Black Diamond Wins $297M Ruling Against Barclays

Oct 25 2013 | 12:56pm ET

Barclays owes Black Diamond Capital Management nearly $300 million after a New York court found that it had breached a derivative agreement with the hedge fund.

The Supreme Court Appellate Division, in a divided opinion, overturned a lower-court ruling that threw out Black Diamond's suit, and additionally found that Barclays had defaulted on a $40 million collateral call made by a Black Diamond fund in 2008.

"The evidence in the record undeniably shows that Barclays failed to pay the undisputed amount by the deadline, and establishes as a matter of law that Barclays did not comply with the [contract's] dispute-resolution process," Judge Peter Tom wrote for the majority.

When Black Diamond's BDC Finance fund made the collateral call, Barclays disputed the amount sought, and sent the hedge fund just $5 million. BDC then declared the bank in default and demanded the return of all of its collateral.

The court found that Barclays had actually violated the agreement twice: It missed BDC's deadline when it paid the $5 million, and its agreement required it to pay the entire amount sought before disputing it.

Black Diamond is seeking more than $300 million.

"We are disappointed with the court's decision," Barclays said. "We are evaluating our options with respect to an appeal," which would go to New York's highest court, the Court of Appeals.

Two members of the five-judge panel dissented from the majority, arguing that Black Diamond was the party violating the dispute-resolution procedures.

"Even if the 'potential event of default' is viewed as Barclays' failure to pay the return amount or notify BDC that it disputed the collateral and pay the undisputed amount, the notice gave Barclays two days to cure this failure and did not state that this could only be accomplished by paying the full return amount," judges Richard Andrias and Judith Gische wrote. "Thus, even if Barclays was in default, contrary to the majority's view, Barclays could cure by either paying the return amount or the undisputed amount."

The majority upheld the lower-court's dismissal of Barclays' counterclaims.


In Depth

Will Liquid Alts’ Performance Sustain Future Asset Flows?

Aug 25 2014 | 10:34am ET

Liquid alternative investment funds saw the highest percentage of capital inflows...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.