for ourservice receivables. It would be a mistake and potentially misleading to isolateone assumption without considering the correlations and the effects across all theother assumptions.

To arrive at a fair value we consistently consider a number offactors includingbut not limited to trends in the underlying loan portfolio; macroeconomicconditions; the immediate past, current andprojected interest rate environment;the effect of the passage of time; and attributes unique to student loans. Theseattributes when combined with the 20-year repayment terms that includeforbearance and deferment periods drive any decision to modify our assumptionpackage. Using this methodology we determined it appropriate to increase theprepayment assumption from 7% to 8% and to modify the discount ratecalculation used to value our residuals.

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125. Again, Defendants reported adjustments to the Company' s expectations

concerning payment rates and discount rates, but suggested no change in outlook for default or

forbearance rates.

126. On June 4, 2007, First Marblehead issued a press release announcing a planned

$1.04 billion securitization of private student loans guaranteed by TERI. The press release stated

in pertinent part as follows:

BOSTON, MA, Jun 04, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced a plannedsecuritization involving the purchase of private student loans by The NationalCollegiate Student Loan Trust 2007-2 (the "Trust") and the related issuance ofStudent Loan Asset-Backed Notes by the Trust. The National Collegiate FundingLLC, the sponsor and depositor of the securitization, has filed with the Securitiesand Exchange Commission a Free Writing Prospectus regarding this transaction.The Company expects the transaction, which is scheduled to close on or aboutJune 14, 2007, to be substantially similar in structure to the Company's three mostrecent securitization transactions.

The private student loans were originated by several different banks under variousloan programs that were structured with the assistance of First Marblehead. TheTrust expects to raise approximately $1.04 billion from the sale of asset-backedsecurities and plans to acquire private student loans with a principal and accruedinterest balance of approximately $770.2 million in the transaction. The Trustexpects that approximately 80% of the loans to be purchased at closing will be"direct to consumer" loans, and that the remaining 20% of the loans to bepurchased at closing will be "school channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), thenation ' s oldest and largest guarantor of private student loans.

127. On June 5 , 2007, First Marblehead issued a press release announcing that it

expects to receive up-front structural advisory fees of approximately $90 million in connection

with the planned $1.04 billion securitization of private student loans. The press release stated in

pertinent part as follows:

BOSTON, MA, Jun 05, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its estimated

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revenues in connection with the proposed securitization of private student loans tobe purchased by The National Collegiate Student Loan Trust 2007-2 (the"Trust"). As previously announced, the Trust expects to issue approximately$1.04 billion in principal amount of asset-backed securities and plans to acquireprivate student loans with a principal and accrued interest balance ofapproximately $770.2 million, in a transaction that is scheduled to close on orabout June 14, 2007.

In connection with the securitization, the Trust will file with the Securities andExchange Commission a Term Sheet providing additional preliminary detailsregarding the anticipated transaction. As will be disclosed in the filing, FirstMarblehead expects to receive up-front structural advisory fees of approximately$90 million, or 11.7% of the private student loan balance securitized, at theclosing of the transaction. The overall yield for the securitization, representingtotal securitization revenues as a percentage of the total private student loanbalance securitized, is expected to be 18%. These revenue estimates arepreliminary and subject to change based on a number of factors, including thevariance, if any, between the estimated and actual amount of private student loanspurchased by the Trust at the time of closing, as well as the pricing of the debtsecurities to be issued in this transaction, which has not yet been completed. FirstMarblehead expects to be in a position to announce the discounted present valueof its additional structural advisory fees and residual revenue related to thistransaction at approximately the time of closing.

The loans to be securitized in this transaction were originated by several differentbanks under various loan programs that were structured with the assistance ofFirst Marblehead. The Trust expects that approximately 80% of the loans to bepurchased at closing will be "Direct to Consumer" loans and that the remaining20% of the loans to be purchased at closing will be "School Channel" loans.

128. On June 6, 2007, First Marblehead issued a press release announcing the

completion of a $122 million securitization of GATE student loans . In connection with this

securitization, the Company received up-front structural advisory fees of approximately $1.8

million, and expects to receive additional structural advisory fees with an estimated discounted

present value of approximately $1.0 million, as well as residual revenues with an estimated

discounted present value of approximately $3.2 million. The press release stated in pertinent part

as follows:

BOSTON, MA, Jun 07, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced the closing of

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a securitization involving The National Collegiate Trust 2007-A. The Trust raisedapproximately $122.2 million from the sale of asset-backed securities in a privateplacement transaction and acquired GATE student loans with a principal andaccrued interest balance of approximately $96.6 million. The GATE loans wereoriginated with the assistance of First Marblehead and funded by Bank ofAmerica.

First Marblehead received up-front structural advisory fees of approximately $1.8million, or approximately 1.9% of the private student loan balance securitized, atthe closing of the securitization. In addition, over the term of the Trust, FirstMarblehead expects to receive additional structural advisory fees from the Trustwith an estimated discounted present value of approximately $1.0 million, or1.0% of the loan balance securitized, as well as residual revenues with anestimated discounted present value of approximately $3.2 million, or 3.3% of theloan balance securitized. These revenue estimates are preliminary, based on theestimated loan balances at closing, which remain subject to post-closingreconciliation.

129. In a hearing before the Senate Committee on Banking, Housing and Urban Affairs

held on June 6, 2007, Defendant Tarr stated the following regarding First Marblehead's

vulnerability to the risk of defaults on its private education loans:

Private loan borrowers must typically qualify for the loan by meeting certaincredit criteria. Not all applicants for private loans are approved for the loans:approximately one-half of the applicants for First Marblehead-facilitated privateloans are declined due to insufficient credit.

In fact, few if any undergraduates can meet our strict underwriting criteria ontheir own so they enlist their parents or another experienced borrower to co-signthe loan.

As a result, the typical private loan borrower in the programs we administer is

an undergraduate student with a 50-year-oldparental cosigner with an average

FICO score in excess of 700.

130. On June 12, 2007, First Marblehead issued a press release announcing that, as part

of the previously announced $1.04 billion securitization of private student loans, the Company

expects to receive up-front structural advisory fees of approximately $89.7 million, structural

advisory fees with an estimated discounted present value of approximately $ 8.5 million, as well

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as residual revenue with an estimated discounted present value of approximately $39.9 million.

The press release stated in pertinent part as follows:

BOSTON, MA, Jun 12, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its estimatedrevenues in connection with a previously announced securitization involving TheNational Collegiate Student Loan Trust 2007-2 (the "Trust"). The Trust expectsto raise approximately $1.04 billion from the sale of asset-backed securities, andexpects to acquire private student loans with a principal and accrued interestbalance of approximately $769.9 million, in a transaction that is expected to closelater this week.

As previously announced, at the closing of the transaction First Marbleheadexpects to receive up-front structural advisory fees of approximately $89.7million, or 11.7% of the private student loan balance securitized. In addition,over the term of the Trust, First Marblehead expects to receive additionalstructural advisory fees from the Trust with an estimated discounted present valueof approximately $8.5 million, or 1.1% of the loan balance securitized, as well asresidual revenue with an estimated discounted present value of approximately$39.9 million, or 5.2% of the loan balance securitized. The blended yield for thesecuritization, representing total securitization revenues as a percentage of thetotal principal and accrued interest balance of loans securitized, is expected to beapproximately 17.9%.

The Company expects that approximately 81% of the loans to be purchased atclosing will be direct-to-consumer loans with the remaining 19% from schoolchannel programs. Up-front structural advisory fees attributable to direct-to-consumer loans are expected to represent approximately 12.6% of the direct-to-consumer loan balance securitized while additional structural advisory fees andresidual revenues on these loans are expected to represent approximately 1.1%and 5.9% respectively. Up-front structural advisory fees attributable to schoolchannel loans are expected to represent approximately 7.9% of the school channelloan balance securitized while additional structural advisory fees and residualrevenues on these loans are expected to represent approximately 1.1% and 2.2%respectively.

131. On August 9, 2007, First Marblehead issued a press release announcing its

financial and operations results for the fourth quarter of fiscal 2007 and for the fiscal year ended

June 30, 2007. The Company's associated Form 8-K filed with the SEC was signed by

Defendant Hupalo. For the quarter, the Company reported total revenues of $200 million and net

55

income of $78 million, or $0.83 per diluted share. The press release stated in pertinent part as

follows:

BOSTON, MA, Aug 09, 2007 (MARKET WIRE via COMTEX News Network) -- The First Marblehead Corporation (NYSE: FMD) today announced its financialand operating results for the fourth quarter of fiscal 2007 and for the fiscal yearended June 30, 2007.

Total revenues for the fiscal year ended June 30, 2007 were $881 million, up 55%from $569 million for the same period last year. Net income increased 57% forthe fiscal year to $371 million, or $3.92 per diluted share.

For the fourth quarter of fiscal 2007, total revenues were $200 million, up 33%from $150 million for the same period last year. Operating income for the fourthquarter was $132 million, an increase of 31% over the same period last year. Forthe fourth quarter, net income was $78 million or $0.83 per diluted share.

The volume of loans facilitated during the fourth quarter of fiscal 2007 that areavailable for securitization increased 39% over the same period last year to $792million. The rolling twelve-month volume of loans available for securitizationincreased 33% to $3.9 billion for the twelve months ended June 30, 2007.

132. Commenting on the financial results, Defendant Kopnisky stated the following:

Fiscal 2007 was the strongest year in First Marblehead's history. Ourfocus onadding value to our clients has resulted in exceptional revenue, earnings, andEPS growth. We processed a record 1.4 million loan applications resulting in$4.3 billion in student loans facilitated. Our business continues to grow as weremain focused on developing financial solutions to help students achieve theirdreams.

