Tuesday, 22 July 2014
Last updated 2 hours ago
Oct 3 2011 | 12:40pm ET
A hedge fund must pay Wells Fargo & Co. more than $2 million to end a three-year-long dispute with the bank over a credit default swap.
Vanquish Capital Group's VCG Special Opportunities Master Fund is on the hook for the $1.02 million in collateral sought by Wachovia Corp., which has since been acquired by Wells Fargo, U.S. District Judge Laura Swain ruled. In total, she ordered the hedge fund to pay $2.1 million, including legal fees that actually exceeded the $1.02 million Wells Fargo claimed to be owed and interest.
VCG had claimed that Wachovia demanded higher-than-normal margin payments on a 2007 CDS—what began as $750,000 in collateral for a $10 million swap on a collateralized debt obligation rose to more than $10 million within several months. VCG sued Wachovia when it demanded a final $550,000 payment that would have pushed VCG's collateral in excess of the face value of the swap.
But Swain last year dismissed VCG's lawsuit and said it would have to pay Wachovia. Swain found that VCG's deal with Wachovia allowed it to demand collateral of $10.75 million—the original $750,000 plus the face value of the swap. VCG offered no evidence to counter that valuation, Swain ruled.
It is unclear if VCG plans to appeal the ruling. The Florida hedge fund has had little luck in the courtroom, last year also losing a claim that Citigroup "suckered" it into losing more than $18 million on the same CDS in the Wachovia case.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…