CQS Sues Over MBIA Restructuring

Sep 12 2012 | 12:09pm ET

Aurelius Capital Management may have settled its dispute with MBIA Inc., but that isn't stopping CQS from trying its own hand at suing the bond insurer.

CQS on Monday filed suit against MBIA, taking issue with its 2009 reorganization plan. The hedge fund acknowledged in its suit that its complaint was related to a 2009 class-action filed by Aurelius and Fir Tree Partner.

That lawsuit alleged that MBIA's move to split its U.S. municipal bond business from its structured finance business helps only MBIA's investors, executives and municipal bond policyholders, while looting the owners of $240 billion in debt insured by MBIA and the federal government, which bailed the firm out. CQS' lawsuit adds evidence gleaned from a recent regulatory trial—and takes advantage of the fact that the judge in that case has yet to issue a ruling that could have precluded a class-action.

CQS didn't merely try to echo Aurelius' now-settled arguments, it all but sought to take them over. The hedge fund tried—and failed—in July to intervene in the case, seeking the benefit of the discovery Aurelius' lawyers had already made.

"You're basically looking to bootstrap claims you could have brought earlier as an individual and didn't for whatever reason," U.S. District Judge Richard Sullivan told White & Case, CQS' lawyers. "That is not a good enough reason for me to allow you to intervene."

At the same hearing, MBIA's lawyer argued that White & Case has a conflict of interest in the case and shouldn't be allowed to represent CQS: Marc Kasowitz said that the law firm had worked for MBIA and even advised its affiliates on the 2009 restructuring.


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