Murray Capital Sues Deutsche Bank Securities For Fraud


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This article appears courtesy of Institutional Investor
Source: Credit Investment News
Kim Moore

Murray Capital Management is suing Deutsche Bank Securities, alleging it did not disclose the real financial condition of Exide Technologies when it led a private placement for the company in March. The complaint alleges Deutsche Bank Securities, as well as Exide Technologies and two of its executives ­ Timothy Gargaro, cfo and Craig Muhlhauser, former president and CEO­ committed securities fraud and breached their fiduciary duty. Officials at Deutsche Bank Securities declined to comment. Exide Technologies officials did not return calls.

Scott Beechert, general counsel for Murray Capital Management, said the firm feels obligated to its clients to seek a recovery on its investments. "We feel they weren't giving us information on the true financial condition of the company," said Beechert. "We're not a litigious organization. We just feel we have a strong claim. This is our clients' money. We feel obligated to pursue every avenue to recovery."

Murray Capital claims it lost $2 million of its $5 million investment in a $350 million private placement of senior notes and convertible securities that Exide made in March 2005. Deutsche Bank Securities, acting as joint bookrunner, marketed the notes on behalf of Exide.

The complaint alleges that at the time of the offering, Deutsche Bank Securities and Exide knew, or should have known, that Exide was in danger of breaching financial covenants under a $365 million senior secured credit facility. Deutsche Bank, parent of Deutsche Bank Securities, was the agent bank on that senior credit facility. The facility included a covenant requiring the firm have minimum EBITDA of $122 million for the fiscal year ending March 31, 2005. Exide Technologies later reported its actual EBITDA for that period was only $105.7 million, more than $16 million less than that required under the credit facility's covenants.

"At the time they were marketing the private placement ­ which was just weeks before the close of Exide's fiscal year ­ defendants had ample information to determine that Exide's earnings for that fiscal year were going to fall far short of that required under the senior credit facility," according to the complaint, which was filed in the U.S. Southern District Court of New York last week.

When Exide announced it was in breach of the covenants, both the bond and stock prices plummeted. Exide's notes bought by Murray Capital two months earlier lost 30% of their value. Its stock was also down 48% the day after the announcement, according to the filing. Murray Capital sold the debt when its value started to fall. The firm, which also held stock in Exide, lost more than $2 million on its investments. Of this, $1.4 million was underwritten by Deutsche Bank Securities.