133. In a conference call conducted on August 9, 2007 discussing the financial results,

Defendant Hupalo stated the following:

The assumptions we use for the other four valuation drivers , defaults,recoveries , interest rates, and the discount rate, also remain appropriate. Inaggregate, the portfolio continues to perform well. In light of the turmoil in theresidential mortgage market, this is a good time to reemphasize that our clientsand our business is not focused on down credit, sub prime borrowers the waysome of the mortgage lenders structured their businesses. They specificallycreated businesses to serve credit challenged customers. We did not. The trustloans, we remind everyone, are guarantee[d] against default [by an] investment-

56

grade guarantor, the Education Resources Institute. More than 80% of ourportfolio is cosigned. The typical cosigner's credit profile is very strong. Theyare 50 years old, have been on active credit file for 22 years, so they have beenthrough a variety and number of economic cycles. 85% of them own their ownhomes. The credit characteristics ofthe pool remain strong.

134. In this same conference call, Defendant Kopnisky stated the following:

Our fourth quarter volume growth was exceptional with loans available forsecuritization increasing 39% over the same period last year . During thequarter, loans available for securitization through the direct to consumer channelincreased 49% while school channel loan volume decreased by 3% over the sameperiod last year. Over the past 12 months, our loan volumes available forsecuritization have shown increases of 44% and 10% in direct to consumer andschool channel volume, respectively.

In the year ended June 30th, the mix of direct to consumer to school channelavailable for securitization was 79% to 21%. We continued to see increasingconsumer demand as borrowers seek a range of options in a direct relationship.However, the school channel remains an important and viable growth channel,where we will continue to allocate meaningful resources. As of the end of June,we had $832 million of loans available for securitization that had not yet beensecuritized. For the year, we securitized $3.75 billion of private student loans.The blended yield was over 18% with approximately $457 million coming in theform of upfront cash at the time of closing. Investor demand in our securitizationprogram has been diverse and strong. Also, during the quarter, our Boardincreased the quarterly cash dividend to $0.25 per share from $0.15, an increaseof 67%. This was the fourth consecutive quarterly increase and represents a 94%increase in full-year dividends for fiscal year 2007, $0.62 per share compared to$0.32 per share on a split adjusted basis.

135. After these announcements , First Marblehead ' s stock price increased $2.80 per

share, or approximately 9%, to close at $34.49 per share.

136. On August 28, 2007, First Marblehead filed with the SEC its annual report on

Form 10-K for the fiscal year ended June 30, 2007 (`2007 Form 10-K"), which was signed

and/or certified by Defendants Kopnisky, Hupalo, Anbinder, Alexander and Berkley. With

regard to TERI's reductions in the funds deposited in the Pledged Account, the 2007 Form 10-K

provided the following:

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TERI received an administrative fee of 175 basis points for the securitizationtransaction the Company completed in the first quarter of fiscal 2007, 221 basispoints for the securitization transaction the Company completed in the secondquarter of fiscal 2007, 215 basis points for the securitization transaction theCompany completed for the third quarter of fiscal 2007 and 212 basis points forthe securitization transaction the Company completed in the fourth quarter offiscal 2007. The Company expects to allow TERI to elect to adjust the amount ofits administrative fee, and adjust the amount deposited into the pledged account,within specified parameters for the securitization transaction the Company plansto complete in the first quarter of fiscal 2008.

137. Regarding the effect of a possible downgrade in TERI's ratings, the 2007 Form

10-K provided the following:

Our business could be adversely affected if TERI' s ratings are downgraded.

In its role as guarantor in the private education lending market, TERI agrees to

reimburse lenders for unpaid principal and interest on defaulted loans. TERI is

the exclusive provider of borrower default guarantees for our clients' private label

loans. As of June 30, 2007, TERI had a Baa3 counterparty rating from Moody's

Investors Service, which is the lowest investment grade rating, and an insurer

financial strength rating of A+ from Fitch Ratings which was reaffirmed on April

2, 2007. TERI also held a rating of A from Dominion Bond Rating Service as of

June 30, 2007. If TERI's ratings were downgraded, our clients may not wish to

enter into guarantee arrangements with TERI, our upfront structural advisory fee

yields could decline, or market conditions could dictate that we obtain additional

credit enhancement for the asset-backed securitizations that we structure, the cost

of which could result in lower revenues . In addition, the inability of TERI as

student loan guarantor to meet its guaranty obligations could reduce the

amount ofprincipal or interest paid to the holders of asset-backed securities,

which could adversely affect our residual interests in securitization trusts or

harm our ability to structure securitizations in the future. Finally, if TERI's

ratings were downgraded below the ratings TERI held in January 2003, or if a

rating agency were to place a negative watch on TERI, our agreement with

Bank ofAmerica relating to the purchase of direct-to-consumer loans could be

terminated. In January 2003, TERI had a Baa3 counterparty rating from Moody's

Investors Service and an insurer financial strength rating of A from Fitch Ratings.

If TERI experiences a material adverse financial change such as a reduction of its

credit rating below investment grade, Bank of America could suspend the

processing of new application for school channel loans. In each such case, our

business would be adversely affected.

138. The 2007 Form 10-K stated the following regarding the fees the Company

received in connection with its securitization services:

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We receive several types of fees in connection with our securitization services:

Structural advisory fees. We charge structural advisory fees that are paid in twoportions:

Upfront. We receive a portion of the structural advisory fees when thesecuritization trust purchases the loans , or shortly thereafter; and

Additional. We receive a portion of the structural advisory fees over time,based on the amount of loans outstanding in the trust from time to timeover the life of the trust.In exchange for these structural advisory fees, we structure the securitiessold in the securitization, coordinate the attorneys, accountants, trustees,loan servicers, loan originators and other transaction parties and preparecash flow modeling for the rating agencies.

Residuals. We also have the right to receive a portion of the residual interests thatthese trusts create. This interest is junior in priority to the rights of the holders ofthe debt sold in the securitizations as well as the additional structural advisoryfees above.

Our residual interest is derived almost exclusively from the services we have

performed in connection with each securitization rather than from a direct cash

contribution to the securitization trust.

(c) Fiscal 2008 Statements

139. On August 31, 2007, the Company issued a press release announcing that, on

August 22, 2007, it received a subpoena from the New York Attorney General's Office for

information regarding the Company's role in the student loan industry.

140. From September 10, 2007 to September 18, 2007, First Marblehead's stock price

increased from $32 . 19 per share on September 7, 2007, to $40 . 60 per share on September 18,

2007 - an $8.41 per share increase , or 26%. The cause of the increase was the Company' s press

releases and earnings estimates relating to the fees associated with the securitization of two

trusts.

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141. Specifically, on September 10, 2007, First Marblehead issued a press release

announcing a planned securitization of private loans guaranteed by TERI. The press release

stated in pertinent part as follows:

BOSTON, MA--(MARKET WIRE)--Sep 10, 2007 -- The First MarbleheadCorporation (NYSE:FMD - News) today announced a planned securitizationinvolving the purchase of private student loans and the related issuance of studentloan asset-backed notes. The National Collegiate Funding LLC, the sponsor anddepositor of the securitization, has filed with the Securities and ExchangeCommission a Free Writing Prospectus regarding this transaction. The Companyexpects the transaction to close on or about September 20, 2007.

The private student loans were originated by several different banks under variousloan programs that were structured with the assistance of First Marblehead. Thesecuritization, which may be effected by one or more trusts, is expected to raiseapproximately $2.8 billion from the sale of asset-backed securities and involve theacquisition of private student loans with a principal and accrued interest balanceof approximately $2.04 billion. Approximately 81% of the loans to be purchasedat closing are expected to be "direct to consumer" loans, and the remaining 19%of the loans to be purchased at closing will be "school channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), thenation's oldest and largest guarantor of private student loans. Ambac AssuranceCorporation is expected to issue a note guaranty insurance policy in conjunctionwith the issuance of the notes.

142. On September 17, 2007, First Marblehead issued a press release announcing that,

in connection with the planned $2.93 billion securitization of private student loans, the Company

expects to receive up-front structural advisory fees of approximately $177.1 million. The press

release stated in pertinent part as follows:

BOSTON, MA, Sep 17, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its estimatedup-front structural advisory fees in connection with the securitization expected toclose on September 20, 2007. The securitization will be effected in twotransactions involving separate purchaser trusts, The National Collegiate StudentLoan Trust (NCSLT) 2007-3 and NCSLT 2007-4. NCSLT 2007-3 will issueapproximately $1.464 billion in principal amount of asset-backed securities andacquire private student loans with a principal and accrued interest balance ofapproximately $1.02 billion. NCSLT 2007-4 will issue approximately $1.464billion in principal amount of asset-backed securities and acquire private student

60

loans with a principal and accrued interest balance of approximately $1.02 billion.

The two transactions in the aggregate will issue approximately $2.93 billion in

principal amount of asset-backed securities and acquire private student loans with

a principal and accrued interest balance of approximately $2.04 billion. Ambac

Assurance Corporation is expected to issue a note guaranty insurance policy in

conjunction with the notes to be issued by each trust. It is a condition to the

issuance of the notes that they be rated in the highest rating category of at least

two rating agencies. The ratings assigned to the offered notes will be issued

based on the financial guarantee rating of Ambac Assurance Corporation as the

note insurer.

In connection with the transactions, each purchaser trust has filed with theSecurities and Exchange Commission a preliminary prospectus supplementproviding additional details regarding its issuance of asset-backed securities.

