Wednesday, September 17, 2008

Start the lawsuits

AIG-Anyone think that their "oversight" was fraud?

The lawsuit, filed in U.S. District Court in Manhattan, alleges AIG and its directors breached their fiduciary duties to plan participants by allowing their retirement savings to be invested in the company's stock.

"Plaintiff alleges that defendants failed to conduct an appropriate investigation into whether AIG stock was a prudent investment for the plan," the lawsuit said. The complaint claims there were many "warning flags sufficient to place defendants on notice of the need to investigate" its subprime exposure.

The lawsuit was filed by law firm Gainey & McKenna on behalf of Wanda Mimms, a Nassau County resident and former AIG employee. The complaint is seeking class- action status on behalf of plan participants.

How about the Fannie and Freddie preferred's? This will get deep, because the boards are protected.

The Housing and Economic Recovery Act of 2008 includes a provision that says, “The members of the board of directors of a regulated entity shall not be liable to the shareholders or creditors of the regulated entity for acquiescing in or consenting in good faith to the appointment of the Agency as conservator or receiver for that regulated entity.”

How else was this so easily rammed down and approved by the board of directors?

Implicit in this non-choice may have been the quid pro quo of their regulator and now conservator, the Federal Housing Finance Agency, not challenging the executives’ exit compensation packages. We’ll see on that one.

So the lawsuits start despite this!

NEW YORK -(Dow Jones)- Several current and former top executives of mortgage giant Fannie Mae (FHM) and a group of underwriters were sued Tuesday for alleged misrepresentations related to a $2 billion preferred share offering by the company in May.

The lawsuit, filed in U.S. District Court in Manhattan, alleged they made false and misleading statements regarding the company's capitalization and assertions by its management that the securities offering would be adequate to see the company through year's end.

Individual stockholders, whose shares of mortgage giants Fannie Mae and Freddie Mac are almost wiped out, are rushing to the courthouse to demand relief.

Some major mutual funds are counting their losses, too.

"I feel this is fraud," said Hilda Gordon, 84, of Delray Beach, a Fannie Mae preferred-stock investor who watched her portfolio shrivel after Monday's government takeover. "The government wasn't thinking about the investors. They came right out and said it."

On Thursday, attorney David T. Aronberg filed a lawsuit on her behalf in the U.S. District Court for the Southern District of Florida against Fannie Mae's board and former executives

The lawsuit, alleging securities fraud and violation of Florida's deceptive trade practices law, is seeking class-action status.,0,1361681.story

How about money market lawsuits? Remember the Cheyne SIV? Even Abu Dhabi is suing.

Abu Dhabi Commercial Bank’s class action lawsuit for fraud, negligent misrepresentation and unjust enrichment over its investment in a complex fund is a fascinating collection of details and allegations that cut to the heart of the credit boom and messy aftermath.

The Middle-East bank had bought middle ranking, or mezzanine, capital notes in the vehicle, which had been given a single A rating by two agencies and paid a return of 1.5 per cent over Libor, the risk-free rate, it claims. These notes, it says, are worthless after the vehicle’s collapse. In spite of the near total decimation of the once $400bn SIV industry, ADCB’s is only the second suit filed over the collapse of one of these vehicles – the other was filed by Oddo Asset Management over two SIV-lites, named Mainsail and Golden Key.

Remember these problems back in November? Look for more of these stories to rear their heads.

How about hedge funds that traded with Lehman?

Late last week, many hedge funds scrambled to shift that business away from Lehman and to other so-called prime brokers, which provide trading and lending services to the funds. But some were caught up in the bank's move to file for bankruptcy protection on Monday, say lawyers and other industry specialists. As a result, they have found their holdings effectively frozen, with no indication of when they might be able to access them.

Legal experts cautioned that it could be weeks or months before the mess is sorted out, leaving hedge funds unable to unwind positions at a time when many assets are falling sharply in value.

At least there is one growth area in finance.


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