District Judge Harold Baer
Woori Bank claimed defendants—financial institutions affiliated with the Royal Bank of Scotland—fraudulently and negligently misrepresented the value and risks associated with $80 million in collateralized debt obligations (CDOs) partly comprised of residential mortgage backed securities (RMBS). It also alleged defendants concealed or improperly disclosed their illegal participation in efforts to manipulate and artificially suppress the London Interbank Offering Rate on which CDO investment returns were pegged. District court dismissed the suit, finding Woori failed to state a claim for fraud, negligent misrepresentation or unjust enrichment. In concluding that fraudulent intent could not be strongly inferred, the court noted that Woori’s complaint did not allege defendants marketed CDOs to Woori while shorting assets comprising the CDOs. Deeming the parties’ dealings a “standard arm’s-length [financial] transaction” the court—which found no privity of contract requiring defendants to protect Woori from purely economic losses—was not persuaded that RBS, by virtue of greater experience in the RMBS business, possessed expertise significantly greater than Woori and was somehow obligated to share that expertise with Woori.