IN THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re American Business Financial Master File No. 05-232Services, Inc. Noteholders Litigation

AMENDED CONSOLIDATED CLASSACTION COMPLAINT

JURY TRIAL DEMANDED

I. NATURE OF THE ACTION

Plaintiffs for this Amended Consolidated Class Action Complaint (the "Complaint") allege

as follows :

1 . Plaintiffs base the allegations of the Complaint on their own information and

investigation of their counsel with respect to matters relating to notes, subordinated debt securities ,

subordinated money-market notes, and subordinated debentures (the "Notes") ofAmerican Busines s

Financial Services, Inc . ("ABFI" or the "Company") . Counsel's investigation included, inter alia,

review and analysis of the public filings of ABFI with the Securities and Exchange Commission

("SEC"); ABFI' s public statements ; media reports ; bankruptcy filings ; interviews of former ABFI

employees; and review of ABFI internal documents .

2. Some ofthe information in this Complaint came from confidential witnesses who are

former employees of ABFI.

3 . Former Employee 1 was a manager of ABFI during 2001 and 2002 .

4. Former Employee 2 was a person familiar with loss mitigation throughout the Class

Period.

5. Former Employee 3 was a former ABFI executive employed during the Class Perio d

who was familiar with treasury operations .

6. Former Employee 4 was a loss mitigation worker and specialist who was employe d

during the later part of the Class Period .

7. Former Employee 5 was a supervisor employed throughout the Class Period who wa s

familiar with handling of delinquent and problem loans .

8. This is a federal securities law class action filed individually and on behalf of al l

persons (the "Class") who suffered damage as a result of their purchase of the Notes from ABFI

between January 18, 2002 and January 20, 2005 (the "Class Period"), pursuant to Registration

Statements, including prospectuses included as Exhibits ("Prospectuses") and all supplement s

thereto, that became effective on or about October 16, 2001 (the "2001 Registration Statement") ,

October 3, 2002 (the "2002 Registration Statement"), and November 7, 2003 (the "2003 Registration. ... ... .... ... .... . . .

Statement"; collectively, "the Registration Statements") . The Registration Statements contained

untrue statements of material fact and omitted material facts, and they were illegally issued withou t

the use of broker/dealers . This action is also filed on behalf of two Subclasses consisting of 1) al l

persons (the "No Prospectus Subclass") who never received a Prospectus in connection with thei r

purchase of Notes ; and 2) all persons (the "Late Issue Subclass") whose Notes were issued, rolled-

over, or reissued between November 1, 2004 and January 20, 2005 (the "Late Issue Subclas s

Period") when no registration statement was effective .

9. The claims asserted here arise under §§ 5, 11, 12(a)(1), 12(a)(2) and 15 of the

Securities Act of 1933, as amended (the "Act"), 15 U.S.C. §§ 77k, 771(a)(2) and 77o, and §§ 15(a) ,

20 and 29(b) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U .S .C. §§ 78o, 78t, 78cc,

and Rule 3a4 - 1 of the 1934 Act, 17 C .F.R. § 240.3a4-1 .

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10. This Court has jurisdiction over this action pursuant to § 22 of the Act, 15 U.S .C . §

77v and 28 U.S .C. § 1331, and § 27 of the 1934 Act, 15 U .S.C . § 78aa.

11 . Venue is proper in this district because ABFI's principal operating office was locate d

in Philadelphia, Pennsylvania, and many of the acts and transactions, including the sale of the Notes

and much of the conduct alleged, occurred within this District .

12. In connection with the wrongful conduct alleged in the Complaint, defendants directl y

or indirectly used the means and instrumentalities of interstate commerce, including but not limite d

to the mails, interstate telephone, telecopier, and internet communications .

II . PARTIES

13 . Lead Plaintiffs, appointed by the Court on March 29, 2005, are John A . Malack ,

Michael R. Rosati, Virgil Magnon, Sabina Langdon and S . S . Rajaram, M .D., Hayward Pediatrics ,

Inc. Plaintiffs purchased the Notes during the Class Period, and were damaged thereby . Plaintiffs'

sworn certifications, attached to their Lead Plaintiff motion, are incorporated by reference .

14. Sabina Langdon is72 years old. She would have retired but for her loss of $550,000

on her ABFI Notes, which included all of the proceeds from her late husband's Navy pension . Her

losses comprise more than half of her net worth before the ABFI bankruptcy.

15. ABFI never sent Plaintiff Langdon any Prospectuses . She bought her Notes through

ABFI employees Bill Swersding and Jim Dooling over many years .

16. Virgil Magnon is 79 years old and retired. He worked in the aerospace industry and

before that for the federal government on defense contract administration . His losses of $761,581 .1 3

from his investment in ABFI Notes are about 45 percent of his former net worth, including 14 years

of savings in his IRA .

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17. ABFI renewed three of Plaintiff Magnon's Notes, totalling $311,062 .50, against his

will, between November 1, 2004 and January 20, 2005, when neither ABFI's 2003 Registratio n

Statement nor any other applicable registration statement was effective .

18. Michael Rosati is 78 years old and a retired engineer . He lost $923,805, which wa s

60% of his net worth at the time of the ABFI bankruptcy. He bought his Notes through ABFI Vic e

President Jerry Rappaport over many years .

19. S.S. Rajaram is an Indian-born pediatrician . He, along with his wife, also a

pediatrician, and their pediatrics practice lost $438,548 .

20. John A. Malack is 62 years old and retired . He lost $1,916,552 .00 .

21 . Representative Plaintiff Henry Munster lost $536,532 .70, the total value of hi s

investment Notes as of January 21, 2005. ABFI renewed three of his Notes rather than paying them ,

even though Munster requested payment, between November 1, 2004 and January 20, 2005 .

