Court rejects SEC claim against BT Alex. Brown


January 01, 1998

A federal appeals court has rejected a claim by the Securities and Exchange Commission that BT Alex. Brown Inc. should face a $1 million lawsuit by a client that accused it of overcharging for debt securities.

The U.S. 4th Circuit Court of Appeals in Richmond, Va., upheld a lower court's decision that dismissed a lawsuit against BT Alex. Brown filed by Banca Cremi SA, a defunct banking company in Mexico City.

Banca Cremi alleged that it lost $23 million in investments in risky mortgage-backed securities, known as collateralized mortgage obligations, even though it told BT Alex. Brown that it wanted to invest only in low-risk securities.

Brown also failed to disclose the extent to which it marked up the securities, the bank alleged.

In his decision Tuesday, Judge Frank J. Magill said Banca Cremi's allegations lacked proof that a "disclosed markup would have mattered." Magill also said Banca Cremi knew that investments in CMOs were very risky.

"It is a full victory on all counts, on all allegations," said Robert Hoyt, the Washington lawyer who represented BT Alex. Brown.

Pub Date: 1/01/98

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