Dallas Business Journal:
A federal judge in Dallas has tossed out a lawsuit by Lone Star Funds against Barclays Bank plc and Barclays Capital, which the Dallas private equity firm accused of fraudulently selling it securities backed by delinquent residential mortgages.
In court documents, Lone Star says it is appealing. Lone Star and Barclays both declined to comment.
In the case, originally filed in Dallas County district court in January, Lone Star claimed that it bought about $60 million of securities backed by residential mortgages from Barclays. Barclays told Lone Star that the mortgages were in good standing, court records stated.
But after the purchase, Lone Star discovered that a “material” number of the mortgages were delinquent at the time of the sale, court records claim. That affected both the income stream from the securities and their value, Lone Star’s petition says, adding that Barclays used the securities “to unload troubled mortgage loans, all at Lone Star’s expense.”
Lone Star claimed in court records that roughly 5.6% of one pool of residential loans — or about $2.52 million — were delinquent. About 15.7% of another pool were delinquent, or $2.48 million.
Lone Star claimed that Barclays had violated state and federal securities laws and engaged in fraud.
On Sept. 30, U.S. District Judge Sam Lindsay ruled that the securities’ “offering documents” — which laid out promises Barclays made — required Barclays to repurchase or substitute any loans found delinquent. But the ruling said Lone Star did not allege that Barclays failed to live up to this provision. Therefore, Lindsay ruled, no violation of law occurred.
Larry Mandala, chairman of the corporate transactions and securities practice group at Munck Carter in Dallas, says the Lone Star case is one of a number of suits brought by private equity firms that lost money in the recent credit crisis.
“They’re just like any other party who purchases an investment that goes bad. They’re looking for ways to try to get their money back,” he says.