At the closing of the NCSLT 2007-3 securitization, First Marblehead expects toreceive up-front structural advisory fees of approximately $88.6 million, or 8.7%of the total private student loan balance securitized. At the closing of the NCSLT2007-4 securitization, First Marblehead expects to receive up-front structuraladvisory fees of approximately $88.5 million, or 8.7% of the total private studentloan balance securitized. For the two transactions together, First Marbleheadexpects to receive approximately $177.1 million, in up-front structural advisoryfees. These up-front fee estimates are preliminary and subject to change based ona number of factors, including the variance, if any, between the estimated andactual amount of private student loans purchased by the trusts at the time ofclosing, as well as the pricing of the debt securities to be issued, which has not yetbeen completed. First Marblehead expects that the up-front structural advisoryfee will comprise more than 55% of total revenues for the transaction. FirstMarblehead will announce the discounted present value of its additional structuraladvisory fees and residual revenue related to the securitization at approximatelythe time of closing.

143. On September 20, 2007, First Marblehead issued a press release announcing that,

in connection with the planned $2.93 billion securitization of private student loans, the Company

expects to recognize revenue of approximately $306.3 million. The press release stated in

pertinent part as follows:

BOSTON, MA--(MARKET WIRE)--Sep 20, 2007 -- The First MarbleheadCorporation (NYSE: FMD - News ) today announced its estimated revenues inconnection with its previously announced securitizations involving The NationalCollegiate Student Loan Trust (NCSLT) 2007-3 and NCSLT 2007-4. NCSLT2007-3 expects to issue approximately $1.464 billion in principal amount of asset-backed securities and acquire private student loans with a principal and accrued

61

interest balance of approximately $1.02 billion. NCSLT 2007-4 expects to issue

approximately $1.464 billion in principal amount of asset-backed securities and

acquire private student loans with a principal and accrued interest balance of

approximately $1.02 billion. The two transactions in the aggregate will issue

approximately $2.93 billion in principal amount of asset-backed securities and

acquire private student loans with a principal and accrued interest balance of

approximately $2.04 billion.

Ambac Assurance Corporation is expected to issue a note guaranty insurance

policy in conjunction with the notes to be issued by each trust. It is a condition to

the issuance of the notes that they be rated in the highest rating category of at least

two rating agencies. The ratings assigned to the offered notes will be issued

based on the financial guarantee rating of Ambac Assurance Corporation as the

note insurer.

For the two transactions together, First Marblehead expects to recognize revenue

of approximately $306.3 million. First Marblehead expects to receive

approximately $176.9 million in up-front structural advisory fees and, in addition,

over the terms of the Trusts, additional structural advisory fees from the Trusts

with an estimated discounted present value of approximately $24.4 million, as

well as residual revenue with an estimated discounted present value of

approximately $105.0 million.

At the closing of the NCSLT 2007-3 securitization, First Marblehead expects toreceive up-front structural advisory fees of approximately $88.5 million, or 8.7%of the private student loan balance securitized. In addition, over the term of theTrust, First Marblehead expects to receive additional structural advisory fees fromthe Trust with an estimated discounted present value of approximately $12.2million, or 1.2% of the loan balance securitized, as well as residual revenue withan estimated discounted present value of approximately $52.5 million, or 5.1% ofthe loan balance securitized. The blended yield for the securitization,representing total securitization revenues as a percentage of the total principal andaccrued interest balance of the loans securitized is expected to be approximately15.0%.

At the closing of the NCSLT 2007-4 securitization, First Marblehead expects toreceive up-front structural advisory fees of approximately $88.4 million, or 8.7%of the private student loan balance securitized. In addition, over the term of theTrust, First Marblehead expects to receive additional structural advisory fees fromthe Trust with an estimated discounted present value of approximately $12.2million, or 1.2% of the loan balance securitized, as well as residual revenue withan estimated discounted present value of approximately $52.5 million, or 5.1% ofthe loan balance securitized. The blended yield for the securitization,representing total securitization revenues as a percentage of the total principal andaccrued interest balance of the loans securitized is expected to be approximately15.0%.

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The loans to be securitized in the transactions were originated by several differentbanks under various loan programs that were structured with the assistance ofFirst Marblehead. NCSLT 2007-3 expects that approximately 81% of the loans tobe purchased by it at closing will be "direct-to-consumer" loans and that theremaining 19% of the loans to be purchased by it at closing will be "schoolchannel" loans. Up-front structural advisory fees attributable to direct-to-consumer loans are expected to represent approximately 9.5% of the direct-to-consumer loan balance securitized while additional structural advisory fees andresidual revenues on these loans are expected to represent approximately 1.2%and 5.9% respectively. Up-front structural advisory fees attributable to schoolchannel loans are expected to represent approximately 5.1% of the school channelloan balance securitized while additional structural advisory fees and residualrevenues on these loans are expected to represent approximately 1.2% and 1.9%respectively.

NCSLT 2007-4 expects that approximately 81% of the loans to be purchased by itat closing will be direct-to-consumer loans and that the remaining 19% of theloans to be purchased by it at closing will be school channel loans. Up-frontstructural advisory fees attributable to direct-to-consumer loans are expected torepresent approximately 9.5% of the direct-to-consumer loan balance securitizedwhile additional structural advisory fees and residual revenues on these loans areexpected to represent approximately 1.2% and 5.9% respectively. Up-frontstructural advisory fees attributable to school channel loans are expected torepresent approximately 5.1% of the school channel loan balance securitizedwhile additional structural advisory fees and residual revenues on these loans areexpected to represent approximately 1.2% and 1.9% respectively.

144. On October 25, 2007, First Marblehead issued a press release announcing its

financial and operating results for the first quarter of fiscal year 2008. The associated Form 8-K

filed with the SEC was signed by Defendant Hupalo. For the quarter, the Company reported

total revenues of $380 million and net income of $169 million, or $1.80 per diluted share. The

press release stated in pertinent part as follows:

BOSTON, MA, Oct 25, 2007 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its financialand operating results for the first quarter of fiscal 2008, which ended onSeptember 30, 2007.

Total revenues for the first quarter of fiscal 2008 were $380 million, up 25% from$303 million for the same period last year. Net income increased 20% for the first

63

quarter of fiscal 2008 to $169 million, or $1.80 per diluted share, from $141million for the same period last year.

Loans available for securitization during the first quarter of fiscal 2008 increasedto $2.2 billion, up 46% over the same period last year. The rolling twelve-monthvolume of loans available for securitization increased to $4.6 billion, up 37% forthe twelve months ended September 30, 2007.

145. Commenting on the financial results, Defendant Kopnisky stated the following:

We are off to a great start to the fiscal year as a result of record volumes in thefirst quarter. This fiscal quarter's volume of private student loans facilitated andavailable for securitization exceeded all such volume for fiscal 2005. Even in themidst of one of the most volatile credit cycles, we completed our largestsecuritization to date, providing market leadership and helping to increase theavailability of private student loan financing.

At a time when the cost of higher education continues to rise and demand for acollege degree remains high, First Marblehead is pleased to provide its clientswith private financial solutions as an alternative for borrowers once students haveexhausted scholarships, grants, and lower cost federal loans.

146. In a conference call held on October 25, 2007 discussing the financial results for

the first quarter of fiscal 2008, Defendant Hupalo stated the following:

This is a good transition to our quarterly comments on the package of five keyassumptions used for valuing our residuals. In short, we are not making anychanges to any of the otherfour assumptions -- prepayments, defaults,recoveries, and theforward Libor curve.

In aggregate, the portfolio continues to perform generally within the range ofour expectations, and we continue to carefully monitor prepayments, defaults,and recoveries . Although still elevated, prepayments have generally beentrending favorably.

147. Also during this conference call, Defendant Hupalo stated the following:

As we look forward to our next securitization, I'll repeat my comments fromAugust. As we do at this stage of each transaction, we are currently considering anumber of structures for our December transaction. Unless there are dramaticimprovements in the markets over the next month, it is most likely that theDecember structure will look a lot like the very successful September transaction.

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148. During this same conference call, Defendant Kopnisky provided the following

reassurance regarding the Company' s supervision of its portfolio performance:

Just for those who are not as familiar, the loans that we securitize are allguaranteed by TERI And the mechanism, obviously has not changed over theyears, such that we have a cash pledge fund for each one of the segregatedtrusts. And then we rely on TERI's guarantee beyond that.

To your point though, we have been monitoring very closely the portfolioperformance. As I said earlier, it remains within our expectation. And we'rereally monitoring some of the lower credit tiers with special attention. Wetalked in the past about our collection activities and what we're trying to do fordefault aversion programs. And that is beginning collection activity orsupplemental collection activity at the 60 rather than the 90. And we'reevaluating opportunities to begin some of the collection activity earlier for certainof the borrower populations. So we are looking at that.

And then your point with regard to credit criteria, we are in the process of lookingat adjusting certain credit criteria, just as we do periodically during the course ofany credit cycle.

(d) The Truth Slowly Comes To Light

149. On November 26, 2007, the Company's publicly released statements and filings

during the Class Period were called into question for the first time. On this date, Friedman,

Billings, Ramsey Group ("FBR") downgraded First Marblehead to under-perform from

market-perform, citing an increased risk that loss reserves associated with securitization might

not be sufficient.

150. The analyst reviewed TERI's finances in light of Fitch Ratings, Ltd. downgrading

of TERI's credit, and the FBR analyst concluded that TERI did not have enough cash to buy all

First Marblehead loans that were going to be in default. As the analyst stated, much of TERI's

$612 million in cash was restricted, and TERI could only commit $127 million to cover student

loan losses, less than 1 percent of the $13.2 billion in loans TERI purported to guarantee. If the

student loan defaults were to overwhelm TERI's cash, First Marblehead would have to pledge

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more collateral itself, and the Company would securitize fewer student loans and at lower prices

because of the heightened risk.

151. After this announcement, First Marblehead's stock price fell $2.90 per share, or

approximately 10%, to close at $27. 10 per share on heavy trading volume.