22. Former defendant ABFI was a financial services organization operating mainly in th e

eastern and central portions of the United States . Its principal business was to originate, sell and

service, through subsidiaries, home equity and purchase money mortgage loans secured by

residences. It also purchased home equity loans from several banks ; these loans allegedly met

ABFI's loan criteria, but did not meet the banks' credit guidelines. ABFI also originated, serviced

and sold business purpose loans . ABFI securitized or sold most of its loans . Its customers were

primarily credit-impaired borrowers (subprime borrowers) who were generally unable to obtai n

financing from banks or savings and loan associations. ABFI was a Delaware corporation locate d

at 103 Springer Building, 3411 Silverside Road, Wilmington, DE 19810 . Its principal operating and

executive office was at 100 Penn Square East, Philadelphia, Pennsylvania 19107 . Its loan servicin g

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and collection activities were performed at its Bala Cynwyd, Pennsylvania office, and later at its 100

Penn Square East office . ABFI's stock traded on NASDAQ. ABFI' s subsidiaries included

American Business Credit, Inc ., and American Business Credit 's subsidiaries : America Credit, Inc .

(doing business as Upland Mortgage), American Business Mortgage Services, Inc., Processing

Service Center, Inc ., and Tiger Relocation Company . ABFI is no longer a defendant because it and

a number of its subsidiaries filed for protection under Chapter 11 of the Bankruptcy Code o n

January 21, 2005, and this lawsuit was automatically stayed as to ABFI . The bankruptcy case

converted to Chapter 7 on May 17, 2005 .

23. Defendant Anthony J . Santilli was the ChiefExecutive Officer, Chairman, President

and Chief Operating Officer, and a director of ABFI. He signed all the Registration Statements.

24. Leonard Becker was a director of ABFI. He signed all the Registration Statements .

25 . Michael DeLuca was a director of ABFI. He signed all the Registration Statements .

26. Harold Sussman was a director of ABFI . He signed all the Registration Statements .

27. Albert W. Mandia was ABFI's Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer) . He signed all the Registration Statements .

28 . Jerome Miller was a director of ABFI . He signed the 2002 and 2003 Registratio n

Statements .

29. Warren E. Palitz was a director ofABFI . He signed the 2003 Registration Statement.

30. Jeffrey S . Steinberg was a director of ABFI . He signed the 2002 and 2003

Registration Statements .

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IIY. CLASS ALLEGATION S

31 . Plaintiffs bring this action pursuant to Federal Rule of Civil Procedure 23(a) an d

(b)(3) on behalf of the Class, which consists of all persons who suffered damage as a result of their

purchase of the Notes from ABFI during the Class Period .

32. In addition, Lead Plaintiff Sabina Langdon brings this action pursuant to Federa l

Rules of Civil Procedure 23(a) and (b)(3), and pursuant to Sections 5 and 12(a)(1) of the Act, on

behalf of all No Prospectus Subclass members, against Santilli and Mandia .

33. In addition, Lead Plaintiff Virgil Magnon and representative plaintiff Henry Munster

bring this action pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3), and pursuant to

Sections 5 and 12(a)(1) of the Act, on behalf of all Late Issue Subclass members, against Santilli an d

Mandia.

34. Excluded from the Class and Subclasses are defendants and members of their

immediate families ; any entity in which a defendant or ABFI has or had a controlling interest ; and

the heirs, successors and assigns of any excluded party.

35. The members of the Class and each Subclass are so numerous that joinder of all

members is impracticable. While the exact numbers of Class members and Subclass members is

unknown to plaintiffs, during the Class Period tens of thousands of persons purchased hundreds o f

millions of dollars of Notes from ABFI . At least hundreds of persons did not receive a Prospectus ,

and hundreds had Notes rolled over rather than cashed out, against their instructions, during the Lat e

Issue Subclass Period.

36. Plaintiffs' claims are typical ofthe claims ofthe Class, because plaintiffs and all Class

members sustained damages as a result ofpurchases ofthe Notes from ABFI during the Class Period .

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Likewise, Langdon' s claims are typical of the claims of the No Prospectus Subclass members, and

Magnon's and Munster's claims are typical of the claims of the Late Issue Subclass members .

37. Plaintiffs, including all three Subclass plaintiffs, are representative parties who wil l

fully and adequately protect the interests of the members of the Class and Subclasses, respectively .

Plaintiffs and Subclass plaintiffs have retained counsel who are experienced and competent in bot h

class actions and securities litigation. Plaintiffs have no interests that conflict with each other o r

with the members of the Class and Subclasses they seek to represent .

38. A class action is superior to all other available methods for the fair and efficien t

adjudication of this controversy. Plaintiffs know of no difficulty likely to be encountered in th e

management of this action that would preclude its maintenance as a class action.

39. The prosecution of separate actions by individual members of the Class and

Subclasses would create a risk of inconsistent and varying adjudications that could establis h

incompatible standards of conduct for defendants . Questions of law and fact common to the Clas s

and Subclasses predominate over any questions that may affect individual members only . Among

the common questions of law and fact for the Class are :

a. Whether the Registration Statements contained untrue statements of and/or

omitted material facts .

b. Whether defendants violated the Act.

c. Whether individual defendants are control persons within the meaning o f

Section 15 of the Act, and under Section 20 of the 1934 Act .

d. Whether ABFI was legally permitted to issue the Notes through Prospectuse s

without the use of Broker/Dealers , pursuant to Section 15 of the 1934 Act .

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e. Whether plaintiffs and Class members have sustained damages, and, if so ,

what is the proper measure of damages .

40. Common questions of law and fact for the No Prospectus Subclass are :

a. Whether ABFI furnished Prospectuses to Subclass members .

b. Whether failure to furnish Prospectuses violated the Act .

c. Whether Subclass members have sustained damages, and if so what is th e

proper measure of damages .

41 . Common questions of law and fact as to the Late Issue Subclass are :

a. Whether ABFI rolled over or sold Notes at a time that neither the 200 3

Registration Statement nor any other applicable registration statement was effective.

b. Whether rolling over or selling Notes at a time when no Registratio n

Statement was in effect violated the Act.

c. Whether Subclass members have sustained damages, and if so what is th e

measure of damages .

