Litigants renew focus on banks' conflicts of interests
It is imperative that litigants try to attack quickly where they have the best chance of success. Experience has shown that it is not enough simply to claim that a security lost value. "By 2007 there was already enough noise in the system that sophisticated investors should have realized that things were going tits up," says one litigation expert. "If you were out there investing in synthetic CDOs in late 2007 then you simply weren’t paying any attention at all." Recent cases have therefore been more targeted towards claiming fraud in particular deals rather than in general mortgage origination. For example, in 2007 claims relating to mortgage loans made up 39% of all credit crisis-related filings, according to NERA Economic Consulting. Filings relating to CDOs and CDS made up 23.2% and 2.9% respectively. In 2010, mortgage loans made up 7.4% of all cases while CDOs accounted for 37% and CDS 40%. "People are now starting to run with the idea that the bank did not disclose a conflict of interest rather than the idea that they were mis-sold securities," says one lawyer.