152. On December 4, 2007, after the markets closed, Moody's Investors Service

announced that it was performing a review for possible downgrading of sixteen notes of the

Company affecting $822 million of securities created by First Marblehead from 2003 through

2007. In its report, Moody's stated the following:

The underlying collateral consists of private student loans originated underTERI's (The Education Resources Institute) credit-ready and credit-worthy loanprograms. TERI, rated Baa3 by Moody's, guarantees the payment on the loans.

The ratings review is prompted by worse than expected performance of theunderlying student loans . In particular, loans originated through thedirect-to-consumer channel appear to default at a significantly higher ratecompared to loans originated through schoolfinancial aid offices. The growthin parity (the ratio of total trust assets to total liabilities, excluding the TERIPledge Funds) has been slower than originally anticipated partly due to increaseddefaults from the DTC channel. The review will consider, for each trust,whether the available credit enhancement is sufficient to support the currentratings in light of Moody's estimation of future performance.

153. On December 5, 2007, Moody's added two more notes to the review, bringing the

total to $935 million in issued value. Moody's also stated that it was reconsidering a downgrade

to the investment-grade rating of TERI.

154. In response to this news, First Marblehead spokeswoman Janice Walker stated,

"We have been monitoring our portfolio and it remains within our expectations."

155. On this news, First Marblehead shares plunged $5.05, or 20.2%, to $19.93 after

several other analysts downgraded the stock amid rising concerns over the Company's continued

ability to securitize loans.

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156. For instance, Sandler O'Neill & Partners analyst Michael Taiano downgraded the

stock, cutting his fiscal 2008 earnings-per-share estimate to $3.56 from $4.40 and his 2009

estimate to $3.90 from $5, and expressing his concern over "whether First Marblehead's current

structure can be sustained through a prolonged liquidity crunch," and that the Company's

alternatives are "limited and less economically attractive."

157. In addition, analysts at Bear Stearns & Co. and JPMorgan Securities also reduced

their earnings estimates for the Company. Moody's also announced that it might lower ratings

on an additional $113 million of First Marblehead securities. Bear Stearns analyst David

Hochstim cut his fiscal 2008 estimate to $3.23 per share from $4.56 per share, and stated the

following:

This ratings action places even more pressure on First Marblehead in an alreadydifficult securitization market as potential buyers for the company's subordinatenotes would require more compensation for risk than they would have in previousperiods. Without access to securitizations, earnings in future periods will likelydeteriorate even further than we currently estimate.

158. Also on December 5, 2007, Reuters published an article discussing the serious

problems plaguing the Company:

Signs that more students are falling behind on payments prompted MichaelTaiano, an analyst at Sandler O'Neill & Partners LP, to cut his rating on FirstMarblehead to "hold" from "buy." He said uncertainty about margins might alsolimit potential for the shares to rise.

"We are concerned whether First Marblehead's current structure can be sustainedthrough a prolonged liquidity crunch, and that its alternatives are limited and lesseconomically attractive," he wrote.

Taiano cut his profit forecasts for First Marblehead's 2008 and 2009 fiscal years.

The downgrade came after Moody's said on Tuesday it might lower ratings on$822 million of securities created by First Marblehead since 2003.

Moody's said default rates appeared "significantly higher " than on loans issuedthrough financial aid offices. On Wednesday, the credit rating agency said it

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might cut an additional $113 million of First Marblehead securities. Moody'snormally completes its rating reviews within three months.

159. On this same date, TheStreet.com published an article entitled "Wednesday's

Financial Winners & Losers," which discussed First Marblehead's deteriorating situation. The

article stated in relevant part as follows:

Fellow government-backed mortgage investor Freddie Mac FRE was also cut toneutral from buy at Credit Suisse today but, in a wave of broadly positive action,shares rose 3.9% at $33.58 with nary a stray into the red.

Not so for First Marblehead FMD, however, which ranked among today'sworstperforming stocks following a cut to holdfrom buy at Sandler O'Neill.

In a company note, analyst Michael Taiano pointed to yesterday'sannouncement at Moody's that it 's reviewing 16 tranches of the studentlender 's deals for possible downgrade, which he believes "severelydiminish/es]" the likelihood that it will complete a securitization this month.And that, argued Taiano, could force the firm to suspend its dividend.

He furthermore said that, "given heightened credit risk aversion across all assetclasses , we believe future securitizations will likely require greater levels ofsubordination, which could compromise FMD's upfront cash advisory fees. "He also questioned the ability of its current structure to hold its own through a`prolonged liquidity crunch," even as he maintained a generally positive view ofthe long-term growth trends of private student loans.

Taiano slashed $19 from First Marblehead's price target to $25 while sharplylowering its fiscal 2008 earnings estimate to $3.56 from $4.40 a share. FirstMarblehead shares were plummeting $5.10, or 20.4%, to $19.88.

160. Thereafter, on December 7, 2007, First Marblehead issued a press release

announcing that it would cut its quarterly cash dividend by 56% to 12 cents per share and that the

Company would not securitize any loans during the quarter. Commenting on these

announcements, Defendant Kopnisky stated in part as follows:

Due to uneconomic terms in the current capital markets, we have elected not tosecuritize private student loans this quarter. We are exploring non-securitizationand securitization alternatives for future quarters to enhance our business modeland provide longterm capacity to the private student loan market in a manner thatbenefits our shareholders. Our business volumes remain strong and we see many

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opportunities to facilitate and process private student loans. Our Board ofDirectors determined it was prudent to continue to return capital to ourshareholders this quarter even during these challenging times.

With regard to the current credit environment, First Marblehead continues tomonitor closely the performance of the portfolio. The credit quality of the overallportfolio remains strong with average FICO scores in excess of 700. Steps havebeen taken to tighten underwriting criteria related to lower credit tiers. Thecollection and recovery processes are being modified, including reaching outearlier to borrowers, and to coborrowers who frequently have higher credit scoresthan borrowers. These new processes are being implemented and the results arenot yet reflected in the performance of the portfolio. We remain focused onproviding long term value to our shareholders, our clients, and students.

161. Upon release of this announcement, First Marblehead shares dropped an

additional 11.5%, or $2.07, to $15.89 in mid-day trading after dipping down to a new 52-week

low of $15.75, a far cry from its 52-week high of $57.56. The Company's stock price would

continue to decline, finally closing on December 20, 2007 at $11.24 per share.

162. Also on December 7, 2007, Matt Snowling, an analyst at FBR, stated that First

Marblehead's "inability to securitize these loans brings into question the vulnerability of the

company's customer base."

163. On December 21, 2007, news hit the market that the Company had received an

investment commitment from Goldman Sachs. On that day, MarketWatch.com reported, in

relevant part:

First Marblehead Corp.' s shares surged 41% after the troubled company receivedan investment commitment from Goldman Sachs Group Inc. of up to $260.5million, which would represent 20% of the firm' s shares.

The [sic] also includes a Goldman commitment to offer First Marblehead a $1billion warehouse facility that will allow the company to access a new source offunding for its business.

The Boston service provider to student-loan lenders also plans to eliminate itsquarterly dividend after more than halving it earlier this month, and take chargesrelated to accounting changes.

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First Marblehead's shares recently changed hands at $15.86, up $4.62. GoldmanSachs Managing Director Henry Cornell said: "Our investment in FirstMarblehead represents a long-term commitment and is consistent with ourstrategy of investing in market leaders with strong business models that shouldbenefit from strategic relationships with Goldman Sachs."

First Marblehead said Goldman Sachs' Capital Partners unit immediately willinvest $59.8 million, getting securities that are convertible into 5.3 million shares.After getting regulatory clearance, up to another $200.7 million would be investedfor up to 13.4 million convertible securities.

Additionally, the company said it will take a $170 million to $185 million chargeon a change in the way it estimates the fair value of its service receivableseffective at the end of the year. The company said the change "reflects prudentchanges in underlying assumptions."

"In the current market, we plan to continue to focus on prudent creditunderwriting," said First Marblehead Chief Executive Jack Kopnisky. "Webelieve this will allow us to provide the greatest value to our shareholders, ourclients, students and their parents, and to our employees."

164. On January 31, 2008, First Marblehead issued a press release announcing the

financial and operating results for the second quarter of 2008 ending December 31, 2007. For

the quarter, the Company reported that revenues declined "as a result of a $178.0 million pre-tax

write-down of the Company's service receivables due to changes in certain assumptions used in

estimating their fair value." Moreover, the Company recorded a net loss of $117.7 million. The

press release stated in pertinent part as follows:

BOSTON, MA, Jan 31, 2008 (MARKET WIRE via COMTEX News Network) --The First Marblehead Corporation (NYSE: FMD) today announced its financialand operating results for the second quarter of fiscal 2008 and for the six-monthperiod ended December 31, 2007.

Total revenues for the six months ended December 31, 2007 were $257.2 million,a decrease of 49% from $500.7 million for the same period last year. Revenuesdeclined principally as a result of a $178.0 million pre-tax write-down of theCompany's service receivables due to changes in certain assumptions used inestimating their fair value. The changes were made to reflect the currentconsumer and credit markets environment and the write down is within thepreviously announced range of $170-$185 million. Net income for the six-monthperiod was $51.1 million or $0.54 per diluted share, a decrease of 77% in net

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income and 77% in diluted earnings per share, over the same period last year. Forthe second quarter of fiscal 2008, the company recorded a net loss of $117.7million.

165. Commenting on the results, Defendant Kopnisky stated as follows:

Even though our business volumes were strong in the second fiscal quarter, ourearnings were affected by the volatility in the capital markets.

The strategic investment by GS Capital Partners significantly adds to our financialstrength and expands our financing options for the future. Upon receipt ofregulatory clearances and determinations, we expect to receive an additional$200.7 million in connection with the transaction announced in December 2007.In addition, the $1 billion secured warehouse credit facility that Goldman Sachshas committed to offer provides us with access to an alternative source of funding.

