Bloomberg reported a Guernsey Court ruled in favor of The Carlyle Group in a $1 billion lawsuit seeking damages for the Washington, D.C. based private equity underwriter (PEU). The suit "alleged that the partnership and fund’s board of directors were negligent, grossly negligent or had willfully mismanaged the pool and breached certain fiduciary duties." The court did not buy that argument for Carlyle's operation of Carlyle Capital Corporation:
Carlyle Capital was a leveraged mortgage-bond fund formed in 2006 at the height of the real estate bubble. The pool met its demise in March 2008 when its mortgage-backed collateral plummeted and the fund defaulted on $16.6 billion in debt.Bloomberg did not state how highly Carlyle leveraged the fund (32x) or that the fund went public on Euronext in July 2007. It also failed to note Guernsey's status as a tax haven. Having a court side with losing investors or bankruptcy liquidators against a global tax dodger could harm new incorporations. That would not do.
So the next time Carlyle comes calling with a highly leveraged fund based on bubble inflated assets know you don't stand a chance of getting your money back should it implode and Carlyle management will be held to no standard.
If you hear a sales pitch like this:
“superior risk- adjusted returns from investments in a diversified portfolio of fixed income investments” that “expects to pay investors 90 per cent of its net income, have net returns of 14.1 per cent and a projected net dividend yield of 12.5 per cent”Beware. The last group of suckers lost it all.