42. The names and addresses of Class members are available from the Trustee i n

Bankruptcy of ABFI or its agents. Notice can be provided to Class members by first class mail ,

using techniques routinely employed in securities class action cases .

IV. SUBSTANTIVE ALLEGATIONS

Background

43 . During the Class Period, ABFI was in the business of originating, buying and

securitizing or selling home mortgage loans and business loans. Its customers were generally credit-

impaired buyers or subprime buyers, who were not able to get loans from banks or savings and loan

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associations .

44. During the period January 2002 through March 2003, ABFI securitized most of it s

mortgages . Securitization involved the Company's transfer of a pool of mortgage loans to a trust .

The trust then sold Notes or other securities to investors for cash . The Company's transfer to the

trust involved a sale and pledge of financial assets . ABFI made representations and warranties

regarding the pool ofmortgages when it transferred them to the trust . ABFI generally retained th e

servicing rights for the securitized loans and an interest in the cash flows generated by the securitize d

loans, called interest-only strips ("IO strips") . These cash flows were the difference between th e

mortgage payments made by the borrowers on the securitized loans and the sum of the schedule d

prepaid principal and pass through interest paid to trust investors, and various fees . The IO strips

and servicing rights were impo rtant assets and a major source of income for ABFI throughout the

Class Period.

45 . Beginning in the June 2003 quarter, ABFI was unable to securitize loans becaus e

investment banks refused to continue to securitize pools of ABFI mortgages . Therefore, ABFI

changed its business plan, and began to sell the mortgages it originated on a whole loan basis fo r

cash, in lieu of securitizing pools of loans. When it sold whole loans, ABFI did not generally retain

servicing rights or any interest in the cash flow from the loans . Sale of whole loans was much less

profitable for ABFI than securitizing loans . To break even on the sale of whole loans, ABFI woul d

have had to double the number of mortgage originations .

46. ABFI relied extensively on borrowing to obtain the money it needed to loan to home

buyers or business persons. ABFI acquired some funds by borrowing directly from institutions, suc h

as banks and insurance companies ("Banks"). These loans, often "revolving warehouse credi t

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facilities ," were secured by ABFI mortgages or other assets .

47. The Banks that provided these credit facilities required ABFI to agree to speci fic

covenants concerning ABFI's financial condition . If ABFPs financial condition did not meet the

levels required by a covenant, that Bank could cease loaning to ABFI and all outstanding loans from

that Bank would become due. If ABFI fell below the standards demanded by any of its Banks an d

was unable to get a waiver , all of ABFI 's warehouse lo ans could come due.

48 . ABFI also funded its operations , in part, by the sale of the Notes. ABFI sold the

Notes promising to pay interest at rates well above prime, which was attractive to people wh o

wanted a high return without investing in the stock market . ABFI sold these Notes directly, through

newspaper advertisements, direct mail and sales calls without the involvement of underwriters or

brokers . ABFI did not generally include a copy of the applicable Prospectus in its solicitations, s o

a buyer could fill out and return a form to buy Notes without ever seeing a Prospectus .

49. In selling its Notes, ABFI targeted relatively unsophisticated investors, who had no

broker to advise them. Many of the persons who bought Notes were foreign-born, such as Lead

Plaintiff Rajaram, or were retired or nearing retirement, such as Lead Plaintiffs Rosati, Magnon ,

Malack and Langdon and representative plaintiff Munster . Often Class members invested their

entire IRA, 401(k) or other retirement savings in ABFI Notes .

50. To sell the Notes, ABFI ran newspaper ads trumpeting veryhigh interest rates on the

Notes. Once a person responded to these ads, ABFI showered him or her with mail and phone calls ,

assuring that ABFI had a long history of paying off the Notes, and pointing to the favorable rates

compared with ordinary savings accounts or money-market Notes. The ads and letters mentione d

that the Note buyer should read the Prospectus, but ABFI did not send the Prospectus to all Not e

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buyers .

51 . Many of the persons who bought the Notes never received a Prospectus .

52. During the Class Period, ABFI filed new Registration Statements with the SE C

annually. Pursuant to the Act, ABFI could not offer the Notes until the SEC declared th e

Registration Statements effective. The Notes were for varying terms, with maturity dates from a few

months to as much as ten years . ABFI also sold money market Notes, which had no maturity dates ,

and were subject to changing interest rates . A buyer could choose whether to receive the interes t

during the term of the Note or instead to have the interest reinvested in new Notes.

53. The Notes were not transferable , except with the permission of ABFI. There was no

market for their resale. A Noteholder could get his money back only when the Note matured, if then .

If a Noteholder did not request his money back within a few days of the Note's maturity date (an d

sometimes even if the Noteholder did so request), ABFI rolled the Note over, issuing a new Note for

an additional term of the same duration .

54. For most of the Class Period, when a Note was coming due, ABFI's usual practic e

was to call or send a notice to the Noteholder, asking whether the Noteholder wanted to cash in the

Note or roll it over. ABFI apparently ceased calling and sending such notices during October o r

November 2004. From that point on, ABFI issued new Notes or rolled over existing Notes rather

than paying the Noteholders . In many cases the Company did so despite requests from the Lat e

Issue Subclass members for payment on the Notes . Many Noteholders first discovered that this had

happened when they received their Form 1099 from the Company in 2005 after the bankruptcy .

55. During the Class Period, while ABFI was securitizing its loans quarterly, ABF I

promised in the securitization documents that ABFI's pools of loans contained not more than a

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specified percent of delinquent and foreclosed loans . If delinquencies and foreclosures exceeded the

specified rate in any pool, ABFI would be in default and could lose the income from the entire pool .

Further, each non-performing loan decreased the total cash flow from the pool and from servicing

rights. (As noted, ABFI derived income from its 10 strips, which were dependent on the cash flo w

from its securitized mortgages .)

