International Law

Assigning Blame after Magic Fails

Vikas Bajaj writing at the New York Times has a story about something for nothing.

"Like so many investments that Wall Street concocted in recent years, Gemstone was fashioned from subprime dross.

The M&T Bank Corporation, which got the sales talk and subsequently bought into the investment, lost $80 million.

At issue now is who should bear responsibility for those losses. Should it be Gemstone's creator, Deutsche Bank, which had sold mortgage investments to customers like M&T Bank while encouraging others to bet against them? Or should it be M&T, which had invested in Gemstone, an instrument known as a collateralized debt obligation, and taken the risks?

The two banks are arguing over these questions in a lawsuit in upstate New York.

M&T Bank says it was duped.

Deutsche Bank representatives portrayed Gemstone as safe -- "fully rock solid," and "a layup," M&T contends in its complaint.

The German bank counters that M&T executives entered into the investment as consenting adults, and that they knew, or should have known, the risks they were taking."

Nothing better than a clear example about why so called rich investors still need to do their own due diligence.

Full post as published by Misleading Advertising Law on January 22, 2009 (boomark / email).