First Marblehead's strategy is to deliver long-term value to our shareholders byfocusing on our core competencies, such as our customized products and servicesand expert processing capabilities for private student loans. At the same time, weare managing through the disruptions in the capital markets by taking action toincrease alternative funding sources, tighten credit criteria, adjust the recoveryand collection process, and reduce our cost structure. We believe these actionsare prudent in the current environment and are part of a broader strategy to furtherstrengthen the company.

166. On March 26, 2008, Moody's confirmed the worst fears of investors that had been

weighing on the price of the stock since the announcement of the review, and downgraded the

ratings of 18 classes of notes in 11 First Marblehead student loan securitizations, affecting

approximately $1.09 billion of asset-backed securities. Moody's noted that the "downgrades are

due to the worse than expected performance of underlying student loans. "

167. On March 27, 2008, First Marblehead issued a press release reacting to Moody's

announcement. The press release stated in pertinent part as follows:

In the beginning of December 2007, Moody ' s Investors Service placed on reviewfor possible downgrade the ratings of certain subordinated classes of asset-backednotes issued by the NCSLT. Since December, Moody's has conducted a thoroughreview of First Marblehead 's NCSLT securitization portfolio , which consists ofover 130 distinct classes of securities . Last evening, Moody ' s announced theresults of their review. Three classes of securities had their current ratings

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affirmed and eighteen classes of subordinated notes had a downwardadjustment to their ratings.

Separately, Moody's has been conducting its own review of TERI, anonprofit guarantor of private education loans.

168. Commenting on the announcement, Defendant Kopnisky stated the following:

During the review period, First Marblehead provided Moody's with a

comprehensive level of historical data and cash flow projections for each

outstanding trust. In addition, we detailed the significant steps taken to improve

student loan collection practices, which are designed to reduce delinquencies and

eventually defaults. We also discussed the substantial modifications we have

made to our credit underwriting policies. We have worked closely with our

clients and TERI in recent months to tighten underwriting criteria.

First Marblehead's management team has been focused on adjusting our businessmodel to manage the challenges presented by the current negative consumercredit cycle and the capital markets credit dislocation. The performance of thesecuritization trusts continues to be strong as evidenced by the fact that thesubordinated classes of securities have retained their investment grade ratings.We remain dedicated to taking the actions necessary to maintain the highestquality program to benefit students who require financial assistance to attendcollege and to support investors in our securitization program.

The Education Resources Institute has a rich history of providing programs tohelp students achieve their dreams of attaining a higher education. FirstMarblehead is currently working with TERI to determine how we may be able toprovide assistance in this challenging environment. As we have discussed in thepast, First Marblehead has been developing other guaranty options for our clientsincluding a selfguaranteed loan product and products guaranteed by another thirdparty.

In 2008, there will be more students starting college than ever before and earlyindications show that they will require substantial financial assistance. FirstMarblehead looks forward to providing high quality solutions to our clients andstudents to meet their growing needs.

169. After this announcement, First Marblehead's stock price fell $0.92 per share, or

over 10%, to close at $7.46 over the next three trading days.

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D. Post-Class Period Events

170. Finally, on April 8, 2008, the full extent of First Marblehead's troubles came to

light. On this date, the Company lost more than a third of its value after TERI, the guarantor of

its private student loans , filed for bankruptcy protection under Chapter 11 of the U. S. Bankruptcy

Code in the United States Bankruptcy Court for the District of Massachusetts. The Company

issued a press release announcing the TERI failure in which it stated the following:

Late yesterday, The Education Resources Institute (TERI), a non-profitguarantor ofprivate student loans, filed a voluntary petition for reorganizationunder Chapter 11 of the U.S. Bankruptcy Code in the United States BankruptcyCourtfor the District ofMassachusetts.

The First Marblehead Corporation has been in a strategic alliance with TERIsince 2001, pursuant to which the non-profit has been the exclusive thirdpartyprovider of borrower default guarantees for our clients' private student loans.TERI also guarantees the loans held by The National Collegiate Student LoanTrusts (NCSLT), the series of trusts we use in our securitization program.According to the filing, TERI is developing a long-term business plan so that itcan continue its College Access Programs as well as its guarantee activities.

First Marblehead is analyzing the implications of this filing on its lenders,investors, borrowers, as well as the NCSLT. We are committed to continuing toprovide an integrated suite of services including product development,processing and securitization services . The company is working diligently onsecuring an alternative guarantor as well as structural solutions for loandefault guarantees for future originations. In addition, we have adjusted ourcollection and underwriting strategies to adapt to the challenges presented bythe turmoil in the capital markets and the current consumer credit cycle.

171. Immediately following this announcement, the Company's stock sank to $4.89, a

decline of 36.5%, or $2.81, from the day before on unusually heavy trading volume. First

Marblehead's stock had already fallen 50 percent in the several months since the truth of its

precarious financial position was finally revealed. The Company's stock would fall 54% over

the five trading days after the TERI bankruptcy announcement.

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172. In an article discussing the TERI bankruptcy development entitled "First

Marblehead's Headache," MarketScan reported the following:

"Going forward there are two problems," [Sandler O'Neill & Partners analystMichael Taiano] said, "the general ABS market for private student loans could besluggish for some time, and with a business model reliant on securities market togenerate revenue, it's not something that appears to be turning around anytimesoon." The second issue for First Marblehead investors is trying to figure out thevalue of the existing balance sheet. A big component is composed of residualsfrom the securitization which are largely based on management assumptions."The bottom line," Taiano said, "is there's less certainty of the true value of thoseassets, particularly given the TERI bankruptcy because that will impact those cashflows."

173. On April 17, 2008, the Company issued a press release announcing that Bank of

America notified the Company that "due to the ongoing disruption in the capital markets it has

decided to exit the private student loan business and focus on providing federal student loans. In

connection with this decision, Bank of America has elected to exercise its right to terminate its

agreements with First Marblehead due to the filing by The Education Resources Institute (TERI)

of a voluntary bankruptcy petition on April 7, 2008."

174. After this announcement, First Marblehead ' s stock price fell $0.68 per share, or

approximately 17%, to close at $3.37 per share on heavy trading volume.

175. On May 8, 2008, First Marblehead issued a press release in which it announced

financial and operating results for the third quarter of fiscal 2008 and for the nine-month period

ended March 31, 2008. For the third quarter, the Company recorded a net loss of $229.6 million.

The press release stated in pertinent part as follows:

First Marblehead Announces Third Quarter Fiscal 2008 ResultsBOSTON, MA,May 08, 2008 (MARKET WIRE via COMTEX News Network) -- The FirstMarblehead Corporation (NYSE: FMD) today announced its financial andoperating results for the third quarter of fiscal 2008 and for the nine-month periodended March 31, 2008.

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For the third quarter offiscal 2008, the company recorded a net loss of $229.6million or $2.36 per diluted share compared to net income of $71.2 million or$0. 75 per diluted sharefor the third quarter offiscal 2007. The Company's netloss for the nine-month period was $178.4 million or $1.88 per diluted sharecompared to net income of $293.3 million or $3.09 per diluted share for the sameperiod last year. Total revenues for the nine months ended March 31, 2008were $5.0 million, compared to $681 million for the same period last year.Revenues declined principally as a result of illiquidity in the financing market forprivate student loans, leading to the Company's inability to complete asecuritization transaction. In addition, adjustments made to certain assumptionsused to estimate the fair value of service receivables, which resulted in a $315million pre-tax decrease in their total value. The voluntary petition forreorganization under Chapter 11 of the Bankruptcy Code by The EducationResources Institute (TERI), on April 7, 2008, had a significant negative impacton the estimate of thefair value ofservice receivables.

"Our earnings this fiscal quarter were disappointing and affected by the continueddisruption in the capital markets and the challenging consumer credit cycle.However, we recognize that the demand for private student loans and otherservices continues to be very strong," said Jack L. Kopnisky, First Marblehead'sChief Executive Officer and President.

176. On June 6, 2008, First Marblehead issued a press release which provided an

update on Goldman Sachs' investment in the Company. The press release announced that

Goldman Sachs had not yet received all applicable regulatory approvals and determinations

necessary to complete the investment. The press release provided in pertinent part as follows:

First Marblehead Provides Update on Status of Equity Investment by Affiliates ofGS Capital PartnersBOSTON, MA, Jun 26, 2008 (MARKET WIRE viaCOMTEX News Network) -- On December 21, 2007, The First MarbleheadCorporation (NYSE: FMD) announced an investment agreement with affiliates ofGS Capital Partners (GSCP) under which they invested $59.8 million to acquireshares of the Company's convertible preferred stock, all of which were convertedinto 5.3 million shares of First Marblehead common stock. The Company andGSCP anticipated a second step of the investment would be completed by the endof the Company's fiscal year, subject to receipt of applicable regulatory approvalsand determinations and satisfaction of other conditions.

First Marblehead has been informed by GSCP that it has not yet received allapplicable regulatory approvals and determinations necessary to complete theinvestment. These approvals and determinations are still pending, and GSCP is

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continuing to work to obtain such approvals and determinations. The investmentis expected to close in the Company's fiscal quarter ending September 30, 2008,after completion of the Company's financial statements for the fiscal year endingJune 30, 2008.

