N.Y. Supreme Court Grants Summary Judgment for 250 Capital in Credit-Crisis CDO Case

May.27.2020

The N.Y. Supreme Court granted summary judgment for our client 250 Capital LLC, a former subsidiary of Bank America, putting an end to a long-running collateralized debt obligation (“CDO”) case with more than $100 million at stake.  

The case against 250 Capital arose from the failure of a CDO called Auriga during the 2008 financial crisis. 250 Capital selected the collateral, consisting of residential mortgage-backed securities, and acted as CDO manager. Co-defendant Merrill Lynch structured and marketed the CDO.  Loreley Financing, an offshore, special-purpose entity, sued, contending that the defendants had designed Auriga to fail in order to benefit a prominent hedge fund that held a net short position in it and alleged 250 Capital deliberately selected collateral consisting of poor-quality, “toxic” mortgage-backed securities. Loreley sought more than $100 million.

After more than eight years of litigation, including a trip to the Appellate Division, the court on May 8 granted summary judgment on two independent grounds. First, it held that Loreley’s loss was caused by the market-wide financial crisis, not by the alleged selection of toxic collateral. Second, the court held that Loreley did not rely on statements by the defendants when it invested, but on input from its financial adviser. The case is Loreley Financing (Jersey) No. 28, Ltd. v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 652732/2011 (Sup. Ct. N.Y. County).

The team included partners Rich Morvillo and Andy Morris, associate Emily Luken and senior paralegal Lisa Temple.