The New York Court of Appeals recently affirmed the dismissal of a suit by Oddo Asset Management, a French asset management company, against Barclays Bank involving the collapse of two highly leveraged structured investment vehicles, called SIV-Lites, comprised primarily of mortgage-backed securities.
In 2005 and 2006, Oddo invested $50 million in mezzanine notes issued by two Barclays-created SIV-Lites. Barclays selected the size and leverage of the SIV-Lites and also chose the collateral managers who would run them. In July and August 2007, Barclays sold at par a total of $974 million in sub-prime mortgage backed securities and an additional $637 million in other securities. Immediately after the acquisition, however, the two SIV-Lites allegedly suffered losses of $123 million and $505 million respectively. In August 2007, Standard and Poor's downgraded the ratings of both SIV-Lites from AAA to CCC. Oddo ultimately lost $43 million of its $50 million investment.
Oddo sued Barclays, S&P, and one of the collateral managers (the other collateral manager ceased all operations and was liquidated), claiming that the collateral manager had breached its fiduciary duty to the SIV-Lite investors and that Barclays and S&P aided and abetted those breaches. The Court, however, affirmed the rulings of both lower courts that there was no breach of fiduciary duty in which Barclays and S&P could aid and abet because the collateral managers of the SIV-Lites owed no fiduciary duty to Oddo as Oddo had no contractual relationship with the collateral managers and the SIV-Lites had no fiduciary duty to Oddo because debtors generally owe no duty to note-holding creditors.
Oddo Asset Management v. Barclay's Bank, PLC, No. 126 (N.Y. 6/27/12)