Cambridge Place Sues Major Banks Over $1.2B Subprime Losses

13th Jul 2010 15:39

By Margot Patrick Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Cambridge Place Investment Management, the London- and Massachusetts-based hedge fund group that lost billions of dollars of assets from the financial crisis, is suing dozens of investment banks and brokers for the alleged misselling of complex securities. In a Massachusetts court filing, Cambridge Place said it bought $2.4 billion in residential mortgage-backed securities that it says were sold by means of "untrue statements of material facts and omissions of material fact." Its losses on the securities came to more than $1.2 billion, it said. The banks involved include the U.K.'s Royal Bank of Scotland Group PLC (RBS), Barclays PLC (BCS) and HSBC Holdings PLC (HBC), as well as major U.S. banks Citigroup Inc. (C), JP Morgan Chase & Co. (JPM), Bank of America Merrill Lynch (BAC), Morgan Stanley (MS) and Goldman Sachs Group (GS), and other international banks including Deutsche Bank AG (DB), Credit Suisse Group (CS) and UBS AG (UBS). All of the banks either declined to comment or weren't immediately available. Cambridge Place's claim is on behalf of several of its hedge funds as well as collateralized debt obligations it managed and Caliber Global Investment Ltd., a listed fund that traded on the London Stock Exchange before winding down with heavy losses. A raft of firms that served as issuers of the securities are also named as defendants. In what could be a test case for investors seeking retribution from banks for allegedly misselling securities supported by poor-quality mortgage loans, Cambridge Place in its claim said: "The Wall Street bank defendants were complicit in creating an environment of improper lending practices by the mortgage originators; indeed, in many instances the Wall Street banks had personnel on site at the mortgage originators to monitor their loan underwriting practices." "Driven to profit from the lucrative securitization business, the Wall Street bank defendants demanded enormous volumes of loans to securitize and sell to investors in the form of RMBS, leading to erosion in lending standards," it said. It said the securities were packed with faulty loans from a small pool of originators that are now recognized to have been among the least-stringent in the business, and claims the sellers of the securities didn't conduct sufficient due diligence on the loan pools and "failed to satisfy their own responsibilities." According to its website, Cambridge Place had $3.5 billion in gross assets under management at Jan. 31. In October 2007, it said it managed about $9.4 billion in gross assets. -By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; [email protected] (END) Dow Jones Newswires July 13, 2010 10:39 ET (14:39 GMT)