Court Dismisses Claim of Fraud in ‘Credit Default Swap’ Lawsuit

By Lewis Tesser and Timothy Nolen

A recent decision from the Supreme Court, Appellate Division, First Department, demonstrates the importance of due diligence and thorough financial and legal review in business negotiations. The cases involved issues of business law, corporate law, contracts and fraud.

The case, HSH Nordbank AG v. UBS AG, NYLJ 1202547346310 (1st Dept, March 27, 2012), involved a suit between financial giants regarding a credit default swap transaction (where, in exchange for premium payments, one party assumes the risk of a portfolio consisting of real estate securities). HSH alleged that UBS engaged in fraud by misrepresenting that the securities were less risky than they actually were. In granting UBS’ Motion to Dismiss, the Court noted that both parties were sophisticated financial institutions, had agreed that HSH was purchasing the securities based on its own professional judgment, and that the information available to assess the riskiness of the securities was available public information.

At Tesser, Ryan & Rochman, LLP, our attorneys have decades of experience reviewing and analyzing business agreements and advising clients regarding complicated business transactions. We can advise clients about issues to address before engaging in various types of commercial transactions.