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UK banks face £1.6 billion Wall Street lawsuit

UK banks such as HSBC, Barclays and Royal Bank of Scotland are amongst 15 banks facing a lawsuit from US-based Cambridge Place Investment Partners in what could become a very influential test case. The UK giants are joined by JP Morgan, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, UBS, Goldman Sachs and Morgan Stanley, all facing claims that they mis-sold around £1.6 billion of mortgage-backed securities.

There are accusations that appropriate due diligence was not carried out by the various banks listed above before packaging mortgage and loan instruments into new financial arrangements. There are also very serious accusations that "the truth was bent" and there were "untrue" comments in various prospectuses and sales pitches. While there is no doubt that problems with the sub-prime mortgage market were behind the credit crunch and the resulting worldwide recession, to claim that untrue statements accompanied the various prospectuses and sales pitches are very serious accusations.

Many experts believe that the lawsuit could become something of a test case and open the floodgates for similar claims if proven to be successful. We could also see information released into the market place which has until now remained confidential, something which could scupper plans for similar financial instruments in the future.

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