TCW Asset Management Company

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


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.

Two Funds File $28M RMBS Suit Against TCW

On November 21, two private funds based in the Cayman Islands, Basis Pac-Rim Opportunity Fund and Basis Yield Alpha Fund, sued TCW Asset Management Company in the Supreme Court for the State of New York over their alleged purchase of $28 million in RMBS and CDOs through a TCW investment vehicle.  The funds allege that TCW knowingly made material misrepresentations and omissions about the current and expected performance of the investment vehicle’s portfolio, the criteria it used to select the portfolio, and the mortgage-backed bond market.  The funds’ causes of action against TCW include fraudulent concealment, negligence misrepresentation, breach of contract, and unjust enrichment.  The funds seek over $28 million in damages. Complaint.