A US-based fund, Cambridge Place Investment Partners, is suing 15 banks and prime brokers for allegedly using incorrect appraisals and phony loan applications when the banks sold $2.4B in mortgage-backed securities.
Cambridge Place, which is currently liquidating a trio of funds that invested in the subprime market, accused Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, among others, of selling it $2.4 billion in securities including mortgages from a “small group of now notorious subprime mortgage originators.” The Concord, Mass.-based firm said it lost half of its investment, alleging that the banks employed faulty appraisals and bogus loan applications to assure investors, facilitating an “environment of improper lending practices.”
“The Wall Street banks conducted inadequate due diligence and failed to satisfy their own responsibilities,” the hedge fund said in its lawsuit, filed in Massachusetts state courts on July 9.
Names of other banks mentioned in the lawsuit as defendants include JP Morgan, Credit Suisse, Deutsche Bank, Merrill Lynch, UBS, HSBC, Barclays and RBS.
The lawsuit filed in Boston alleged that banks were “complicit in creating an environment of improper lending practices” by having representatives on site at the mortgage lenders and gave them billions of dollars in credit.
The Wall Street bank defendants fostered the environment for, permitted, and profited from the mortgage originators’ rampant violations of sound lending practices. Driven to profit from the lucrative secularization business, the defendants demanded enormous volumes of loans, leading to erosion in lending standards, the suit said.
The complaint accused Barclays of improperly selling $141M of securities between 2005 and 2007, and HSBC of improperly selling $64M of securities between 2005 and 2006.
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