collateralized debt obligations

Second Circuit Vacates Dismissal of $25M CDO Case Against Citi

On April 22, 2015, the Second Circuit vacated and remanded a district court’s decision dismissing on statute of limitations grounds claims Woori Bank brought against Citigroup Global Markets arising out of Woori’s purchase of $25 million in collateralized debt obligations.  Woori asserted claims for fraud, fraudulent inducement, negligent misrepresentation, and unjust enrichment, alleging that Citi made misrepresentations in connection with its sale of the CDO to Woori.  The district court dismissed the action as time-barred, holding that Woori had knowledge of its claim prior to May 2009, the date after which an action would be time-barred under the applicable South Korean statute of limitations.  The Second Circuit reversed.  It held that the news reports and pitch materials on which the district court had relied to establish Woori’s knowledge were not sufficient to put it on notice of its specific claim against Citi because none of them suggested that Citi acted fraudulently in connection with the CDO at issue.  Summary Order.

Three Agencies Issue FAQ Regarding CDOs Backed by Trust Preferred Securities Under the Volcker Rule

On December 19, Fed, FDIC and OCC issued Frequently Asked Questions to clarify rules applicable to investments in covered funds and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be covered funds under the Volcker Rule.  The FAQs clarify that banking entities that have holdings in TruPS CDOs may use the conformance period to determine if they can be brought into conformance by July 21, 2015ReleaseFAQ.

Second Circuit Affirms Dismissal of Untimely CDO Claims against Merrill Lynch

On November 21, the Court of Appeals for the Second Circuit affirmed the dismissal of a suit brought by South Korea‘s Woori Bank against Merrill Lynch & Co., Inc. and Bank of America Corp. on statute of limitations grounds.  The bank brought claims for fraud, rescission, negligent misrepresentation and unjust enrichment on May 18, 2012 stemming from its $143 million investment in several collateralized debt obligations.  The Second Circuit agreed with the lower court that publicity about Merrill Lynch’s CDOs, related lawsuits and government investigations sufficiently alerted Woori to any claims prior to May 2009.  The bank’s claims were therefore time-barred under South Korea’s applicable three year statute of limitations.  Decision.