Sun, Feb 14, 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. Asia - Hedge fund manager Kyle Bass estimates China's foreign reserves below critical level[more]

    From Nasdaq.com: Investor Kyle Bass stepped up his attack on China's currency, arguing in an investor letter distributed Wednesday that the second-largest economy's foreign reserves are "already below a critical level." The comments mark the latest effort by hedge funds and other investors to raise

  2. Investing - Some hedge funds want to make subprime auto loans next big short, 11 hedge funds that are “all in” on the FANG stocks, Hedge funds short London luxury homes, Cynet raises $7 million from U.S. hedge fund[more]

    Some hedge funds want to make subprime auto loans next big short From Bloomberg.com: A group of hedge funds, convinced they have found the next Big Short, are looking to bet against bonds backed by subprime auto loans. Good luck finding a bank willing to do the trade. Money manage

  3. Investing - Hedge funds see selloff in European bank stocks as buying opportunity[more]

    From WSJ.com: The massive selloff in European bank stocks and bonds is overdone and presents a “phenomenal” buying opportunity, according to some of Europe’s top hedge-fund managers. Despite a 28% slump in European bank stocks this year, including a 38% fall in Deutsche Bank AG and a 34% drop in Soc

  4. Legal - Carlyle accused of fraud by ex-employee, Hedge funds win CDS breach of contract suit against Deutsche Bank, Hedge fund asks for OK on $27.5m Goldman CDO deal, SFO examines Barclays hedge fund profits[more]

    Carlyle accused of fraud by ex-employee From AI-CIO.com: A former portfolio manager claims he was fired for blowing the whistle on “crazy” and “irresponsible” investments. Carlyle Group has been sued by a former portfolio manager for one of its hedge funds, who accused the firm of “knowi

  5. Illiquid assets are all the rage for hedge funds[more]

    From Valuewalk.com: …Institutional investors are increasingly turning to illiquid assets and active management strategies to combat macroeconomic trends, anticipated market volatility and diverging monetary policy, according to a new survey by Blackrock. And this week, Bloomberg has reported that at