OppenheimerFunds wins end of $767 mln AAArdvark lawsuit

Thu Apr 11, 2013 10:39am EDT

* Lenders say misled into funding arbitrage system

* Judge finds no losses were incurred

By Jonathan Stempel

April 11 (Reuters) - OppenheimerFunds Inc has won the dismissal of a $767 million lawsuit by lenders that said it fraudulently induced them to fund an arbitrage system known as AAArdvark, despite knowing of several breaches that excused the funding.

In a decision made public on Wednesday, New York State Supreme Court Justice Charles Ramos said Oppenheimer, a unit of Massachusetts Mutual Life Insurance Co, could not be liable because the lenders had failed to show losses from AAArdvark Funding Limited IV ("AAArdvark IV").

Oppenheimer's law firm said the decision could affect the outcome of two similar lawsuits in the same court over other AAArdvark vehicles, where the requested damages top $2 billion.

The AAArdvark IV lawsuit was brought in 2010 by Bryant Park Funding LLC, Liberty Street Funding LLC and TSL (USA) Inc. Their funding agents included National Australia Bank Ltd, Bank of Nova Scotia and HSBC Holdings Plc.

Aaron Marks, a lawyer for the banks, did not immediately respond on Thursday to requests for a comment.

According to the complaint, the lenders agreed in September 2006 to provide up to $1.3 billion of funding for AAArdvark IV, in exchange for periodic interest payments.

The lenders said that over the next year, Oppenheimer concealed multiple breaches, including one related to the mortgage lender Countrywide Financial Corp.

But they said Oppenheimer kept issuing funding notices that allowed AAArdvark IV to obtain more money, even as credit conditions began to tighten.

The lenders said they eventually learned of the breaches and that AAArdvark IV was not earning enough to make required interest payments. They said Oppenheimer refused to return the $767 million that had been funded, prompting the lawsuit.

Oppenheimer countered that any problems at AAArdvark IV did not result in any losses for the banks.

Ramos agreed, likening the lenders' claims to letting a provider of a mortgage that was based on a false appraisal recover full damages before obtaining proceeds from the sale of the underlying property at foreclosure.

"Remarkably, it is not disputed by the lenders that the portfolio is still performing as expected," the judge wrote. "The lenders' present theory of money damages is simply too speculative.... The lenders have failed to demonstrate that they have suffered an actual, as opposed to a possible, injury."

Ramos dismissed the fraud claim with prejudice, meaning it cannot be brought again, and the breach of contract claims without prejudice. He gave the lenders 30 days to sue again.

Among the funding agents in the other two AAArdvark-related lawsuits are France's Credit Agricole SA and Dutch lender Rabobank, court papers show.

The case is TSL (USA) Inc et al v. OppenheimerFunds Inc et al, New York State Supreme Court, New York County, No. 600976/2010. The other cases are TSL (USA) Inc et al v. OppenheimerFunds Inc et al, No. 651938/2011; and Royal Park Investments SA/NV v. OppenheimerFunds Inc et al, No. 653111/2011.

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