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Silver Standard files ABCP suit against HSBC, DBRS

2008-07-31 21:14 ET - Street Wire

by Mike Caswell

Silver Standard Resources Inc. has filed an ABCP lawsuit against HSBC Bank Canada, alleging that HSBC failed to advise the company of the risks the notes carried. It says HSBC learned that ABCP notes had a materially higher risk in July, 2007, one month before the market for the notes collapsed, but did not notify it.

Silver Standard holds $57.7-million worth of ABCP notes.

The suit also names DBRS Ltd. as a defendant, and claims that the bond rating agency negligently failed to identify the risks of ABCP notes when it rated them R-1 high. Unlike earlier ABCP suits filed in B.C., this one is the first to name DBRS as a defendant.

Silver Standard's claim

The suit was filed in B.C. Supreme Court on July 23, 2008. According to the claim, HSBC advised Silver Standard to buy ABCP notes in 2003. In or about July, 2007, HSBC learned from a sponsor of ABCP paper that the risk of the notes had materially increased. Silver Standard says it was never advised of this change, and had it been so advised it would not have purchased any further ABCP paper.

Since the Aug. 14, 2007, liquidity crisis, the value of Silver Standard's ABCP paper has been substantially reduced, the company claims.

Silver Standard also says that DBRS failed to identify or properly assess the risks of ABCP paper. "To the knowledge of DBRS, its ratings were relied upon by members of the public," but the rating agency failed to take reasonable care to assess ABCP risks, the suit alleges.

"Had DBRS taken reasonable care ... it would have refused to rate the paper," or it would have given it a rating lower than R-1, the suit states.

Silver Standard is seeking damages, plus interest and court costs. The company is represented by Stephen Schachter of Nathanson, Schacther & Thompson LLP.

ABCP collapse

The market for ABCP notes collapsed in August, 2007, because of fears that the notes had high exposure to risky U.S. mortgages. As a result, $32-billion in ABCP notes were frozen and a committee was struck to restructure the notes.

The committee, which was headed by Purdy Crawford, proposed swapping the notes for longer-term floating rate notes, which would mature in nine years. The proposal was approved by noteholders at an April 25, 2008, meeting held in Toronto, but there were some dissenters, who are opposing the settlement in court.

They disagreed with one of the key aspects of the proposal, sheltering institutions from lawsuits. Several noteholders, representing about $5-billion of ABCPs, wanted to retain the right to sue.

In spite of their objections, Ontario Superior Court Justice Colin Campbell approved the restructuring on June 5. He allowed ABCP holders to sue only if they can make a case for fraud.

The decision was appealed to the Ontario Court of Appeal, which heard from all parties on June 25 and June 26. It has yet to issue a ruling, leaving ABCP notes still frozen.

Several other ABCP lawsuits, including seven against Canaccord Capital Corp., were filed earlier this year in B.C. Supreme Court. The brokerage offered to buy out 1,430 small clients that it put into ABCPs at par. The offer applied to all those with holdings of $1-million or less.

Of the 1,800 small investors, 1,400 were at Canaccord. Another 335 were with Credential Securities Inc., an investment dealer representing Canadian credit unions, and were bought out on the same terms as those at Canaccord.

Companies such as Silver Standard were not offered any buyouts.

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Nice work, Mike.

Going after $57 million AND using Stephen Schachter of Nathanson, Schacther and Thompson LLP. The HSBC Bank Canada should sit up and take notice.

"Nathanson, Schachter and Thompson LLP is a Vancouver law firm specializing in corporate and business litigation. We represent clients in complex commercial disputes such as: Mining claims Shareholders’ disputes Hostile take-over bids and derivative actions Securities matters Class and representative proceedings Pension litigation Actions for professional negligence Administrative proceedings The Canadian Legal Lexpert Directory, which identifies leading law firms and lawyers in Canada, ranks Nathanson, Schachter and Thompson LLP as one of the two the "most frequently recommended" corporate commercial litigation boutiques in Vancouver. The Chambers Global Guide 2008 ranks Nathanson Schachter and Thompson LLP, along with two others, first among litigation firms in Vancouver, stating that the firm "remains firmly in the top tier". Both publications rank individual partners of the firm as leading commercial litigators.

http://www.nst.bc.ca/