A $1.6bn collateralized debt obligation issued by Vertical Capital LLC in March 2007 with the same name as a portion of the beach at St. Tropez, France, burned out just 228 days after it was issued.
The Pampelonne CDO II, underwritten by Barclays Plc, is one of dozens of deals listed in the Justice Department’s February 4th lawsuit against Standard & Poor’s that received the company’s highest AAA grade. The U.S. is accusing the world’s largest credit rater of deliberately misstating the risks of mortgage bonds to keep its share of the booming business of repackaging home loans for sale as securities.
Eastern Financial Florida Credit Union lost its investment after purchasing a portion of the Pampelonne CDO II, relying in part on S&P’s assessment of the securities, according to the complaint filed in federal court in Los Angeles. The U.S. is seeking penalties against S&P and its New York-based parent, McGraw-Hill Cos. that may amount to more than $5bn, based on losses suffered by federally insured financial institutions.
S&P was aware of its influence over such firms, and knowingly 'devised, participated in, and executed a scheme to defraud investors', according to the complaint.
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