Not surprisingly, the dramatic downturn in the housing markets and the broader credit markets generally has resulted in a wave of litigation involving a variety of complex financial products as market participants scramble to limit or recoup losses. This article focuses on recent litigation arising from one such financial product, the collateralized debt obligation (or CDO).
Generally, CDO-related litigation falls into two broad categories: (i) suits brought to resolve contract disputes between transaction participants and (ii) suits wherein investors essentially allege, among other things, that the CDOs at issue were actually schemes perpetrated by the transaction’s sponsors to dupe investors out of their money. A basic understanding of a CDO transaction is necessary to understand these disputes. Due to the complexity of, and variations among, CDO transactions, the following descriptions are necessarily general in nature.
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