56. ABFI defined "delinquent loans" as loans that were more than 30 days past due ,

although at times the Company labeled loans as "delinquent" only if they were 60 or 90 days pas t

due. When ABFI had initiated formal foreclosure proceedings against a borrower, which accordin g

to Former Employees 4 and 5, it avoided and delayed as much as possible, the loan was a "foreclose d

loan." The Company's definition of "delinquent loans" excluded loans that, but for forbearance ,

deferment or some similar arrangement (described below),would have been in arrears . This

materially mislead investors by creating the impression that the Company's loan portfolio was bette r

than it actually was .

57. Because ABFI mortgage originators were under pressure to originate as many loans

as possible, they frequently sold mortgages to persons who could not afford the mortgage payments ,

some with bad credit, some elderly on fixed incomes , some with health problems . Because ABFI

did not escrow property taxes, borrowers who thought they could afford to make the mortgag e

payments often could not pay the taxes . Former Employee 5 said that approximately 10 percent o f

loan customers defaulted on their first payment .

Material Misstatements and Representation s

58. During the Class Period, each of the Registration Statements contained the untrue

statements and/or omissions of material fact described below .

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A. The Registration Statements Materially Underreported DelinquencyRates

59. ABFI used several techniques to decrease the reported incidence of delinquent lo ans:

repurchase and sale of loans, forbearance, deferment, and bankruptcy advances . Repurchase

involved repurchase of delinquent loans from securitization trusts . Most of these loans were in or

near foreclosure . ABFI claimed it repurchased loans partly to give it flexibility for the collection o f

those loans and partly to avoid interruption of cash flows paid from securitization trusts . Such

interruption might occur when the percent of delinquent loans in any particular trust exceeded the

percent specified in the covenants ABFI made at the time it transferred the pool of loans to the trust .

60. In a deferment arrangement, ABFI made adv ances of the principal and interest owed

to the securitization trust on behalf of a delinquent borrower . ABFI also might pay taxes, insuranc e

and other fees owed by the borrower . The borrower signed an agreement that he was required t o

repay the advanced amounts either at the end of the loan or in a monthly payment plan . The

advanced amounts were supposed to be paid before the maturity date of the loan .

61 . Likewise, in a forbearance arrangement, ABFI made advances in the amount of the

delinquent loan payments for principal, interest and possibly taxes and insurance . The repayment

plan that the borrower signed generally allowed the borrower to repay the amounts advanced over

a longer period of time than in a deferment arrangement . In both forbearance and deferment

arrangements, because the amount owed by the borrower had been paid by ABFI, the loan was liste d

as paid up, even though the borrower was still in arrears, according to Former Employee 5 .

62. ABFI maintained a large "Loss Mitigation" department of persons whose functio n

was to keep reported delinquency rates as low as possible . Loss Mitigation department personne l

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were informed that a certain percent of delinquent loans in any given pool could "trigger" default s

under covenants with the securitization trusts. Their job was to keep the loans from defaulting .

ABFI called its efforts to avoid delinquencies "trigger management ." Although ABFI erroneously

reported delinquency rates that were lower than average for sub-prime lenders, Former Employee

2 believes that the real rate of delinquency on ABFI 's mortgage loans was between 25 and 30

percent, well above the sub-prime average, above the rates that would trigger defaults under th e

covenants with ABFI's securitization trusts, and materially greater than the delinquency rates se t

forth in the Registration Statements .

63 . According to other former ABFI employees in the Loss Mitigation Department, wh o

were responsible for "rescuing" delinquent loans, the true delinquency rate of ABFI mortgages wa s

consistently at or above 25 percent .

64. The Registration Statements contained untrue statements and omitted material facts

about the Company's delinquency experience, which was a key measure of financial health and a ke y

determinant of the Company' s reported financial results .

65 . The 2001, 2002 and 2003 Registration Statements reported total delinquencies,

including on- and off-balance sheet mortgages, as follows :

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6130101' 6/30/022 6/30/03 3

Amount $107,013,000 $170,773,000 $229,070,000

As a percentage 4.13 percent 5.57 percent 6.27 percentof combined totalmanagedportfolio

66. The 2001 Registration Statement did not even mention forbearance and deferment

agreements by name, let alone quantify them. The 2002 Registration Statement referred to

forbearance agreements, but again failed to quantify them. These were material omissions .

67. The 2001 and 2002 Registration Statements were materially misleading, for the

further reason that they failed to disclose that the following amounts would have been delinquent bu t

for forbearance and deferment agreements and should have been added to (or at least referenced in )

the report of total delinquencies . These amounts represented the amount of mortgage and loan

balances for which the Company had entered into forbearance and deferment agreements, so that th e

loan was technically paid up but the borrower was still behind in his payments .

'Reported in the 2001, 2002 and 2003 Registration Statements .

2Reported in the 2002 and 2003 Registration Statements .

3Reported in the 2003 Registration Statement .

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6/30/01 6/30/02

Amount of $65,106,643 $138,662,304balances subjectto forbearance ordeferment

As a percentage 2.51 percent 4.52 percentof combined totalmanagedportfolio

68. Accordingly, the 2001 Registration Statement and the 2002 Registration Statemen t

understated delinquencies, including balances that would have been delinquent but for forbearance

and deferment agreement, by 37 .8 percent as of June 30,2001 (S107,013,000 reported, versus actual

balance of $107,013,000 plus $65,106,643, for a total of $172,119,643) . The 2002 Registration

Statement understated delinquencies, including balances that would have been delinquent but for

forbearance and deferment agreement, by 44 .8 percent as of rune 30, 2002 ($170,773, 000 reported ,

versus actual balance of $170,773,000 plus $138,662,309, for a total of $309,435,309) .

