OppenheimerFunds Inc. has beaten back a $767 million fraud and breach of contract case over an arbitrage system it oversaw for big banks. Manhattan Supreme Court Justice Charles Ramos, in TSL v. OppenheimerFunds, 600976/10, on April 10 dismissed claims by a trio of banksBank of Nova Scotia, HSBC and National Australia Bankalleging that Oppenheimer induced them to fund an arbitrage system known as AAArdvark Funding Limited IV. Ramos concluded that the banks could not point to any actual monetary injury.
Before the financial crisis, Oppenheimer agreed to serve as administration agent for a handful of arbitrage systems, including AAArdvark. The investment vehicle allowed big banks to arbitrage the difference between commercial paper interest rates and interest rates of AAA-rated bonds. If the securities undergirding the investment vehicle didn’t meet certain conditions, Oppenheimer had a contractual duty to tell the banks, which in turn were allowed to pull the plug on the investment vehicle. The banks pointed to four specific instances in which Oppenheimer allegedly failed to disclose.
