Billionaire Banker Beal’s Latest Bet: Teamwork on Bonds


Mr. Beal’s CXA Corp. ran a pair of advertisements late last year, one appearing in The Wall Street Journal. The ads listed an alphabet soup of residential mortgage-backed securities held by CXA and asked those with positions in the same securities to join the company in investigating possible infractions by banks that sold the debt.

If the groups can prove the mortgages that underlie the bonds were approved through shoddy underwriting, they could be entitled to compensation—CXA’s payday alone could be tens of millions of dollars.

To have a chance at prying money from the banks, CXA needs to gather investors holding 25% of the voting rights in an outstanding issue. The investors can then try to get banks to buy back any loans they say are faulty, for example for misrepresenting the quality of the borrowers.

Mr. Costas says the firm has signed on enough investors in seven of the 93 mortgage-backed securities held by its CXA Corp. unit to take action. He declined to identify those investors who had joined the group.
Sellers of the bonds include units of Bank of America Corp., BAC -1.25% Deutsche Bank AG, DBK.XE +0.93% Citigroup Inc., C -1.10% Goldman Sachs Group Inc.,GS -0.05% Morgan Stanley MS -1.32% and J.P. Morgan Chase JPM -0.85% & Co. Representatives at these firms declined to comment.

And here was the advertisement:

CXA Advertisement in Wall Street Journal Recruits Fellow RMBS Investors for Investigation of Rep & Warranty Breaches

By Structured Finance Litigation Team on November 8th, 2012Posted in Beal Bank, Citigroup, CXA Corporation, Goldman Sachs, Institutional Investors, Investment Banks/Deal Sponsors, Morgan Stanley, Washington Mutual

On November 8, 2012, CXA Corporation, a subsidiary of Dallas, Texas-based Beal Bank USA, placed an advertisement in the Wall Street Journal calling for other investors to join its investigation into possible breaches of representations and warranties in loans underlying RMBS in which CXA invested. According to the advertisement, the list of securities at issue includes RMBS from Citigroup, Goldman Sachs, Morgan Stanley, Washington Mutual, and others, issued between 2004 and 2007. CXA ran a similar advertisement in October in ABS Daily — a publication circulated at the ABS East conference. As noted previously by Debtwire, Lowenstein Sandler represents CXA on its RMBS portfolio, including most of the transactions listed in the advertisement.

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