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Opinion

Structured credit winds up – in court

Issuers and underwriters are braced for more structured credit litigation.

Given the almost total destruction of the structured credit market since 2007, it was inevitable that a wave of litigation would follow. If the exhaustive media coverage afforded to Goldman Sachs’s problems with its Abacus 2007 CDO earlier this year showed anything it is that such cases had hardly been commonplace.

While the litigation spotlight was firmly shifted to the mortgage-backed market following the foreclosure scandal that recently broke in the US, lawyers are, however, sharpening their briefs across the spectrum of the market.

Following the Abacus furore last April, Credit Suisse analysts drew up a "CDO litigation risk" ranking of banks with underwriting exposure to CDOs with salient characteristics similar to the Goldman vehicle that landed the bank with a record $550 million fine from the SEC. Bank of America topped the list. However, ironically it was Credit Suisse itself that was slapped with a synthetic structured credit lawsuit at the end of November.

The bank, together with, among others, Standard & Poor’s, is being sued by Abu Dhabi Commercial Bank (ADCB) over the restructuring of a structured investment vehicle – Stanford Victoria. The Gulf bank invested in an emergency restructuring of the vehicle – dubbed Farmington – based on what it claims is false and misleading information.

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