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Abu Dhabi bank sues in U.S. over risky investments
Mon Aug 25, 2008 6:36pm EDT
NEW YORK, Aug 25 (Reuters) - A United Arab Emirates bank sued Morgan Stanley, the Bank of New York Mellon Corp and ratings agencies Moody's and S&P on Monday, accusing them of fraud in operating a fund that collapsed in the U.S. credit crisis.
The lawsuit filed by Abu Dhabi Commercial Bank in U.S. district court in Manhattan said a complex deal known as the Cheyne Structured Investment Vehicle (SIV) was marketed by the defendants as highly rated and reliable, but they had hidden the risks.
"Instead of protecting the SIV and its investors as promised, defendants exposed the SIV to significant undisclosed risks," the lawsuit said. "Defendants knew the assets purchased and held by the SIV were risky and of poor quality. They further knew the models used to generate the high rates were flawed."
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SIVs used short-term funding, such as asset-backed commercial paper, to buy longer-term assets such as bank debt and asset-backed securities.
The bank brought the action on behalf of all investors who bought investment grade Mezzanine Capital Notes issued by Cheyne Finance PLC and its wholly owned subsidiary Cheyne Finance Capital Notes from October 2004 to October 2007.
"The ratings agencies intentionally, recklessly or negligently misled investors in Cheyne," according to the suit. "But for the ratings agencies violations of law, the capital notes never would have been issued."
http://www.reuters.com/article/funds...44108520080825
Mon Aug 25, 2008 6:36pm EDT
NEW YORK, Aug 25 (Reuters) - A United Arab Emirates bank sued Morgan Stanley, the Bank of New York Mellon Corp and ratings agencies Moody's and S&P on Monday, accusing them of fraud in operating a fund that collapsed in the U.S. credit crisis.
The lawsuit filed by Abu Dhabi Commercial Bank in U.S. district court in Manhattan said a complex deal known as the Cheyne Structured Investment Vehicle (SIV) was marketed by the defendants as highly rated and reliable, but they had hidden the risks.
"Instead of protecting the SIV and its investors as promised, defendants exposed the SIV to significant undisclosed risks," the lawsuit said. "Defendants knew the assets purchased and held by the SIV were risky and of poor quality. They further knew the models used to generate the high rates were flawed."
SIVs used short-term funding, such as asset-backed commercial paper, to buy longer-term assets such as bank debt and asset-backed securities.
The bank brought the action on behalf of all investors who bought investment grade Mezzanine Capital Notes issued by Cheyne Finance PLC and its wholly owned subsidiary Cheyne Finance Capital Notes from October 2004 to October 2007.
"The ratings agencies intentionally, recklessly or negligently misled investors in Cheyne," according to the suit. "But for the ratings agencies violations of law, the capital notes never would have been issued."
http://www.reuters.com/article/funds...44108520080825
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