177. On August 18, 2008 , Fist Marblehead issued a press release in which it made two

announcements . First, Defendant Kopnisky resigned from his position at the Company effective

August 31, 2008 and Daniel Meyers, the Company's co-founder and former CEO, would replace

him. Second, First Marblehead announced that Goldman Sachs completed its investment in the

Company pursuant to the December 21, 2007 agreement. The press release stated in pertinent

part as follows:

First Marblehead Announces Closing of GS Capital Partners Investment andAppointment of Daniel Meyers, Co-Founder and Former CEO, as the New ChiefExecutive OfficerBOSTON, MA, Aug 18, 2008 (MARKET WIRE via COMTEXNews Network) -- The First Marblehead Corporation (NYSE: FMD) todayannounced that Daniel Meyers will return to the Company effective immediately,and beginning September 1, 2008, will serve as President and Chief ExecutiveOfficer of the company he co-founded in 1991. Mr. Meyers also has been electedto the Company's Board of Directors, effective September 1, 2008. In addition,First Marblehead announced that affiliates of GS Capital Partners ("GSCP")completed a $132.7 million cash equity investment in the Company, pursuant tothe Company's investment agreement with GSCP, dated December 21, 2007.

First Marblehead also announced that its Board of Directors has accepted theresignation of Jack L. Kopnisky, as Chief Executive Officer and as a member ofthe Board of Directors, effective August 31, 2008.

178. On August 21, 2008, First Marblehead issued a press release announcing financial

and operating results for the fourth quarter of fiscal 2008 and for the fiscal year ended June 30,

2008. The press release stated in pertinent part as follows:

First Marblehead Announces Full Year and Fourth Quarter Fiscal 2008ResultsBOSTON, MA, Aug 21, 2008 (MARKET WIRE via COMTEX NewsNetwork) -- The First Marblehead Corporation (NYSE: FMD) today announcedits financial and operating results for the fourth quarter of fiscal 2008 and for thefiscal year ended June 30, 2008.

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For the fiscal year ended June 30, 2008, the company recorded a net loss of$235.1 million or $2.46 per diluted share compared to net income of $371.3million or $3.92 per diluted share for the fiscal year ended June 30, 2007. For thefourth fiscal quarter, the company recorded a net loss of $56.6 million or $0.57per diluted share compared to net income of $78 million or $0.83 per dilutedshare for the fiscal quarter ended June 30, 2007. Total revenues for the fiscal yearended June 30, 2008 were $(28.4) million, compared to $881 million for the sameperiod last year. Revenues declined principally as a result of illiquidity in thefinancing market for private student loans, leading to the company's inability tocomplete a securitization transaction during the last three fiscal quarters. Inaddition, adjustments made to certain assumptions used to estimate the fair valueof service receivables, net of time value accretion, resulted in a $532.9 millionpre-tax decrease in their total value. The voluntary petition for reorganizationunder Chapter 11 of the Bankruptcy Code filed by The Education ResourcesInstitute Inc. (TERI) on April 7, 2008 had a significant negative impact on theestimate of the fair value of service receivables for the year ended June 30, 2008.

During the fourth quarter of fiscal 2008, facilitated loan volume that was available

to the company for securitization totaled $268 million, down 66% over the same

period last year. The rolling twelve-month facilitated loan volume increased to

$5.0 billion, up 17% for the twelve months ended June 30, 2008.

179. On September 22, 2008, First Marblehead issued a press release announcing,

among other management changes, that Defendant Hupalo resigned from the Company and

would be succeeded by Kenneth Klipper as Chief Financial Officer. The press release stated in

pertinent part as follows:

First Marblehead Announces Management Changes Including Appointment ofKenneth Klipper as Chief Financial Officer and Gary Santo as Co-Head of CapitalMarketsBOSTON, MA, Sep 22, 2008 (MARKET WIRE via COMTEX NewsNetwork) -- The First Marblehead Corporation (NYSE: FMD) announced a seriesof changes to its management structure.

The company announced that Kenneth Klipper will become the Chief FinancialOfficer effective immediately, succeeding John Hupalo, who has decided to leavethe company to pursue other opportunities. Prior to his appointment as ChiefFinancial Officer, Mr. Klipper served as Senior Vice President, Treasurer andChief Accounting Officer of First Marblehead. Prior to joining First Marblehead,Mr. Klipper was the Chief Executive Officer of BrownCo., an online brokeragefirm at the time owned by JPMorgan. Mr. Klipper is a certified public accountantwith over twenty-seven years of experience in financial services.

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180. In the months since Defendants' fraud was revealed, First Marblehead has

plunged into a downward spiral of financial distress and instability. Facing hundreds of millions

of dollars in losses and little hope for a quick turnaround, the Company's future as a growing

concern is in serious doubt. On November 20, 2008, First Marblehead's stock price closed at a

miserable $0.60 per share - a dramatic fall from grace from the Class Period high of $57.56.

V. DEFENDANTS' LIES AND OMISSIONS

181. First Marblehead's statements and filings during the Class Period were materially

false and misleading because they (1) misrepresented the true earnings and financial condition of

the Company; (2) failed to disclose the material adverse non-public information that First

Marblehead had lowered its credit guidelines and was experiencing significant problems with the

Company's ability to securitize loans; (3) failed to disclose that First Marblehead was

experiencing rising default rates in its securitized loans, and that neither the Company nor TERI

could absorb such high default rates; (5) failed to disclose that the Company may be unable to

securitize its loans in the near future; (6) failed to disclose that First Marblehead may forego the

securitization of loans in 2008; (7) concealed First Marblehead's inability to manage TERI's

risk, the Company's failure to consult with ratings agencies, TERI's inability to guarantee First

Marblehead loans and the Company' s true role in managing TERI' s business and operations; and

(8) failed to maintain adequate internal and financial controls, such that the statements by the

Company's officers and directors during the Class Period representing that the Company's

portfolio and business operations were performing as expected lacked in any reasonable basis

given the magnitude of the problems that TERI and the Company were experiencing.

182. During the Class Period, the Company touted the quality of loans in its

securitization as "high-caliber," with borrowers exhibiting FICO scores in excess of 700.

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However, with the revelations of the true state of the Company's financial prospects, the

investing community learned that (i) the default rates on securitizations arranged by First

Marblehead were "significantly higher" than on loans issued through financial aid offices; and

(ii) the securitizations in which First Marblehead had a back-end residual interest were materially

impaired and, therefore, a portion of First Marblehead's back-end residuals were impaired.

183. Indeed, as a result of the Company' s false and misleading statements and

omissions during the Class Period, First Marblehead improperly valued the following two

categories of the Company' s "service receivables": (i) back-end residual interests in

non-collateralized loan pools which were "junior in priority to the rights of the holders of the

debt sold in the securitizations"; and (ii) back-end structural advisory fees which were to be

received "over time, based on the amount of loans outstanding in the trust from time to time over

the life of the trust."

184. In addition to the false and misleading statements described in detail herein,

Defendants also failed to disclose the truth regarding First Marblehead's financial condition.

Specifically, and in addition to the other omissions described herein, Defendants failed to tell the

public the true risks the Company faced with regard to the credit quality of its underlying student

loans, and failed to disclose that the Company was operating with inadequate internal and

financial controls. As a result First Marblehead's reported financial results were materially false

and misleading.

VI. UNDISCLOSED ADVERSE INFORMATION

185. The market for First Marblehead's securities was an open, well-developed and

efficient market at all relevant times. As a result of the materially false and misleading

statements and failures to disclose described herein, First Marblehead's securities traded at

79

artificially inflated prices during the Class Period. Plaintiffs and the other members of the Class

purchased or otherwise acquired First Marblehead's securities relying upon the integrity of the

market price of First Marblehead's securities and market information related to First

Marblehead, and have been damaged thereby.

186. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of First Marblehead ' s securities , by publicly issuing false and

misleading statements and omitting to disclose material facts necessary to make Defendants'

statements, as set forth herein, not false and misleading. Such statements and omissions were

materially false and misleading in that they failed to disclose material adverse non-public

information and misrepresented the truth about the Company, its business and operations, as

alleged herein.

187. At all relevant times, the material misrepresentations and omissions particularized

herein directly or proximately caused or were a substantial contributing cause of the damages

sustained by Plaintiffs and the other members of the Class. As described herein, during the Class

Period, Defendants made or caused to be made a series of materially false and misleading

statements about First Marblehead's business, prospects and operations.

188. These material misstatements and omissions had the cause and effect of creating

in the market an unrealistically positive assessment of First Marblehead and its business,

prospects and operations, thus causing the Company's securities to be overvalued and artificially

inflated at all relevant times. Defendants' false and misleading statements during the Class

Period resulted in Plaintiffs and other members of the Class purchasing the Company's securities

at artificially inflated prices, thus causing the damages complained of herein.

80

VII. SCIENTER ALLEGATIONS

189. As alleged herein, Defendants acted with scienter in that Defendants knew that

the public documents and statements issued or disseminated in the name of the Company during

the Class Period 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 as

primary violations of the federal securities laws.

190. As set forth herein, Defendants, by virtue of their receipt of information reflecting

the true facts regarding First Marblehead, their control over, receipt and/or modification of First

Marblehead's allegedly materially misleading statements and omissions, and/or their positions

with the Company which made them privy to confidential information concerning First

Marblehead, participated in the fraudulent scheme alleged herein.

191. The ongoing fraudulent scheme described in this complaint could not have been

perpetrated over a substantial period of time, as has occurred, without the knowledge and

complicity of the personnel at the highest level of the Company, including the Individual

Defendants. Defendants were motivated to perpetrate this fraudulent scheme and conceal the

true extent of the credit problems plaguing the Company's securitized portfolio because they

wanted to maintain First Marblehead's credit rating. A continuous stream of new securitizations

is the lifeblood of the Company's business as it provides both servicing income and residual

income. Without a stellar credit rating on the securitizations due to the high perceived credit

quality of the underlying student loans, the entire business model and revenue generating

machine would grind to a halt, as occurred on when the truth of the fraud finally came to light.

