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| A hedge fund claims it has lost most of its investments in mortgage-backed securities issued by Ameriquest Mortgage Co. and has filed a lawsuit claiming that it was misled about the investments. The fund has also sued Wells Fargo Bank, N.A.Ellington Management Group LLC and some of its affiliates filed a lawsuit on Jan. 14 in U.S. District Court for the Southern District of New York against Ameriquest and some of its affiliates, according to a copy of the complaint. Ellington is an investment fund based in Old Greenwich, Conn.
In prospectuses and other documents filed with the Securities and Exchange Commission on $354 million in MBS purchased by Ellington, the defendants allegedly misrepresented the investments. Ellington primarily invested in net interest margins — the riskiest MBS slice. Ellington claims it never knew that Ameriquest was boosting its originations by taking more risk than it purported in investment marketing materials. The undisclosed higher risk enabled Ameriquest to fetch more than the true value of the securities from investors. As defaults accelerated in 2007, Ellington requested documentation on the loans from Ameriquest — which provided files on some of the mortgages — the complaint says. An analysis of those files indicated that Ameriquest had not adhered to its own stated guidelines. Income verifications were missing, late mortgage payments were ignored and predatory lending laws were violated. “These deficiencies are so apparent that they would have been readily discovered had the mortgage company defendants conducted even a minimal compliance review,” the plaintiffs claim. The investment firm alleges the loans performed far worse than expected and its investment “was largely lost.” Orange, Calif.-based Ameriquest, which disclosed in August 2007 that it was shutting down, was founded by Roland Arnall — who died in March 2008. A response to the complaint from Ameriquest was not yet on file. Another lawsuit was filed earlier this month by Ellington against Wells Fargo Bank, N.A. The San Francisco-based bank generally denied all the allegations in that lawsuit, which was also filed in U.S. District Court for the Southern District of New York. Wells noted it acted in good faith at all times based on the information available to it. Ellington Management Group, L.L.C.; Ellington Overseas Partners, Ltd.; Ellington Mortgage Investors, LP; Ellington Mortgage Partners, L.P.; Ellington Credit Fund, Ltd.; Ellington Long Term Fund, Ltd.; and Ellington Special Opportunities, Ltd., Plaintiffs, v. Ameriquest Mortgage Company; Ameriquest Mortgage Securities Inc.; Argent Mortgage Company, L.L.C.; Argent Securities Inc.; ACC Capital Holding Corporation; and Ameriquest Capital Corporation (now know as SBP Capital Corporation), Defendants. SHS Ellington Credit Fund, Ltd, Plaintiff, v. Wells Fargo Bank N.A., Defendant. |
