Complex Financial Products Litigation
Kasowitz is at the forefront of representing clients in litigation relating to complex financial products, including derivatives, collateralized debt obligations, auction rate securities, credit default swaps, securitized notes, and other financial instruments. Our attorneys represent corporations and financial institutions that offer or structure these instruments, as well as corporations, hedge funds and individuals who invest in these types of instruments, in litigation and arbitrations throughout the country.
Notable representations include:
- Federal Housing Finance Agency ("FHFA"), as conservator for Fannie Mae and Freddie Mac, in several actions in federal and state courts against numerous financial institutions and individuals. The lawsuits seek rescission or damages from the defendants for, among other things, defendants' misrepresentations concerning pools of mortgage loans that underlie residential mortgage-backed securities issued and securitized by the defendants and sold to Fannie Mae and Freddie Mac.
- MBIA, one of the world’s largest monoline insurers, in litigation brought by 18 of the world’s largest banks seeking to overturn MBIA’s 2009 corporate restructuring which, with the approval of the New York Department of Insurance (now the Department of Financial Services), established a separate company for MBIA’s municipal bond insurance business. In March 2013, after a several-week trial, the New York Supreme Court ruled in favor of MBIA, upholding MBIA’s restructuring. Kasowitz thereafter obtained a settlement, which also covered put-back litigation, whereby the remaining banks agreed to drop their challenge to MBIA’s restructuring, and MBIA received $1.7 billion in cash and a $500 million line of credit for its municipal bond insurance business.
- Bayerische Hypo- und Vereinsbank AG (“HVB”), the second-largest private German financial institution and second-largest German retail bank, in defense of individual and class actions in state and federal courts throughout the country alleging fraud and RICO claims stemming from certain tax shelter transactions. The firm also represents HVB in actions against (i) AIG, Inc. and AIG Matched Funding Corporation concerning collateralization obligations under leveraged lease transactions, and (ii) a Colorado government entity in a litigation involving the termination of an interest-rate swap tied to a $500 million municipal bond offering.
- TSL (USA), Inc., an affiliate of National Australia Bank, in two separate actions against Oppenheimer and its affiliates relating to defendants’ misconduct as administrators of two structured finance vehicles, alleging damages of more than $600 million.
- Royal Park Investments SA/NV, an entity created in connection with the Belgian State’s sale of Fortis Bank SA/NV to BNP Paribas S.A. for the purpose of purchasing and managing certain of Fortis Bank’s structured credit risks not assumed by BNP Paribas, in an action against Oppenheimer and its affiliates relating to defendants’ misconduct as administrators of a structured finance vehicle, alleging damages of more than $400 million.
- Residential Mortgage-Backed Securities (“RMBS”) Trusts, on behalf and at the direction of the holders of certificates in these Trusts, in their actions for breach of contract against the mortgage originators and/or the sponsors of the securitizations (i.e., those entities who sold the mortgage loans to the Trusts). These “put-back” actions seek, among other things, specific performance of the originators’ or sponsors’ commitment to repurchase mortgage loans that breach the representations and warranties, which were made by the originators or sponsors as a guarantee of the quality of the mortgage loan being sold to the Trusts. Kasowitz commenced and is currently litigating multiple put-back actions.
- UniCredit Bank AG in an action filed in the United States District Court for the Southern District of New York against Textron Business Services, Inc. and TBS Insurance Agency Services, Inc., the servicer and backup master agent servicer, respectively, for a securitized note program in which notes securitized by insurance agency franchise loans were sold to investors, including UniCredit. UniCredit alleged that the defendants had failed to properly monitor the subservicer of the notes, which ultimately collapsed after its fraudulent conduct was revealed. After the depositions of several employees of the defendants, Kasowitz reached a settlement of the case.
- National Australia Bank (“NAB”) in two actions against private equity firm J.E. Robert Company, Inc. (“JER”) and its affiliates to enforce a more than $60 million judgment against one of JER’s subsidiaries. Plaintiffs alleged that JER caused the subsidiary’s 2009 default on an interest rate swap by stripping the subsidiary of assets and attempting to move those assets outside NAB’s reach. Kasowitz aggressively pursued judgment enforcement discovery, and filed two actions in the Supreme Court of the State of New York, Manhattan (Commercial Division) in 2012 and 2013. The first action claimed tortuous interference with contract, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. The second was an Article 52 petition for a special proceeding asserting claims for turnover and enforcement of the judgment Debtors’ contract rights under C.P.L.R. 5225(b), and avoidance of fraudulent conveyances and legal fees under New York’s Debtor and Creditor Laws. In 2014, the parties resolved all disputes by agreement.
- Chicago Fundamental Investment Partners LLC and CFIP Master Fund Ltd., a billion-dollar hedge fund, in a breach of contract action arising from a $45 million portfolio credit default swap implemented through a credit-linked note trust structure. The defendants included Citibank N.A., Citigroup Global Markets Inc., and Citigroup Global Markets Ltd. (together, the Citi Defendants). The case presented several novel issues regarding the interpretation of standard International Swaps & Derivatives Association (ISDA) language employed throughout the Credit Default Swaps (CDS) market and which parties have standing in a credit-linked note structure. On the eve of trial, the Citi defendants settled.
- Caxton International Limited, one of the largest investment funds in the country, in a derivative action against Reserve Management Company relating to a Reserve money market fund that “broke the buck.” Kasowitz successfully obtained a court order appointing a receiver, and acted as liaison counsel for other hedge fund and corporate investors in reaching a global settlement with the Reserve.
Kasowitz represents various institutions in litigations stemming from the financial crisis including court actions and arbitrations involving collateral debt obligations, residential mortgage backed securities, structured notes, credit default swaps, interest rate swaps, total return swaps, financial guaranties, and other structured products and derivatives.