81

192. Defendants concealed from the credit rating agencies and First Marblehead

shareholders the truth of the Company's problems caused by high default rates of underlying

collateral for as long as they could because the longer they deceived the investing public the

greater time they had to personally profit from the fraud through compensation as a result of the

inflated financial results. Defendants Kopnisky, Hupalo and Tarr, in particular, received

substantial compensation during the Class Period that was directly related to the strength of the

Company's financial results. For instance, according to the Company's Current Report on Form

8-K filed on August 20, 2007, Defendants Kopnisky, Hupalo and Tarr received salaries,

performance awards and restricted stock options totaling $2.5 million, $1 million and $2.5

million, respectively. These awards were "keyed to the Corporation's income from operations

for Fiscal 2007." The Current Report stated in pertinent part as follows:

Fiscal 2007 Annual Incentive Awards. Within the first 90 days of Fiscal 2007, the

Subcommittee selected the key employees eligible to receive annual incentive

awards under the Incentive Plan for Fiscal 2007 and allocated a maximum

incentive pool percentage under the Incentive Plan to each such employee. The

incentive pool under the Incentive Plan for Fiscal 2007 was keyed to the

Corporation's income from operations for Fiscal 2007. In making annual

incentive awards for Fiscal 2007, the Subcommittee had discretion to adjust the

previous incentive pool allocations downward but not upward and exercised its

discretion to lower the incentive pool allocations downward. Annual incentive

awards are intended to qualify as "performance-based" compensation under

Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section

162(m)"). The Subcommittee is composed entirely of "outside directors" within

the meaning of Section 162(m).

193. In addition, Defendants' scheme enabled Company insiders to profit from

substantial insider selling during the Class Period. In fact, during the Class Period, and with the

Company's securities trading at artificially inflated prices, Company insiders sold 4,758,209

shares of the Company's stock for gross proceeds of over $210 million. Of these totals,

Defendants Alexander, Anbinder, and Berkley sold approximately 4.7 million shares of First

82

Marblehead stock for gross proceeds of approximately $208 million, as evidenced in the

following table:

First Marblehead

Summary of Class Period Sales

Class Period: 8/ 10/06 - 4/'7/08

All data adjusted to reflect the Cos. 3:2 stocl: split payable 12/4/06

INSIDER

CLASS

PERIOD

SALES

PROCEEDS

% OF

HOLDINGS

SOLD

L. ALEXANDER 2,927,250 $128,797,108 13.81'%

S. ANBINDER 1,030,900 $4 1,152,25 4 24.95%

W. BERKLEY 750,470 538,692 ,851 12.90%

W. HANSEN 6,000 $300,267 25.00%

A. HAWLEY 13,619 $536,913 100.00%

L. LUTZ 29,970 $1,050,880 NA

TOTAL 4,758,209 5210,530,273

194. In addition, the insider selling of Defendants Alexander, Anbinder, and Berkley

during the Class Period represented a significant portion of their total sales from August 10, 2004

through the end of the Class Period, as depicted in the following chart:

83

I irrt NImHehcad

Summarv o I'Insider Salts : 5 1(1 ((4 - 4 7 US

CI.)s Period: IOOG-47((

All plat.) adju,tcd to reflect the C' os. 3:2 stocIy ,split v' ihlc 1' 4 (I(;

Source: I orm 4's

Name

Open Market

Sales

K IO O4- 1 () (((i

Open Market

ti,(Ic,

Ch,,,, Period

focal SaIcs

IO ()4 - l7 O3

(Iris Period

Sales as '') of

tot.) I 'ales

I're Clas"

Salts as '') o

t(^t. ) I salts

L. Alexander

Open Ma (lkct Sales 4.71) 7,4((O ')'7'15() 7.714.6 O ;7O4°,^ o2.O6°')

Proceeds ti11322OI.31)) SI'Q797.IOS

(, of l Ioldin-s Sold 15. 3" 13.5I

S. Anhinder

Open V1.7rketS.ile 62,13OO I_(1_iO7)OO I08310(( (11.24 76"n

I'roeeedti S?(I_(18 4.O(I? 541.1522 54

00 of l Io1dinL ,s Sold 1 3.411 24.95°,

W. BerkleN

Opel Market des (A) IN) 7i3O 17O 84()()7() 80._7°o I( 1.7_.°0

Proceed" S3_4 1 .( i4 S 3ti.01) `_8-^ I

(' of I loldin?s Sold 1.41)'',, I2.)O

W. Hansen

Open Market Sales - 6,000 6,000 100.00% 0.00%

Proceeds $ - $ 300,267

% of Holdings Sold 0% 25.00%

A. Hawley

Open Market Sales - 13,619 13,619 100.00% 0.00%

Proceeds $0 $536,913

% of Holdings Sold 0 100.00%

L. Lutz

Open Market Sales 33,782 29,970

Proceeds $974,785 $1,050,880

% of Holdings Sold NC NC

195. Moreover, the insider selling of these Defendants, in value terms, dwarfs the

value of their holdings after the Class Period had ended by hundreds of percentage points:

Firs( \larhlcl,cad

In.idcr Salts ati Compared (u 11 Iding, it , ur.,ui 31, 2008 (Pros dated Y/22/08)

Defendant Name .lull 3,. 2OO II ildii ( I:u, Period sale, (lass Puri"(] sales as a I'd. or731/O holding.

Shares Held \ attic (7/31 cI c „ as S2. 5 1 ) # Shard Snld Prncccds Shard Yl."000&

rustic AIc . andcr 1 2(S0.? ) Sh.s 6_0(o.')9 29'7250 ',12071)7108.00 16.02_7„ 276.5111%

Stephen A nhindcr 3006585 ',7-546-52,.,5 1.0 0.9UU 5411i1'54.00 535.3137°

\\ illiam Bcrlacc 5 - 071-549 1 512-720-5 8 7.99 1 75047(1 S,X.O2 51.0() 14.797(1°o 303.960II

84

VIII. STATUTORY SAFE HARBOR

196. The federal 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. Furthermore, many of the statements pleaded herein were not identified as "forward-

looking statements" when made, or indicated that actual results "could differ materially from

those projected." Nor were there any meaningful cautionary statements identifying important

factors that could cause actual results to differ materially from the statements made therein.

197. Defendants are liable for the forward-looking statements pleaded because, at the

time each of those forward-looking statements was made, Defendants knew the forward-looking

statement was false and the forward-looking statement was authorized and/or approved by an

executive officer of First Marblehead who knew that such statement was false when made.

IX. LOSS CAUSATION

198. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated the prices of First

Marblehead's securities and operated as a fraud or deceit on Class Period purchasers of First

Marblehead's securities by failing to disclose to investors that the Company's financial results

were materially misleading and misrepresented. When Defendants' misrepresentations and

fraudulent conduct were disclosed and became apparent to the market, the prices of First

Marblehead's securities fell precipitously as the prior inflation came out of the Company's stock

price. As a result of their purchases of First Marblehead's securities during the Class Period,

Plaintiffs and the other Class members suffered economic loss.

85

199. By failing to disclose the extent of the problems existing in the Company's ability

to securitize loans as a result of mounting defaults, investors were not aware of the true state of

the Company's financial status . Therefore, Defendants presented a misleading picture of First

Marblehead ' s business and prospects . Thus, instead of truthfully disclosing during the Class

Period the true state of the Company's business, Defendants caused First Marblehead to conceal

the truth.

200. Defendants' false and misleading statements had the intended effect and caused

First Marblehead's common stock to trade at artificially inflated levels throughout the Class

Period. However, as a direct result of the Company's problems coming to light, First

Marblehead's common stock price fell over 94% from the Class Period high of $57.56.

201. Specifically, on November 26, 2007, following FBR' s announcement that it was

downgrading First Marblehead, the Company's stock declined by 10%. On December 5, 2007,

after Moody's announced that it was performing a review of First Marblehead for possible

downgrade, the Company's stock sank by over 20%. After First Marblehead announced on

December 7, 2007 that it was slashing its dividend, the Company's stock decreased an additional

11.5%. On March 27, 2008, after Moody's downgraded 18 classes of First Marblehead notes,

the Company's stock dropped 10%. Finally, after TERI filed for bankruptcy on April 8, 2008,

First Marblehead shares plunged over 36%.

202. This series of stock price drops removed the inflation from the price of First

Marblehead's securities, causing real economic loss to investors who purchased the Company's

securities during the Class Period. The following chart depicts First Marblehead's stock price

movement throughout the Class Period:

86

60

50

40

^0

P

10

0

203. The decline in the price of First Marblehead's common stock after the full truth

came to light was a direct result of the nature and extent of Defendants' fraud finally being

revealed to investors and the market. The timing and magnitude of First Marblehead's common

stock price decline negates any inference that the loss suffered by Plaintiffs and the other Class

members was caused by changed market conditions, macroeconomic or industry factors or

Company-specific facts unrelated to the Defendants' fraudulent conduct. The economic loss

suffered by Plaintiffs and the other Class members was a direct result of Defendants' fraudulent

scheme to artificially inflate the prices of First Marblehead's securities and the subsequent

decline in the value of First Marblehead's securities when Defendants' prior misrepresentations

and other fraudulent conduct were revealed.

87

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Date

X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKETDOCTRINE

204. At all relevant times, the market for First Marblehead stock was an efficient

market for the following reasons, among others:

a. First Marblehead stock met the requirements for listing, and was listed

and actively traded, on the NYSE, a highly efficient market;

b. As a regulated issuer, First Marblehead filed periodic public reports with

the SEC and the NYSE;

c. First Marblehead stock was followed by securities analysts employed by

major brokerage firms who wrote reports which were distributed to the sales force and certain

customers of their respective brokerage firms. Each of these reports was publicly available and

entered the public marketplace; and

d. First Marblehead regularly issued press releases which were carried by

national newswires. Each of these releases was publicly available and entered the public

marketplace.

205. As a result, the market for First Marblehead securities promptly digested current

information with respect to the Company from all publicly-available sources and reflected such

information in First Marblehead's stock price. Under these circumstances, all purchasers of First

Marblehead securities during the Class Period suffered similar injury through their purchase of

stock at artificially inflated prices and a presumption of reliance applies.

