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Note: Many investors in structured credit deals are anxiously awaiting the outcome of SEC investigations into a number of CDO transactions, hoping that they will be able to bring lawsuits of their own if the banks are forced to settle. But the statute of limitations means that they might have already left it too late.
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| FOR MOST PEOPLE, July 11 2007 was probably just like any other day. But for Robert Morelli, then head of the syndicate desk at UBS in New York, it was the beginning of the end of his industry. "Put today in your calendar," he emailed his colleagues after rating agency Moody's had put 184 CDO tranches on review for possible downgrade, explaining later that he sent the email because "today was essentially the beginning of the end of the CDO business... the bonds were getting downgraded, they were probably going to get downgraded further and we [UBS] were going to lose a lot of money". |
But even in early 2011 the end of that CDO business is still some way off. The deals themselves have long since collapsed but the legal fallout still lingers. It is now nearly four years since the structured credit market began to unravel but the number of successful lawsuits that have been brought against banks for fraudulent underwriting or sloppy due diligence in such deals can be counted on the fingers of not very many hands. According to data compiled by Kevin La Croix at Ohio-based Oakbridge Insurance Services, just 17 sub-prime and credit crisis class action suits have been settled since 2007, together with three Erisa lawsuits against Merrill Lynch, Countrywide and State Street.
Sixty-five class actions have been dismissed while 54 dismissals have been denied. (These figures relate to public actions, and there are likely to be an equal number if not more of private actions in the system as well.) But the deluge of cases that was expected from the sheer speed and severity of the markets' unravelling has simply failed to materialize. "The number of cases that has been brought is far lower than everyone was expecting given the number and complexity of the deals and the amount of blame that there was to go around," one litigation expert says. So...