x Abu Dhabi, UAEThursday 27 July 2017

Dubai’s Mashreq in settlement talks with ING over investment ‘trickery’

Mashreq enters settlement talks in New York with ING over a US$43 million lawsuit.

Dubai’s Mashreq has agreed to settlement discussions in a lawsuit that it brought against ING Group in a New York court.

Court documents indicate that the US district judge Lorna Schofield last month referred the suit, launched by Mashreq in April, to a settlement court in New York, after a request from both parties made in December to go down the alternative dispute resolution track.

It is unclear which side initiated settlement discussions, or whether such discussions will prove successful.

A court document from May said that the parties had previously engaged in direct discussions concerning settlement, but that they did not believe that alternative dispute resolution mechanisms would be constructive at that stage.

An initial settlement conference before a new judge had been provisionally scheduled to take place on February 11. However, such a meeting is now more likely to take place next month, after a request for adjournment was made by ING’s lawyers on Thursday.

Mashreq and ING and their legal representatives declined to comment.

Mashreq launched legal action against ING in April over a US$43 million loss linked to investments in derivative securities, claiming fraud, breach of contract and breach of fiduciary duty by the Dutch asset manager.

The bank claimed that ING ignored Mashreq’s exposure limits on risky assets, and invested the bank’s money in a range of securities that included collateralised debt obligations (CDOs) and collateralised loan obligations (CLOs), expressly against the bank’s stated intentions.

“ING proceeded to pack Mashreq’s account 70 per cent full of 11 toxic, illiquid ‘structured securities’ based on pools of loans cast off by investment banks, securities that Mashreq had emphatically instructed ING not to include in the portfolio,” the bank’s complaint alleged.

“Mashreq emphatically rejected and crossed out ING’s key proposal: ‘Expressly allow CDOs, CBOs [collateralised bond obligations], CLOs, and other structured products’,” the complaint said. But a revised investment mandate contained “nothing more than trickery designed to convince Mashreq to keep its money with ING”, the complaint added.

ING rejected the bank’s claims.

In October judge Schofield turned down an attempt by ING to dismiss Mashreq’s complaint in its entirety, but also dismissed the bank’s breach of fiduciary duty and fraud claims as duplicative of the contract claim.

The dismissal of the two claims means that Mashreq cannot pursue punitive damages on top of its $43m claim, as New York law does not allow for punitive damages on a breach of contract claim.

Mashreq was among a number of investors that sued Bank of America’s Countrywide unit in June 2012, claiming that they were misled into buying risky mortgage debt

Bank of America reached a $500m settlement with the investors in April, which was confirmed by a judge in December.