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Firm Represents Major Investors Associated with Subprime Collapse

Winter 2010

Richard Drubel

BSF has taken a prominent role in securities litigation arising from the collapse of markets for subprime and other mortgage-backed securities.  Led by partners Richard Drubel and Philip Korologos, BSF is representing major investors in individual actions against two of the companies most prominently associated with the subprime collapse: Countrywide Financial and Bear Stearns.

In the case against Countrywide, BSF represents the off-shore hedge fund SRM Global Fund Ltd. Partnership, a major Countrywide investor, against not only Countrywide and certain key executives, but also Bank of America, which eventually acquired Countrywide at a fire-sale price.  The case, in which SRM seeks hundreds of millions of dollars in damages, arises out of alleged fraudulent misrepresentations and omissions by the defendants concerning Countrywide’s business and risk-management practices and the company’s financial strength and liquidity position.  SRM alleges that defendants continued to tout Countrywide’s strengths for nearly a year after Countrywide had, according to statements actually made by Countrywide executives to SRM, lost its liquidity and ceased to be viable. 

BSF also represents Bruce S. Sherman, former CEO of the asset management company Private Capital Management, in an individual securities action against Bear Stearns, two of its executives, and Deloitte & Touche, its auditor.  Formerly Bear’s most visible investor, Sherman seeks tens of millions of dollars in damages for personal investment losses arising from Bear’s sudden collapse in March 2008.

Sherman brings claims under Section 18 of the Securities & Exchange Act of 1934 and under the common law of New York that are exceedingly difficult to assert in a class action because they require plaintiffs to show individual reliance.  As a result, such claims are relatively rare in securities litigation, yet they offer important advantages to individual investors such as Sherman.  Section 18 does not require an investor plaintiff to show intent on the part of defendants—thus removing a critical hurdle for securities plaintiffs—while New York’s common law, unlike the federal laws, does not require an investor plaintiff to have purchased or sold securities during the fraud; it is enough that during the fraud an investor like Sherman retained earlier-purchased securities.  

Joining Drubel and Korologos in working on the securities litigation are associates Matthew Henken and Ethan Frechette.

Related Lawyers: Richard B. Drubel Jr., Philip C. Korologos, Matthew J. Henken

Related Practice: Securities Litigation