CHICAGO (CN) – Watertown Savings Bank claims in court that it lost $42 million because Chicago investment adviser Shay Assets Management recommended mortgage-backed securities as “conservative” and “liquid,” even after the market was collapsing.
Watertown Savings Bank sued Shay Assets Management, three Asset Management Funds (AMF) and Rodger Shay Jr., in Cook County Court.
Shay Assets manages the AMF Fund, which is a “no-load mutual fund complex,” according to the company’s website.
The Massachusetts-based bank claims that Shay Assets marketed AMF funds as conservative and safe funds designed to meet the liquidity needs of depository institutions such as Watertown Bank.
“While plaintiff currently has insufficient evidence that the marketing representations made to them were untrue at the time plaintiffs first invested in the AMF funds, by approximately May 1, 2007, the written representations contained in such materials and those representations made orally to plaintiff were no longer true,” the complaint states.
“The AMF funds, while marketed as containing assets appropriate for financial institutions, were primarily invested in private label mortgage-backed securities subject to great volatility as well as illiquidity. The AMF Funds investments were inconsistent with the AMF Funds’ marketing materials by approximately May 1, 2007.
“The Fund ultimately began its public collapse on or about May 6, 2008.
“Plaintiff was fraudulently induced to hold its shares through representations made on conference calls with Shay Assets through May 6, 2008 and thereafter, causing plaintiff to suffer tremendous losses,” Watertown claims
Watertown claims that Shay intentionally concealed from investors the precise securities owned by the Fund to ensure they did not redeem their shares.
It seeks $42 million plus punitive damages for fraud, conspiracy, breach of fiduciary duty and negligent misrepresentation.
It is represented by Steven Aroesty, with Napoli, Bern, Ripka and Shkolnik, of Edwardsville, Ill., and New York City.