The Sub-Prime Mortgage Debacle and Lawsuits – Closer Than You Think?

A bankruptcy trustee has filed suit against major investment banks claiming that their lax practices shored up a third-party lender.

Philadelphia-based American Business Financial Services Inc. went bankrupt 3 years ago and investors, many of them elderly individuals, lost about $750 million says the Wall Street Journal reported in a front-page article on 4/9/08.

From this article in the ABA Journal:

Although the defendant investment banks—which include Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley—apparently had no direct duty to individual holders of notes that ABFS issued, the trustee claims the investment banks are responsible for helping ABFS inflate the value of securitized subprime loans that ABFS also made, according to the newspaper. Thus, the trustee contends, the investment banks are in part responsible for leading investors to believe that ABFS was on a stronger financial footing than it was when they purchased the notes.

The investment banks declined to comment for the newspaper article, but in pleadings deny any wrongdoing.

I don’t doubt that other trustees of large investment trusts that were similarly invested are watching this case closely. As am I.

0 Responses to “The Sub-Prime Mortgage Debacle and Lawsuits – Closer Than You Think?”

  • No Comments

Leave a Reply