Credit Default Swaps Dealers Get Nasty

MANHATTAN (CN) - Nasty allegations between rival dealers of credit default swaps have spawned two defamation lawsuits, demanding a total of $70 million.

Three men who formerly worked for defendant James Cawley at Axiom Global Partners claim Cawley defamed them to Forbes magazine, to gain an advantage in litigation between Axiom and the plaintiffs' new business, Phoenix Partners Group.

Both defamation lawsuits were filed in New York County Court. In one claim, Nicholas Stephan and Marcos Brodsky say they worked with Cawley at Axiom. Stephan says he was CEO, Chief Compliance Officer and a member of the board. Brodsky was a broker. Cawley also was, for a time, CEO.

The plaintiffs claim that they was Wesley Wang - another member of the board and the plaintiff in the second defamation lawsuit - "became increasingly concerned about the abusive management style of Cawley," some of which is described in the filing. They claim, among other things, that Cawley "utilized the services of prostitutes and submitted the costs for those services to Axiom for reimbursement, spent company funds - $40,000 - for an evening at a strip club," and so on.

They say the Axiom board removed Cawley as CEO, but an arbitrator reinstated him as CEO five months later. Whereupon, the plaintiffs say, seven of Axiom's top U.S. producers and a trading assistant resigned, as did five brokers in London. They say the brokers who resigned "accounted for 85% of the overall revenue generated by Axiom" and that they walked away from $2 million in commissions. A settlement agreement required that the parties to the present lawsuits refrain from disparaging one another. The plaintiffs and others then formed Phoenix Partners Group.

Cawley and his new company, IDX Capital, sued Phoenix and Wang in February 2007. Plaintiffs claim that Cawley made false and defamatory filings in that lawsuit, and that Cawley has spoken and may still be speaking to Forbes magazine reporter Emily Lambert, and defaming them. Some of the allegedly defamatory statements involve drug use, which the plaintiffs deny.

They demand $50 million for breach of the settlement agreement, slander and defamation. They are represented by John Bolton with Nixon Peabody of Jericho, N.Y.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit