* Carlyle Capital’s collapse resulted in $1 billion in losses
* Lawsuit charges Carlyle with negligence
* Suit says Carlyle should have acted faster to save funds
NEW YORK, July 7 (Reuters) – The Carlyle Group is being sued by the liquidators of a bankrupt mortgage-backed securities fund set up by the private equity group, a spokesman for the liquidators said.
The lawsuit, which is being filed in the United States and Europe, alleges that Carlyle Group and the former administrators of the mortgage-backed securities fund, Carlyle Capital Corp, breached their fiduciary duty to investors in the $1 billion+ fund. dollars, which collapsed in 2008.
The fund, created in 2006, was listed on the stock exchange in Europe from July 2007.
A copy of the complaint alleges that in “a short span of eight months, the entire capital of CCC was spectacularly lost under the reckless and grossly negligent direction, supervision, management and advice of the defendants”.
At its peak, Carlyle Capital, based in Guernsey in the Channel Islands, managed $21 billion in primarily residential mortgage-backed securities.
In 2007, the fund generated about $20 million in fees for the private equity firm, according to the liquidators of restructuring firm Begbies Traynor.
When Carlyle Capital collapsed in March 2008, it had more than $16 billion in debt, mostly loans from banks.
“This trial is without merit. We will vigorously contest all claims and are confident that we will prevail,” Carlyle Group spokesman Christopher Ullman said.
This is the second time that Washington, DC-based Carlyle has been sued over the collapse of the mortgage investment fund.
A year ago, former California Republican congressman Michael Huffington sued Carlyle, claiming he had lost his entire $20 million investment in Carlyle Capital. Huffington is the former husband of HuffingtonPost founder Arianna Huffington.
The lawsuit filed by the liquidators alleges Carlyle Capital was too leveraged and relied on too much short-term borrowing to invest in mortgage-backed securities at a time when the U.S. housing market began to tumble.
The liquidators allege that Carlyle, in the second half of 2007, delayed taking the necessary steps to raise capital for the fund and sell some of its mortgage-related assets.
Carlyle Capital wasn’t the private equity firm’s only bad experience with residential real estate. A $900 million hedge fund created by Carlyle called Blue Wave also closed in 2008 after suffering heavy losses on investments in mortgage-backed securities.
Reuters reported in June that Blue Wave was an investor in a secured debt security called Timberwolf, underwritten by Goldman Sachs Group. The CDO Timberwolf, the subject of a recent congressional hearing, lost 80% of its value five months after Goldman began selling it to investors in the spring of 2007.
The Carlyle Capital lawsuit, which names the Carlyle Group’s investment management arm as a defendant, is being filed in Guernsey and in federal courts in New York, Delaware and Washington, D.C. (Reported by Matthew Goldstein; Editing by Maureen Bavdek and Steve Orlofsky)