US - Pension funds have started seeking compensation for losses they suffered during the sub-prime crisis by suing financial institutions which took a hit to their share price as result of their investments.
The Boston-based Plumbers Union Local No 12 Pension Fund and New York-based Teamsters Local 807 Pension Fund have filed complaints against Swiss Re and monoline insurer MBIA, respectively, over their investment strategy.
As lead plaintiff, the Plumbers Union alleged "defendants failed to disclose Swiss Re's Credit Solutions unit had written two credit default swaps that exposed the company to great financial risk".
Swiss Re, the world's largest reinsurer, saw its share price plummet CHF10 (US$9.51) in one day following the disclosure it had guaranteed some mortgage-backed securities, which included sub-prime and collateralised debt obligations (CDOs).
Teamsters filed a complaint alleging MBIA had left its traditional municipal bonds market after being lured by CDOs, including sub-prime products, which offered larger profits and higher growth rates.
The complaint, filed by Teamsters, stated MBIA "issued materially false and misleading statements regarding the company's business and financial results related to its insurance coverage on CDO contracts".
During the third quarter of 2007, MBIA said it had lost $352.4m, which was mostly attributable to its insured credit risk portfolio which included sizable CDO exposure.
The complaint document detailed rating agency Moody's belief in December 2007 that the insurer had become more likely to be hit by the credit crunch due to these investment decisions, which led to a 15% fall in share price.
These cases were both filed in the last week of February as pension funds took stock of the damage their funds suffered by holding shares in these institutions rather than investing in specific funds.
No one at lead counsel Coughlin Stoia Geller Rudman & Robbins, the pension plans or companies against whom the complaints was filed was available for comment at the time of going to press.
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