MANHATTAN (CN) – Barclays Bank cost an investor $50 million by creating and structuring the Golden Key and Mainsail structured investment vehicles backed by “toxic, U.S. sub-prime mortgages,” that have collapsed, Oddo Asset Management claims in New York County Court.
Oddo also sued Solent Capital and McGraw Hill Cos.
Oddo claims that Baclays’ investment banking division “was at the head of the events described in this complaint,” which is 72 pages long.
“Between 2005 and 2006, Oddo invested a total of US $50 million in Golden Key and Mainsail. By August 2007, however, both Golden Key and Mainsail were effectively ‘frozen’ and suspended from further activity after their investment portfolios had plummeted in value, and they were no long able to borrow against their assets. In April of this year, the two SIV-Lites were put into receivership. Investors like Oddo have lost millions of dollars which they entrusted to these investment vehicles,” the complaint states.
“The collapse of both Golden Key and Mainsail would not have happened but for the egregious and self-serving misconduct of the various parties who created, arranged, managed and issued credit ratings for these investment vehicles. Indeed, virtually all of the parties involved in Golden Key and Mainsail have no come under some form of regulatory scrutiny.”
Oddo claims, “Avendis Financial Services Ltd. (which is now in liquidation) was appointed manager of Golden Key, and Solent was appointed manager of Mainsail. … (I)n the first half of 2007, both Avendis and Solent conspired with Barclays to transfer impaired securities backed by toxic, U.S. sub-prime mortgages to Golden Key and Mainsail respectively. However, during the first half of 2007, as the U.S. sub-prime mortgage market reached a crisis, Barclays realized that the value of these assets was plummeting, and that it needed to off-load the securities quickly to avoid recording a loss on them.
“Barclays came up with the idea to transfer these securities to Golden Key and Mainsail at the price it cost Barclays to acquire the securities, even though market values for the securities had fallen significantly. Barclays enlisted the help of Avendis and Solent, who were willing participants because they did not wish to jeopardize their relationships with Barclays,” the complaint states. “… In short, having set up both SIV-Lites and promoted them as desirable investments to investors, Barclays proceeded to use them as a dumping ground for toxic assets that Barclays needed to quickly jettison.”
McGraw-Hill is sued as corporate parent of Standard & Poor’s, which Barclays hired to issue investment ratings for the two SIVs. Oddo claims that S&P knowingly issued false ratings. “S&P knew that Barclays was dumping the impaired warehoused securities at inflated prices on Golden Key and Mainsail, and that the ratings of both Golden Key and Mainsail would be negatively impacted as a result of acquiring these securities,” Oddo claims. It says that “barely a month after it confirmed the ratings of both Golden Key and Mainsail in July 2007, S&P issued a report downgrading the ratings of both Golden Key and Mainsail by a massive 17 notches, thereby sealing the fates of the two SIV-Lites.” (Boldface in original.)
Oddo demands punitive damages for breach of fiduciary duty, aiding and abetting, and tortious interference with contract. It is represented by Jay Eisenhofer with Grant & Eisenhofer.