collateralized debt obligation

First Department Grants Summary Judgment Against RMBS Collateral Manager for Failure to Raise Issue of Fact Regarding Loss Causation

and Posted on

 

On March 2, 2017, the New York Supreme Court, Appellate Division, First Department reversed a decision from the New York Supreme Court and dismissed a complaint filed by two hedge funds against the collateral manager of a $400 million collateralized debt obligation (“CDO“) investment. Plaintiff hedge funds Basis PAC-Rim Opportunity Fund (Master) and Basis Yield Alpha Fund (Master) (together, “Basis“) filed a lawsuit asserting fraud claims against defendant TCW Asset Management Company (“TCW“), which had served as the collateral manager for the Dutch Hill II CDO. Dutch Hill II was created to serve as an investment vehicle for the purpose of taking a net long position on extremely risky RMBS; TCW selected the assets for the Dutch Hill II portfolio and made representations to Basis about the viability of the subprime RMBS market. Basis purchased over $27 million of Dutch Hill II notes in 2007, but the notes were all but valueless following the housing crisis. In moving for summary judgment, TCW submitted expert evidence showing that the housing market crash would have caused Basis’s losses even if the collateral underlying the CDO had not been misrepresented, as Basis alleged. In response, Basis did not submit sufficient evidence rebutting that opinion or showing that any of the particular misrepresentations by TCW caused its losses. The Supreme Court had denied summary judgment, holding that there were issues of fact as to loss causation. The First Department reversed, concluding that by failing to rebut TCW’s evidence, Basis had not raised an issue of fact as to loss causation.  Opinion.

$180 CDO Claim Against Credit Agricole Dismissed as Time-Barred

Posted on

On August 31, Judge Robert W. Sweet of the U.S. District Court for the Southern District of New York dismissed with prejudice a $180 million suit brought by Intesa San Paolo (Intesa) against Credit Agricole Corporate and Investment Bank in connection with a collateralized debt obligation (CDO) backed by allegedly faulty mortgages.  Intesa’s suit, alleging violations of §10(b) of the Securities and Exchange Act and state law claims of common law fraud and aiding and abetting fraud, was initially dismissed as time-barred earlier this year.  Intesa filed a second amended complaint relying on allegedly false statements contained in more recent documents that it maintained were incorporated by reference into the CDO documents.  The court found that the newly cited documents were not intended to be incorporated into the CDO, and as a result, Intesa’s §10(b) claim remained time-barred.  The court also dismissed the state law claims, refusing to exercise supplemental jurisdiction over those claims.  Opinion.

Court Declines to Consider U.S. Senate Report on Financial Crisis in Deciding Motion to Dismiss

Posted on

On May 18, 2011, Judge Jones of the Southern District of New York rejected plaintiff’s request that the Court consider a U.S. Senate report entitled “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” in deciding defendants’ motion to dismiss. The plaintiff’s complaint alleges that Goldman Sachs committed fraud in connection with the sale of a collateralized debt obligation (“CDO”) with collateral consisting of subprime mortgage-backed securities. Plaintiff asserted that the Senate report contains an extensive discussion of the CDO sale at issue as well as citations to internal Goldman emails that, according to plaintiff, call into question defendants’ assertions on the motion to dismiss. The Court held that the Senate report went beyond what the Court could consider on a motion to dismiss and that plaintiff also failed to provide the Court with any basis for taking judicial notice of the report. Decision. Senate Report.