French investors urged New York's top court on Wednesday to reinstate their lawsuit over losing $43 million out of $50 million they put into two structured investment vehicles.
The investors claim Barclays Bank, Standard & Poor's and two management companies were complicit in leaving investors with plummeting securities shortly before the Wall Street collapse. Oddo Asset Management claimed collateral managers Avendis Financial Services Ltd. and Solent Capital Ltd. conspired with Barclays in early 2007 to transfer subprime mortgage-backed securities from Barclays to the two vehicles.
The investors also claimed S&P was complicit by confirming inflated note ratings for Golden Key Ltd. and Mainsail II Ltd.
A judge dismissed the suit, concluding the collateral managers had no fiduciary duty to Oddo, so Barclays and S&P could not be liable for abetting any breach.
"What Barclays knew was these assets were largely impaired," Oddo's attorney Geoffrey Jarvis argued. He said the bank solicited Oddo's investment in what was then a new type of vehicle and selected everyone else involved in it.
"They are the puppet master," he said.
Barclays attorney Lance Croffoot-Suede said the bank had no fiduciary duty to Oddo, wasn't a signatory to its contract and that the investors knew prices could drop and bore the risk. "We are one step removed from Oddo as it was supposed to be," he said.
The securities, when purchased for Barclays warehousing, were at a certain price, and when they were put into the vehicles they were allowed to remain at that price even if the market value dropped, Croffoot-Suede said. He warned that the court, by rewriting the law, could potentially be "expanding exponentially" the number of cases brought.
Attorney Dean Ringel, representing S&P, said the agency rates tens of thousands of issues each year.
"It is not in a position to aid and abet in the sense of knowledge and participating in some sort of fraudulent activity plaintiff alludes to," he said. Ringel said the court was being asked to impose a new kind of fiduciary duty that no New York court has ever recognized before.
Jarvis countered that the duty to investors remains the same, only the entities are different.
Judges questioned how they could contain that duty so it wouldn't be overly broad, and whether Oddo wasn't simply a note-holding creditor as the judge and a midlevel court concluded.
The Court of Appeals decision is expected next month.