69. The 2003 Registration Statement was also materially false and misleading becaus e

it reported balances subject to forbearance and deferment agreements as of June 30, 2002 and June

30, 2003 (including $197,686,117, or 5 .41 percent of the total managed portfolio, as of June 30 ,

2003), but it failed to add these forbearance and deferment amounts to reported delinquency

amounts . Accordingly, the 2003 Registration Statement understated the value of loans in which th e

borrower was behind in payments as follows :

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6/30/02 6/30/03

Delinquencyamount reported

$170,773,000 $229 ,070,000

6/30/02 6/30/03

Actual $309,435,309 $426,756,11 7delinquenc yamount(includingamounts subjectto forbearance o rdeferment)

6/30/02 6/30/03

Amount by 44.8 percent 46.3 percentwhich actualdelinquencyamountunderreported

70. The true or actual bal ance of non-performing loans as of June 30, 2003 was revealed

by a July 19, 2004 internal memorandum . This memo was considered sufficiently important by

ABFI personnel that it bore a handwritten note : "Mr. Santilli, . . . strongly suggest that you read ."

This memo showed that, with respect to specific securitizations,4 the delinquency balance soared

from $196,974,225 .20 to $301,612,070 . 92 -- an increase of 53 .1 percent -- if delinquencies were

41996-1, 1996-2, 1997-1, 1997-2, 1998-1, 1998-2, 1998-3, 1998-4, 1999-1, 1999-2, 1999-3, 1999-4, 2000-1, 2000-2, 2000-3, 2000-4, 2001-1, 2001-2, 2001-3, 2001-4, 2002-1, 2002-2,2002-3, 2002-4, and 2003-1 .

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deemed to include forbearance, deferment or bankruptcy advances, repurchases, and loan sales . '

The 2003 Registration Statement 's chart listing delinquent balances did not include forbearance ,

deferment or bankruptcy advances, or loan repurchases and sales .

71. Further, the 2003 Registration Statement misrepresented the actual forbearance an d

deferment rate by excluding forbearance and deferment balances that were past due . Such past due

amounts apparently were included in delinquency balances, but excluded from forbearance an d

deferment balances . This materially misrepresented the amount of total forbearance and defermen t

balances and, in addition, omitted the material fact that a substantial percentage of borrower s

operating under forbearance and deferment arrangements promptly defaulted under thos e

arrangements . The truth, as set forth below, was as follows :

'Delinquencies were deemed to included loans greater than 60 days late, except forsecuritizations 2001-1, 2001-2, 2001-3, and 2001-4, for which delinquencies were deemed toinclude only loans 90 and more days late. Delinquencies were deemed to be 30 or more days latein the figures presented in the Registration Statements .

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6/30/02 6/30/03

Amount of $187,078,782 $277,908,05 1balances subjectto forbearanceand defermentincludingbalances inarrears

6/30/02 6/30/03

Amount of $138,662,309 $197,686,117balances subjectto forbearance asre_porte in 2003RegistrationStatement

6/30/02 6/30/03

Amount by $48,416,473 $80,221,934which 2003Registration (25.9 percent) (28.9 percent)Statementunderrepo rteddeferment -forbearancebalances :

B. Additional Misrepresentations Regarding Deferment and Forbearance

72. According to the 2003 Registration Statement, the Company resorted to deferment

and forbearance arrangements because "[fjrom time to time, borrowers are confronted with events ,

usually involving hardship circumstances or temporary financial setbacks, that adversely affect thei r

ability to continue payments on their loan." According to the 2003 Registration Statement, th e

Company offered such arrangements "to assist borrowers ," and, with respect to deferment

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arrangements, "generally [the borrowers] request relief from their loan payments ."

73 . In fact, contrary to the 2003 Registration Statement, the true purpose ofthe repurchase

of mortgages, as well as deferment and forbearance arrangements, were not as quoted . Instead, the

purpose was trigger management, to satisfy covenants ABFI had made to the trustees of th e

securitization pools and to meet covenants in agreements with Banks . In addition, deferment and

forbearance arrangements were not a humanitarian response to clients' "hardship circumstances or

temporary financial setbacks," entered into "to assist borrowers," and generally at borrowers'

"request." Rather, these arrangements represented the Company's effort to keep the reported

delinquency rates low and to insure that the securitization pools continued to maintain the value of

IO strips .

74. According to Former Employee 5, the Company induced loan customers to accept

deferment and forbearance arrangements; made loan payments for customers under deferment or

forbearance arrangements even when the Company did not expect the customers to make future

payments ; awarded bonuses or incentives to employees or agents who persuaded customers to enter

into such arrangements; and applied lax or inconsistent standards in determining who among

customers in arrears would be permitted to participate in such arrangements . None of this was

revealed in the Registration Statements .

75 . According to Former Employee 4, ABFI required each loss mitigation specialist t o

"rescue" 40 loans per month out of the 80-200 delinquent loans for which he had responsibility.

These loans ranged from 60 days delinquent to as much as two years delinquent . ABFI disciplined

employees who failed to "rescue" the required 40 loans . Thus, there was considerable pressure to

make deferment or forbearance agreements with delinquent borrowers .

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C. Misrepresentations About Repayment of the Notes

76. All of the Registration Statements informed investors that ABFI expected to paybac k

the Notes and to pay the promised interest from revenue from operations (including the securitizatio n

or sale of loans), working capital, and cash generated from additional debt financing, including the

sale of Notes .

77. According to the 2003 Registration Statement : "In the event the Company is unable

to offer additional subordinated debentures for any reason, the Company has developed a contingen t

restructuring plan including cash flow projections for the next twelve-month period . Based on the

Company's current cash flow projections, the Company anticipates being able to make all schedule d

debenture maturities and vendor payments . "

78 . These representations lacked a reasonable basis because ABFI's loan portfolio wa s

of poor quality, the value of the 10 strips and servicing agreements was materially less than reported ,

and ABFI' s assets and operating results were overstated . At least as of the effective date for th e

2003 Registration Statement, ABFI's only source of cash to pay the interest and principal on the

Notes when due was the sale of new Notes.

79. In autumn 2004, with respect to some or all Notes, without notice to Noteholders ,

ABFI stopped paying principal or interest on maturity and stopped honoring checks written on ABF I

money market accounts because it was unable to sell new Notes .

