Carlyle Group faces $1bn lawsuit over failed fund
CARLYLE Group is being sued by the liquidators of a failed mortgage-securities fund that was 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 directors of the mortgage-securities fund, Carlyle Capital Corp, breached their fiduciary duty to investors in the more than $1bn (£659m) fund, which collapsed in 2008.
The fund, set up in 2006, was publicly traded in Europe beginning in July 2007.
A copy of the complaint alleges that in the “short space of eight months the entirety of CCC’s capital 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 $21bn of mostly residential mortgage securities.
In 2007, the fund generated about $20m in fees for the private equity firm, according to the liquidators with the restructuring firm Begbies Traynor.
When Carlyle Capital collapsed in March 2008, it had more than $16bn of debt — mostly loans extended by banks.
“This suit is without merit. We will vigorously contest all claims and are confident we will prevail,” said Carlyle Group spokesman Christopher Ullman.
This is the second time Washington, D.C.-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 lost his entire $20m investment in Carlyle Capital. Huffington is the former husband of HuffingtonPost founder Arianna Huffington.
The lawsuit by the liquidators alleges Carlyle Capital was overly leveraged and and relied on too much short-term borrowing to invest in mortgage-backed securities at a time the US housing market was dipping.