Sun, May 1, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Hedge fund Cambridge Place sues 15 world’s biggest bank to recoup $1.2bn subprime losses

Tuesday, July 13, 2010
Opalesque Industry Update – Boston- and London-domiciled hedge fund firm Cambridge Place Investment Management LLP (CIPM) is suing 15 of the biggest banks in the world with the aim of recovering $1.2bn it lost on subprime mortgages, engaging Wall Street giants in a legal fight that is almost impossible to win, various media reports said.

CIPM, a specialist in structured credit, had $3.5bn in AuM as at end January ’10, down from more than $9bn at its peak in 2007.

CIPM, which was founded by ex-Goldman Sachs Group bankers Martin Finegold and Robert Kramer, lost at least $1.2bn on subprime mortgages. It filed the lawsuit in Boston, Massachusetts on July 9th, accusing the banks of making untrue statements which resulted to the losses, reported Bloomberg.

Included in the charge sheet are three British banks — HSBC, Barclays and Royal Bank of Scotland – as well as JPMorgan Chase, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, UBS, Goldman Sachs and Morgan Stanley, said the New York Times.

According to the lawsuit, the banks sold securities backed by mortgages from a “small group of now notorious subprime mortgage originators.” CIPM also alleged that the banks “used faulty appraisals, accepted misleading information in loan applications, and violated their own standards for underwriting.”

In total, the banks sold or offered an estimated $2.4bn of residential-backed mortgages to CIPM using “untrue statements,“ the lawsuit said. The Wall Street banks are also accused of not conducting the necessary due diligence and failing to satisfy even their own responsibilities.

New York Times columnist Gretchen Morgenson said the lawsuit provides inside information on the lending practices at the height of the subprime mortgage boom. “Interviews in the complaint with 63 confidential witnesses turned up such gems as Fremont Investment & Loan, which had been based in California, approving loans for pizza delivery men with reported monthly incomes of $6,000, and management at Long Beach Mortgage, also in California, directing underwriters to ‘approve, approve, approve.’

“One Long Beach program made loans to self-employed borrowers based on three letters of reference from past employers. A former worker said some letters amounted to ‘So-and-so cuts my lawn and does a good job,’ adding that the company made no attempt to verify the information, the complaint stated.”

James Cox, a professor at Duke University Law School said the complaint could encourage other investors, including large pension funds, to take similar actions against Wall Street. Cox added that the fact that CIPM filed the case before an investor-friendly Massachusetts state law, instead of under federal law, increases its chances of overcoming some of the difficulties faced by earlier attempts to pin the subprime meltdown on Wall Street.

Gerald Silk, a partner at Bernstein Litowitz Berger & Grossmann LLP, which represents the plaintiff, told ABC News that the Massachusetts investor protection laws "provide us with a powerful weapon to uncover the unscrupulous conduct by the Wall Street banks and recover our client's significant losses."

Meanwhile, this month, Chicago-based Origami Capital, which buys illiquid hedge fund stakes on the secondary market, bought a 40% stake in CIPM’s three remaining funds, the CPIM Structured Credit Fund 20, 1000 and 1500, reported Hedge Fund Alert. All three funds have a combined AuM amounting to $230m. Origami bought the 40% shares for $92m at an undisclosed discount.

Background
Since the subprime problems started to bubble up to the surface, CPIM has kept on closing and launching new funds.

The firm suspended three of its five existing funds in 2007 and wound down its $900m London-listed Caliber Global Investment Ltd., which was hit by the subprime problems, but looked into launching a new fund designed to pick up cheap assets in the US mortgage market in November that year, said the FT.

That same month, CPIM cut 20% of its staff.

In September ’08, Caliber Global, the mortgage-bond fund run by Cambridge Place Investment Management LLP, sought the approval of its shareholders to appoint KPMG LLP as the liquidator of the troubled fund.

Shortly after, CPIM developed the Talisman/CPIM European Property Debt Opportunity Fund, a fund which invests in a range of European CMBS, RMBS and other ABS asset classes and other forms of real estate financing to benefit from the current market dislocations in Europe.
-Precy Dumlao

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Hedge funds see $14.3bn outflows in Q1, CTAs and multi-strategy lead net inflows[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry saw net outflows of investor capital in the first quarter of the year, totaling $14.3bn, data from Preqin showed. This continues from the $8.9bn overall net outflows that funds recorded in Q4

  2. Third Point calls Q1 "catastrophic" for hedge funds[more]

    Bailey McCann, Opalesque New York: The first quarter of this year was rocky for hedge funds based on aggregate performance from the industry, but now we are beginning to hear what the managers thought of it as quarterly letters make their way to investors. Dan Loeb, CEO of New York-based $17 bill

  3. Asia - Stabilization of China's capital outflows may hinge on Janet Yellen, Fink says China to do well this year as bubble threat postponed, Chinese hedge fund to invest in India’s infrastructure[more]

    Stabilization of China's capital outflows may hinge on Janet Yellen From Bloomberg.com: Whether China’s recent stabilization of its currency and capital outflows continues -- or downside pressure reignites -- may hinge in large part on Janet Yellen. If the Federal Reserve chair sticks to

  4. …And Finally - After all, judges are human too[more]

    From Newsoftheweird.com: In March, one District of Columbia government administrative law judge was charged with misdemeanor assault on another. Judge Sharon Goodie said she wanted to give Judge Joan Davenport some files, but Davenport, in her office, would not answer the door. Goodie said once the

  5. Comment - Unmasking the men behind Zero Hedge, Wall Street's renegade blog[more]

    From Bloomberg.com: Colin Lokey, also known as "Tyler Durden," is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the n