80. On December 17, 2004 , in an Amended Proposed Regulation Statement filed with

the SEC, ABFI stated that it believed it could repay holders of the Notes even if the SEC did no t

allow the proposed Registration Statement to become effective .

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81 . Just six days later, on December 23, 2004, ABFI issued a press release in which i t

announced that it had filed a Registration Statement with the SEC in October 2004, but the SEC had

not declared the Registration Statement effective. The Company stated that it could not sel l

subordinated debentures unless the Registration became effective .

82. Also in the December 23, 2004 press release, the Company announced that it was

unable to make any payments on Notes as they became due . The inability to make payments on th e

Notes caused the Company to be in default under its senior credit facilities, other debt instruments ,

and the lease for its Philadelphia office. The press release said that the Company "may seek

protection under the federal bankruptcy laws or may be forced into an involuntary bankruptcy . "

83. On January 21, 2005 ABFI filed for bankruptcy under Chapter 11 of the Bankruptc y

Code. On May 17, 2005, the proceedings converted to Chapter 7 .

84. The members of the Class and Subclasses have suffered damage as a result, with

their Notes declining materially in value or becoming worthless .

D. Material Omissions Concerning Internal Controls

85. In the risk section of each Registration Statement at issue, ABFI failed to state tha t

the Company's internal accounting controls were weak or nonexistent which presented a material

risk regarding the accuracy and completeness of financial reporting .

86. ABFI was required by the SEC under the Foreign Corrupt Practices Act, 15 U .S.C.

§ 78m(b)(2)(B), to "devise and maintain a system of internal accounting controls . . . ." Such controls

were required so that, among other things, ABFI would properly record all financial transactions an d

properly account for its assets .

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87. ABFI failed to maintain a system of adequate accounting controls . For instance,

according to Former Employee 1, Anne Bucceroni, an ABFI senior officer, maintained her ow n

computer with an algorithm for calculating the value of pools of loans . She asserted that thi s

algorithm was her own personal property. She would not allow other members of the Asse t

Management Department who were putting together pools of loans for securitization to have acces s

to the way she did her calculations .

88. Another example of lack ofproper controls involved the misallocation of $4 .8 million

into the Company's cash accounts rather than the segregated cash accounts where these funds shoul d

have been deposited . The misallocated funds had been paid by borrowers to ABFI to fund th e

borrowers' loan payments in future periods . In a Form 8-K filing on February 14, 2005, th e

Company admitted that their funds had been misallocated, and placed in cash accounts rather tha n

in escrow, before 2003 . According to Former Employee 3, defendant Mandia was solely responsibl e

for deciding what account funds should be deposited into .

89. Another example of lack of internal controls comes from the observation an d

Declaration of Linda P . Logan, CPA, a Regional Bankruptcy Analyst and a forensic accountan t

employed by the Office of the United States Trustee . Ms. Logan has a Masters degree in Taxation

and is a Certified Public Accountant, a Certified Insolvency and Restructuring Advisor and a

Certified Fraud Examiner. Ms. Logan visited ABFI's offices after the bankruptcy and prepared a

declaration for the United States Trustee's motion for an Order Appointing a Chapter 11 Trustee .

90. Ms. Logan found that ABFI employees with access to the ABFI General Ledger

system could make entries into the accounting system with no apparent oversight, authorization o r

review of the transaction being entered .

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91 . Ms. Logan also found that a majority of the entries in ABFI's General Ledger wer e

manual entries based on information taken from various spread sheets . Ordinarily it would be very

unusual to post manual entries to a General Ledger .

92. Ms. Logan also found that ABFI was unable or unwilling to supervise or control the

manual entries posted to the General Ledger .

E. Misrepresentations about Underwriting

93 . In the 2003 Registration Statement, ABFI claimed that its "demonstrated strengths "

included "a strong credit culture which consistently originates quality performance loans ."

94. Former Employee 1 said that by 2002 there was increasing pressure to develop the

pools for securitization quickly . This meant that more and more mortgages had to be sold .

95. In fact, loss mitigators at ABFI have informed plaintiffs that 25% or more of the loans

were delinquent.

96 . Former Employee 4 stated that of the loans he was responsible for in his workload

of 120 loans, 20 to 30 were between one and two years delinquent . Some borrowers, unable to pay,

begged ABFI simply to take the house. Some loans were made to persons with terrible credit scores ,

poor credit records, and spotty payment records. Some loans were made for more than the appraised

value of the property. Indeed, defendant Santilli told ABFI employees that he wanted only t o

originate loans and then sell them . Santilli put extreme pressure on his employees to originate more

mortgages, causing the loan originators to lower their standards .

97. Former Employee 5 said that at least half ofABFI's mortgages were "bad loans ." The

borrowers could not afford to pay, they were elderly and on a fixed income, they had healt h

problems, or they did not realize they would have to pay property taxes in addition to the mortgag e

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payments. Ten percent of new customers defaulted on their first payment .

Violation of 1934 Act

Santilli and Mandia, as Control Persons, Violated Section 15(a) of the 1934 Actbecause they Controlled ABFI which Failed to Use Registered Brokers

98. The Company was the issuer and seller of the Notes and offered the Notes directly

to the public without the use of an underwriter or broker-dealer .

99. The Company, directly or indirectly, through the use of mails, telephones , emails ,

newspapers and other communications in interstate commerce sold or induced or attempted to induc e

the purchase or sale of the Notes without being registered with the Commission in accordance wit h

Section 15(a) of the 1934 Act.

100 . Defendants used "associated persons" or employees and officers of ABFI to solicit

investors to buy the Notes issued by the Company. Rule 3a4-1 of the 1934 Act specifies conditions

under which employees of a Company who sell securities will not be considered Brokers .

101 . The ABFI employees who sold the Notes did not satisfy the requirements in

Rule 3a4-1 .

102. Defendants's sales employees were paid a salary and overtime which was equivalent

to a commission, based on sales of the Notes in violation of Rule 3a4-1, according to Forme r

Employee 5 .

103 . Defendant had a department consisting of employees, some full time and some par t

time, primarily dedicated to selling its Notes in violation of Rule 3a4=1, according to Former

Employee 5 .

104. Employees or "associated persons" participated in the sale of the Notes for a perio d

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of more than twelve months in violation of Rule 3a4-1 . Lead Plaintiff Langdon bought her note s

from ABFI employees Bill Swersding and Jim Dooling over many years and throughout the Clas s

Period. Likewise, Lead Plaintiff Michael Rosati bought his notes from Vice President Jerry

Rappaport over many years, and throughout the Class Period .

105. Accordingly, the sales employees of ABFI were acting as "brokers" in violation of

Section 15(a) of the 1934 Act since they were not registered as required by the 1934 Act .

106. Section 29(b) of the 1934 Act provides that any contract made in violation of an y

provision of the 1934 Act (such as Section 15) shall be void .

107. Plaintiffs have an implied private cause of action against defendants for rescission

of their contract to buy Notes under section 29(b), since under Section 15 the 1934 Act, their sale s

contracts in purchasing the Notes were void .

First Claim for Relief -- for Violationof § 11 of the Act Against A ll Defendants

108. Plaintiffs incorporate by reference paragraphs 1 through 107.

109. This Count is asserted against all defendants on behalf of the Class for violations of

Section 11 of the Act.

110. ABFI was the registrant for the Notes offered by ABFI in the Registration Statement s

and Prospectuses . The Individual Defendants each signed one or more of these Registration

Statements, rendering them liable to plaintiffs and Class members for the untrue statements and

omissions contained therein. The Individual Defendants were officers and/or directors of th e

Company at the time these Registration Statements became effective and were responsible for th e

contents of these Registration Statements.

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111 . These defendants collectively issued, caused to be issued, and participated in th e

issuance of these Registration Statements which contained untrue statements and material omission s

as detailed above .

112 . Plaintiffs acquired their ABFI Notes pursuant to one or more of these Registratio n

Statements without knowledge of the untrue statements or omissions alleged above .

113 . Plaintiffs and Class members could not have reasonably discovered the nature of

defendants' untruths and omissions, until they were put on notice to make an investigation on

December 23, 2004 .

114. Plaintiffs and the othermembers ofthe Class have sustained damages . They have los t

both the principal and the accumulated interest on their Notes .

115 . This action was brought within one year after the discovery of the untrue statements

and omissions and less than three years after the sales of the Notes .

116. Defendants are liable to plaintiffs and members of the Class of persons who

purchased Notes pursuant to one or more of these Registration Statements .

117. This Count is not grounded on fraud .

Second Claim for Relief -- for Violationof § 12(a)(2) of the Act Against All Defendants

118. Plaintiffs incorporate by reference paragraphs 1 through 117 .

119. This Count is brought by plaintiffs pursuant to Section 12(a)(2) of the Act against

all defendants on behalf of the Class .

120. The Company was the seller, and a ll defendants were offerors and/or solicitors of

sales of the Notes offered pursuant to the Prospectuses contained in and made part of the

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Registration Statements and Prospectuses .

121 . These Prospectuses contained untrue statements ofmaterial facts and omitted to state

other facts necessary to make the statements made not misleading . Defendants' actions of

solicitation included participating in the preparation of these Prospectuses containing untrue

assertions of fact and material omissions .

122. Defendants owed to the purchasers of the Notes, including plaintiffs and the other

Class members, the duty to make a reasonable and diligent investigation of the statements containe d

in these Prospectuses, to insure that such statements were true and that there was no omission of a

material fact required to be stated in order to make the statements contained therein not misleading .

Defendants knew of, or in the exercise of reasonable care should have know of, the misstatement s

and omissions contained in these Prospectuses , as set forth above .

1 123 . Plaintiffs and other members of the Class acquired the Notes pursuant to thes e

Prospectuses . They did not know, and in the exercise of reasonable diligence could not have known ,

of the untruths and omissions contained in these Prospectuses .

124. By reason of the conduct alleged herein, defendants violated Sectionl2(a)(2) of the

Act. Accordingly, plaintiffs and the members of the Class have the right to rescind and recover the

consideration paid for their Notes, and hereby elect to rescind and tender their Notes to defendants .

125 . At the time this action was filed , less than three years had elapsed from the time that

the Notes were sold to the public . Less than one year had elapsed from the time when plaintiff s

discovered or reasonably could have discovered the facts upon which this Count is based until the

time of the filing of this action .

126. Plaintiffs and the Class suffered damages .

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127 . This Count is not grounded in fraud.

Third Claim for Relief -- for Violationof 15 of the Act Against A ll Defendants

128 . Plaintiffs incorporate by reference paragraphs 1 through 127 .

129 . This Count is asserted against defendants on behalf of the Class, for violation o f

Section 15 of the Act. These defendants , by virtue of their positions as officers and/or directors of

Defendant ABFI, had the power, which they exercised, to control the representations and actions o f

ABFI and of one another.

130. Each of these defendants was a culpable participant and is jointly and severally liabl e

to Plaintiffs and the members of the Class as "control persons," pursuant to Section 15 of the Act .

131 . As a result of the foregoing, plaintiffs and the members of the Class have suffere d

damages .

132. This Count is not grounded on fraud .

Fourth Claim for Relief for Violation o f§§ 5(b)(2 ) and 12(a)1 of the Act Against Santilli and Mandia

133 . Plaintiffs incorporate by reference paragraphs 1 through 132 .

134. This Count is asserted by Lead Plaintiff Sabina Langdon on behalf of the No

Prospectus Subclass, pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) and pursuant t o

Sections 5 and 12(a)(1) of the Act on behalf of all persons who bought Notes but never received a

Prospectus .

