First Quantum sues HSBC over ABCPs
2008-04-18 19:20 ET - Street Wire
Shares issued 68,161,722
FM Close 2008-04-17 C$ 91.82
by Mike Caswell
First Quantum Minerals Ltd. is suing its investment adviser, HSBC Bank Canada, over asset-backed commercial paper the company holds. The suit, filed in B.C. Supreme Court on April 16, 2008, claims that HSBC recommended that the company invest $11.3-million of its excess cash in ABCP notes, such as the Rocket Trust, between July 13, 2007, and July 23, 2007.
According to the suit, First Quantum has employed HSBC as its investment adviser since 2002, and has relied on the bank's advice in that time. The company says it discussed putting its excess cash into conservative, short-term investments around 2002.
On HSBC's advice, it began investing that excess cash in ABCP notes on a revolving basis. Each time one of the notes matured, HSBC would advise First Quantum that it buy another.
In July, 2007, HSBC recommended that First Quantum invest in four series of ABCP notes, the suit claims. The notes had yields between 4.6 per cent and 5.3 per cent.
Upon the notes reaching their maturity dates, the company expected to receive the return of its principal amount, plus the earned interest. The company claims that the investments matured, but the note issuers (the Rocket Trust, the Slate Trust and the Selkirk Fund) failed to make the payments.
The suit alleges that HSBC owed the company a duty of care. The bank was obliged to investigate the underlying assets, warn First Quantum of any risks and refuse to buy ABCP notes which did not meet the company's conservative investment strategy.
The company says HSBC acted negligently and failed to perform its duties. It also claims that the bank knew or ought to have known that injury to First Quantum was likely to result.
First Quantum alleges that HSBC was negligent in representing that the investments conformed with its conservative investment strategy. Were it not for HSBC's recommendations, First Quantum says it would not have invested in the notes. The company says it has suffered damages from its inability to recover payments from its investment and the diminution of the realizable value of its ABCP investment.
First Quantum is seeking general and special damages, plus interest and costs. The company is represented by Daniel Bennett of Bull, Housser & Tupper LLP.
ABCP restructuring
A committee led by lawyer Purdy Crawford has been touring the country recently, attempting to sell investors on a restructuring plan for ABCP notes, which have been frozen since last August. If approved, it would see investors receive new notes that mature in nine years, with a level of risk tied to their original investment.
One of the conditions of approval is that investors must drop any ABCP lawsuits they have filed. Investors are due to vote on the plan on April 25.
Canaccord Capital Corp., which is also facing a lawsuit over an ABCP investment, offered on April 9 to buy out 1,430 of its clients that bought the notes. |
