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 sought 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. After prevailing on critical pre-trial issues, FHFA settled the actions brought by Kasowitz for over $2 billion, including a $1.25 billion settlement with Morgan Stanley.
- 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.
- Loreley Financing, a collateralized debt obligation (CDO) investor that lost billions of dollars in the collapse of the residential mortgage market in 2007. Kasowitz sued Deutsche Bank in New York Supreme Court for knowingly selling Loreley almost $440 million in CDOs backed by residential mortgage-backed securities that Deutsche Bank knew to be far riskier and far more prone to default than it had represented to Loreley. The complaint alleged that Deutsche Bank used the CDOs to remove troubled assets from its own balance sheet at plaintiffs’ expense, while providing opportunities for short-trading on the part of Deutsche Bank and certain preferred clients. Shortly after the complaint was filed in October 2011, the case was settled on confidential terms. Kasowitz also filed related actions on behalf of Loreley against Citigroup (for $965 million), against Wells Fargo Securities (as successor to Wachovia Capital Markets) for $163 million, a $331 million claim against UBS, a $60 million claim against Bank of America/Merrill Lynch and a $32 million claim against Morgan Stanley. Kasowitz prevailed in defeating motions to dismiss and/or subsequent defendant appeals in the Citigroup, UBS and Merrill Lynch cases. The Wells Fargo and Morgan Stanley cases are under appeal.
- ACA Financial Guaranty Corporation, a monoline bond insurance company now operating in run-off, in an action against Goldman Sachs & Co. for fraud and unjust enrichment in connection with a synthetic collateralized debt obligation known as Abacus 2007-AC1 (“ABACUS”), which Goldman Sachs structured and marketed based on a portfolio of investment securities selected largely by its hedge fund client, Paulson & Co. Inc. ACA alleges that Goldman fraudulently induced it to take a long position in and provide guaranty insurance for ABACUS by deceiving ACA into believing that Paulson also was to be a long investor in ABACUS when in fact, as Goldman Sachs knew, Paulson intended to take an enormous short position in ABACUS, reaping nearly $1 billion when the portfolio failed.
- UniCredit Bank AG, one of the largest financial institutions in Central and Eastern Europe, in a variety of litigation matters, including: (i) individual and class actions in state and federal courts throughout the country alleging fraud and RICO claims stemming from certain tax shelter transactions; (ii) actions concerning financings, including collateralization obligations in connection with international lease transactions; (iii) actions concerning securitized loan products; (iv) actions concerning municipal finance, including forward delivery agreements, repurchase agreements and other guaranteed investment contracts.
- 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.
- 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. 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.