135. Under Section 5(b)(2), it is illegal to sell through the mails or in interstate commerce

any registered security " . . .unless accompanied or preceded by a prospectus . . . "

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136. Under Section 12(a)(1), any person who sells a security in violation of Section 5 i s

liable to the person who bought such security .

137. This Count is asserted against S anti lli and Mandia as control persons ofABFI, which

sold the Notes in interstate commerce without delivering a Prospectus .

138. As a result of these defendants' sale of the Notes to Langdon and the members of th e

No Prospective Subclass, Langdon and members of the Subclass have suffered damages and ma y

recover the consideration paid for the Notes they bought, with interest, less the amount of an y

interest paid to them or for damages .

139. This Count is not grounded in fraud .

Fifth Claim of Relief for Violation fo r§§ 5(a) and 12(a)(1) of the Act Against Santilli and Mandia

140. Plaintiffs incorporates by reference paragraphs 1 through 139 .

141 . Virgil Magnon and Henry Munster bring this claim on behalf of the members of the

Late Issue Subclass .

142 . Under Section 5 of the Act, it is illegal to sell securities through interstate commerce

when no Registration Statement has been declared effective by the SEC .

143 . Under Section 12(a)(1), any person who sells a security in violation of Section 5 is

liable to the person who bought the security .

144 . Defendants Santilli and Mandia, as control persons ofABFI, caused ABFI to sell ne w

securities when it renewed the matured Notes of members of the Subclass, after the date the 200 3

Registration Statement was no longer effective, on or about October 31, 2004 .

30

145. Such sales violated the Act when made after the 2003 Registration Statement was

no longer in effect.

146 . As a result of the renewal of their Notes , after the Registration Statement was no

longer in effect, Magnon, Munster and the Subclass members suffered damages, and may receive

the consideration paid for the new Notes that ABFI forced them to buy with interest, or for damages .

147 . Less than three years has passed from the sale of the Notes until the date suit was

filed, and less th an one year since subclass plaintiffs knew or could have discovered that ABFI

renewed their Notes without their permission.

148 . This Count is not grounded in fraud .

Sixth Clahn For Relief For Violation of§ 15a of the 1934 Act against Santilli and Mandia

149. Plaintiffs incorporate by reference paragraphs 1 through 148 .

150. Lead Plaintiffs bring this claim on behalf of the Class .

151 . Santilli and Mandia, as control persons, caused ABFI to sell the Notes without b enefi t

of a registered broker-dealer .

152. Under Section 15(a) of the 1934 Act it is illegal to sell securities such as the Note s

without the use of a registered broker-dealer.

153 . Under Section 29 of the 1934 Act a contract is void if it violates Section 5(a) of th e

1934 Act.

154. ABFI's contracts (the Notes) with all Noteholders are void because the persons wh o

sold the Notes are deemed to be brokers, but were not registered pursuant to Section 5(a) of the 1934

Act .

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155 . Since Class members' Notes are void, they have the right to rescind the Notes and

collect the value of the Notes plus interest .

156 . This action was brought within one year after the discovery that the sale of the Note s

involved a violation of the 1934 Act and within three years after such violation .

157 . This Count is not grounded in fraud.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class, pray for judgmen t

as follows :

(a) Declaring this action to be a class action pursuant to Rules 23(a) and 23(b)(3 )

of the Federal Rules of Civil Procedure on behalf of the Class defined herein ;

(b) Awarding plaintiffs and the members of the Class rescissory or compensatory

damages in an amount which may be proven at trial, together with interest thereon ;

(c) Awarding plaintiffs and the members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys' fees and costs ; and

(d) Awarding such other and further relief as this Court may deem just and proper,

including any extraordinary equitable and/or injunctive relief as permitted by law or equity to attach ,

impound or otherwise restrict the defendants' assets to assure Plaintiffs have an effective remedy .

DEMAND FOR JURY TRIAL

(a) Plaintiffs hereby demand a trial by jury.

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Dated: November 16, 2005 Respectfully submitted,

IslTodd S. Collins, Esquire (TSC4390, I .D. No . 29405)Elizabeth W. Fox, Esquire (EWF6692, I .D. No. 33456)BERGER & MONTAGUE, P .C.1622 Locust StreetPhiladelphia, PA 19103(215) 875-3000email : tcollins@bm.net

Nicholas J. Guiliano, EsquireThe Guiliano Law Firm1500 Walnut Street, Suite 1100Philadelphia, PA 19102(215) 413-8223email: Njgesq@aol .com

KLAFTER & OLSEN, LLPKurt B. Olsen, EsquireJeffrey Klafter, Esquire2121 K Street, N .W., Suite 800Washington, D .C. 20037(202) 261-3553email : ko@klafterolsen.com

JACOB A. GOLDBERG, ESQ., LLCJacob A. Goldberg, EsquireP.O. Box 30132Elkins Park, PA 19027(215) 782-8235email : jacobaizoldberg@comcast .net

33

IN THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re American Business Financial Master File No. 05-232Services, Inc . Noteholders Litigation

AMENDED CONSOLIDATED CLASSACTION COMPLAINT

JURY TRIAL DEMANDE D

CERTIFICATE OF SERVICE

I certify that on this 16th day ofNovember, 2005, the foregoing Amended Consolidated Clas s

Action Complaint was served on :

Marc. J. Sonnefeld, EsquireMorgan, Lewis & Bockius, LLP1701 Market StreetPhiladelphia, PA 19103-292 1

by e-mail and by first class mail, and by first class mail on :

Deborah Gross, EsquireLaw Offices of Bernard M . Gross, P.C .1515 Locust Street , 2"d FloorPhiladelphia, PA 19102

Lee Squitieri, EsquireSquitieri & Fearson, LLP32 East 57th Street, 12th FloorNew York, NY 10002

Charles Piven, EsquireLaw Offices of Charles J . Piven, P.A .The World Trade Center401 East Pratt Street - 2525Baltimore, MD 2120 2

Elizabeth W. Fox

400336.wpd