Mashreq and ING Group settle on ‘toxic’ securities investment

The dispute centres on a $43 million loss sustained by Mashreq, which it attributed to investments made against its instructions in derivative products by ING before the global economic downturn. Satish Kumar / The NationalShow less

Dubai's Mashreq has reached a provisional settlement with ING Group in their dispute over a multimillion dollar soured investment.

A final settlement in the case, which is before the New York courts, is expected to be filed by the end of the month, according to court filings.

The dispute centres on a US$43 million loss sustained by Mashreq, which it attributed to investments made against its instructions in derivative products by ING before the global economic downturn.

“The parties have reached a settlement in principle,” ING’s lawyers said in a letter addressed to the US district judge Lorna Schofield on March 31.

The two institutions are currently working to finalise the settlement, “and will file with the court a stipulation dismissing the case with prejudice no later than April 30, 2014”, the letter continued.

A case dismissed with prejudice cannot be reopened.

The settlement agreement follows the referral of the case to a settlement court in January, after both parties agreed to use such an approach in December.

It is unclear as to which side initiated settlement discussions, or what the key points of the settlement agreement are.

Mashreq and ING did not respond to requests for comment.

Mashreq initiated legal proceedings against ING in April 2013 over a $43m loss linked to investments in derivative securities, claiming fraud, breach of contract and breach of fiduciary duty by the Dutch asset manager.

The bank claimed that ING ignored Mashreq’s exposure limits on risky assets, and invested the bank’s money in a range of securities that included collateralised debt obligations (CDOs) and collateralised loan obligations (CLOs), expressly against the bank’s stated intentions.

“ING proceeded to pack Mashreq’s account 70 per cent full of 11 toxic, illiquid ‘structured securities’ based on pools of loans cast off by investment banks, securities that Mashreq had emphatically instructed ING not to include in the portfolio,” the bank’s complaint alleged.

These claims were rejected by ING.

In October judge Schofield turned down an attempt by ING to dismiss Mashreq’s complaint in its entirety, but also dismissed Mashreq’s breach of fiduciary duty and fraud claims as duplicative of the contract claim.

The dismissal of the two claims means that Mashreq cannot pursue punitive damages on top of its $43m claim, given that New York law does not allow for these on a breach of contract claim.

ING is represented in the case by Paul, Weiss, Rifkind, Wharton & Garrison, while Mashreq is represented by The Mehdi Firm.

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