XI. CLASS ACTION ALLEGATIONS

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

Procedure 23(a) and (b)(3) on behalf of all persons who purchased or otherwise acquired First

Marblehead common stock during the Class Period and who were damaged thereby (the

88

"Class"). Excluded from the Class are Defendants, members of the immediate family of each of

the Individual Defendants, any subsidiary or affiliate of First Marblehead and the directors,

officers and employees of the Company or its subsidiaries or affiliates, or any entity in which

any excluded person has a controlling interest, and the legal representatives, heirs, successors

and assigns of any excluded person.

207. 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

thousands of members of the Class located throughout the United States. Throughout the Class

Period, First Marblehead stock was actively traded on the NYSE (an open and efficient market)

under the symbol "FMD". As of October 31, 2007, the Company had over 93 million shares of

common stock outstanding. Record owners and other members of the Class may be identified

from records maintained by First Marblehead and/or its transfer agents and may be notified of

the pendency of this action by mail, using a form of notice similar to that customarily used in

securities class actions.

208. Plaintiff's claims are typical of the claims of the other members of the Class as all

members of the Class were similarly affected by Defendants' wrongful conduct in violation of

federal law that is complained of herein.

209. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

210. 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:

89

a. whether the federal securities laws were violated by Defendants' acts and

omissions as alleged herein;

b. whether Defendants participated in and pursued the common course of

conduct complained of herein;

c. whether documents , press releases , and other statements disseminated to

the investing public and the Company's shareholders during the Class Period misrepresented

material facts about the business, finances, financial condition and prospects of First

Marblehead;

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

Class Period misrepresented and/or omitted to disclose material facts about the business,

finances, value, performance and prospects of First Marblehead;

e. whether the market price of First Marblehead common stock during the

Class Period was artificially inflated due to the material misrepresentations and failures to

correct the material misrepresentations complained of herein; and

f the extent to which the members of the Class have sustained damages and

the proper measure of damages.

211. 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. 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 suit as a

class action.

90

XII. COUNTS PURSUANT TO THE EXCHANGE ACT

COUNT IFor Violations Of § 10(b) Of The Exchange Act And Rule 10b-5 Promulgated Thereunder

Against All Defendants

212. Plaintiffs repeat and reallege the allegations set forth above as though fully set

forth herein. This claim is asserted against all Defendants.

213. During the Class Period, First Marblehead and the Individual Defendants, and

each of them, 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

Class members, as alleged herein ; (ii) artificially inflate and maintain the market price of First

Marblehead common stock; and (iii) cause Plaintiffs and other members of the Class to purchase

First Marblehead stock at artificially inflated prices. In furtherance of this unlawful scheme, plan

and course of conduct, Defendants First Marblehead and the Individual Defendants, and each of

them, took the actions set forth herein.

214. These 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 First Marblehead securities in violation of § 10(b) of

the Exchange Act and Rule 10b-5. Defendants are sued as primary participants in the wrongful

and illegal conduct charged herein. The Individual Defendants are also sued herein as

controlling persons of First Marblehead, as alleged herein.

215. In addition to the duties of full disclosure imposed on Defendants as a result of

their making of affirmative statements and reports, or participation in the making of affirmative

91

statements and reports to the investing public, they each had a duty to promptly disseminate

truthful information that would be material to investors in compliance with the integrated

disclosure provisions of the SEC as embodied in SEC Regulation S X (17 C.F.R. § 210.01 et

seq.) and S-K (17 C.F.R. § 229. 10 et seq.) and other SEC regulations , including accurate and

truthful information with respect to the Company's operations, financial condition and

performance so that the market prices of the Company's publicly traded securities would be

based on truthful, complete and accurate information.

216. First Marblehead and the Individual Defendants, individually and in concert,

directly and indirectly, by the use of 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, business practices, performance, operations and future

prospects of First Marblehead as specified herein. These Defendants employed devices, schemes

and artifices to defraud, while 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 of First Marblehead's value and performance and substantial growth, which included

the making of, or the participation in the making of, untrue statements of material facts and

omitting to state material facts necessary in order to make the statements made about First

Marblehead 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 First Marblehead's securities during the Class Period.

217. Each of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (i) each of the Individual Defendants was a high-level

92

executive and/or director at the Company during the Class Period; (ii) each of the Individual

Defendants, by virtue of his responsibilities and activities as a senior executive officer and/or

director of the Company, was privy to and participated in the creation, development and

reporting of the Company's operational and financial projections and/or reports; (iii) the

Individual Defendants enjoyed significant personal contact and familiarity with each other and

were 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 financial condition and

performance at all relevant times; and (iv) the Individual Defendants were aware of the

Company's dissemination of information to the investing public which they knew or recklessly

disregarded was materially false and misleading.

218. These Defendants had actual knowledge of the misrepresentations and omissions

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 readily available to them.

Such Defendants' material misrepresentations and/or omissions were done knowingly or

recklessly and for the purpose and effect of concealing First Marblehead's operating condition,

business practices and future business prospects from the investing public and supporting the

artificially inflated price of its stock. As demonstrated by their overstatements and

misstatements of the Company's financial condition and performance throughout the Class

Period, the Individual Defendants, if they did not have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining from taking those steps necessary to discover whether those statements

were false or misleading.

93

219. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of First Marblehead

securities was artificially inflated during the Class Period. In ignorance of the fact that the

market price of First Marblehead shares was artificially inflated, and relying directly or indirectly

on the false and misleading statements made by Defendants, upon the integrity of the market in

which the securities trade, 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 First Marblehead

securities during the Class Period at artificially inflated high prices and were damaged thereby.

220. 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 Plaintiffs

and the other members of the Class and the marketplace known of the true performance, business

practices, future prospects and intrinsic value of First Marblehead, which were not disclosed by

Defendants, Plaintiffs and other members of the Class would not have purchased or otherwise

acquired First Marblehead securities during the Class Period , or, if they had acquired such

securities during the Class Period, they would not have done so at the artificially inflated prices

which they paid.

221. By virtue of the foregoing, First Marblehead and the Individual Defendants each

violated § 10(b) of the Exchange Act and Rule IOb-5 promulgated thereunder.

222. As a direct and proximate result of Defendants' 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.

94

COUNT IIFor Violations of § 20(a) of the Exchange Act

Against the Individual Defendants

223. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully

herein. This claim is asserted against the Individual Defendants.

224. The Individual Defendants were and acted as controlling persons of First

Marblehead within the meaning of § 20(a) of the Exchange Act as alleged herein. By virtue of

their high-level positions with the Company, participation in and/or awareness of the Company's

operations and/or intimate knowledge of the Company's actual performance, the Individual

Defendants had the power to influence and control and did influence and control, directly or

indirectly, the decision-making of the Company, including the content and dissemination of the

various statements which Plaintiffs contend are false and misleading . Each of the Individual

Defendants was 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 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.

225. In addition, each of the Individual Defendants had direct involvement in the day-

to-day operations of the Company and, therefore, is presumed to have had the power to control

or influence the particular transactions giving rise to the securities violations as alleged herein,

and exercised the same.

226. As set forth above, First Marblehead and the Individual Defendants each violated

§ 10(b) and Rule lOb-5 by their acts and omissions as alleged in this Complaint. By virtue of

their controlling positions, the Individual Defendants are liable pursuant to § 20(a) of the

Exchange Act. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and

95

other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

XIII. REQUEST FOR RELIEF

WHEREFORE, Plaintiffs, individually and on behalf of the Class, request judgment as follows:

a) Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3) of the

Federal Rules of Civil Procedure on behalf of the Class defined herein;

b) Awarding Plaintiffs and the other members of the Class damages in an amount

which may be proven at trial, together with interest thereon;

c) Awarding Plaintiffs and the members of the Class pre-judgment and post-

judgment interest, as well as their reasonable attorneys' and experts' witness fees

and other costs; and

d) Awarding such other relief as this Court deems appropriate.

XIV. JURY DEMAND

Plaintiffs demand a trial by jury.

Dated: November 28, 2008 Joseph F. Rice

jrice@motleyrice.com

Ann K. Ritter

aritter@motleyrice.com

James M. Hughes

jhughes@motleyrice.com

MOTLEY RICE LLC

P.O. Box 1792

28 Bridgeside BoulevardMount Pleasant, SC 29465Tel: (843) 216-9000Fax: (843) 216 9450

William H. Narwoldwnarwold@motleyrice.comMOTLEY RICE LLCOne Corporate Center20 Church St.

96

17th FloorHartford, CT 06103Tel: 800 882-1681Fax: 800 882-1682

Lead Counselfor Plaintiffs

By: /s/Joseph E. White III

Joseph E. White III

jwhite@saxenawhite.com

BBO # 648498

SAXENA WHITE P.A.

2424 North Federal Highway

Suite 257

Boca Raton, FL 33431Main 561.394.3399Fax: 561.394.3082

Peter A. Lagorioplagorio@saxenawhite.comSAXENA WHITE P.A.BBO #56737963 Atlantic AvenueBoston, MA 02100Tel: 617 367-4200Fax: 617 227-3384

97

CERTIFICATE OF SERVICE

I certify that on November 28th, 2008, I uploaded this document onto the CM/ECFsystem, which will serve all registered participants.

/s/ Joseph E. White III

SERVICE LIST

Jeffrey B. RudmanJeffrey. rudman@wilmerhale . comSherry Hartel HausSherry.haus@wilmerhale.comWilliam H. PaineWilliam.paine@wilmerhale.comLauren G. Brunswick

Lauren.brunswick@wilmerhale.comWilmerHale LLP60 State StreetBoston, MA 02109Tel: 617 526-6912Fax: 617 526-6912

Counselfor Defendants

98