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In Re: ) ) TMST, INC., F/K/A THORNBURG ) Case Nos

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In Re: ) ) TMST, INC., F/K/A THORNBURG ) Case Nos Case 09-17787 Doc 1333 Filed 04/30/11 Page 1 of 85 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND (Baltimore Division) In re: ) ) TMST, INC., f/k/a THORNBURG ) Case Nos. 09-17787, 17790-17792 MORTGAGE, INC., et al. ) Chapter 11 ) (Jointly Administered Under Debtors. ) Case No. 09-17787-DWK) ) ) JOEL I. SHER in his capacity as ) Chapter 11 Trustee for ) TMST, INC., f/k/a THORNBURG ) MORTGAGE, INC., TMST HEDGING ) STRATEGIES, INC., f/k/a THORNBURG ) MORTGAGE HEDGING STRATEGIES, ) INC., AND TMST HOME LOANS, INC. ) f/k/a THORNBURG MORTGAGE HOME ) LOANS, INC. ) and ) OFFICIAL COMMITTEE OF UNSECURED ) CREDITORS OF TMST, INC., ) ) Plaintiffs and Proposed ) Plaintiff Intervenors ) ) v. ) Adversary Proceeding No. ________ ) JPMORGAN CHASE FUNDING INC. ) (AS SUCCESSOR TO BEAR STEARNS ) INVESTMENT PRODUCTS INC.), ) CITI GROUP GLOBAL MARKETS LIMITED, ) CITIGROUP GLOBAL MARKETS, INC., ) CREDIT SUISSE SECURITIES (USA) LLC, ) CREDIT SUISSE INTERNATIONAL, ) RBS SECURITIES INC. (f/k/a GREENWICH ) CAPITAL MARKETS INC.), ) GREENWICH CAPITAL DERIVATIVES INC., ) ROYAL BANK OF SCOTLAND PLC ) AND UBS AG (AS SUCCESSOR TO UBS ) SECURITIES LLC), ) ) Defendants. ) __________________________________________) Case 09-17787 Doc 1333 Filed 04/30/11 Page 2 of 85 COMPLAINT Joel I. Sher, Chapter 11 Trustee (the “Trustee” or “Plaintiff”) for (i) TMST, Inc. f/k/a Thornburg Mortgage, Inc. (“TMST”), (ii) TMST Home Loans, Inc. f/k/a Thornburg Mortgage Home Loans, Inc. (“TMHL”), (iii) TMST Hedging Strategies, Inc. f/k/a Thornburg Mortgage Hedging Strategies, Inc. (“TMHS”), (iv) TMST Acquisition Subsidiary, Inc. f/k/a Thornburg Acquisition Subsidiary, Inc., (“TMAS”, and collectively with TMST, TMHL and TMHS, the Debtors”), hereby files this Complaint against JPMorgan Chase Funding Inc. (as successor to Bear Stearns Investment Products Inc.), Citigroup Global Markets Limited, Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Credit Suisse International, RBS Securities Inc. (f/k/a Greenwich Capital Markets Inc.), Greenwich Capital Derivatives Inc., Royal Bank of Scotland PLC, and UBS AG (as successor to UBS Securities LLC) (collectively, the “Defendants”), stating as follows: INTRODUCTION The Trustee and Committee bring this action seeking redress for the conduct occasioned by five of America's largest money-center banks who used market disruption as a justification to initiate a collusive scheme to take control of the Debtors and eventually drive them into bankruptcy. The Defendants worked in unison to secure economic leverage and control over the Debtors and seize TMST‟s only lingering source of income, fully aware that their actions would throw the Debtors into financial distress and ultimately force their bankruptcy. In March 2008, after Defendants issued a host of unjustified margin calls the parties negotiated the Override Agreement. Packaged as a reprieve from the Defendants‟ aggressive 2 Case 09-17787 Doc 1333 Filed 04/30/11 Page 3 of 85 margin calls, the Override Agreement provided no relief. Instead, the Defendants collectively insisted upon (and received) more than $700 million of margin and interest payments under that agreement, for which the estates received no reasonably equivalent value (and no reprieve from the Defendants' predatory conduct). The Defendants‟ overreaching led to an even more onerous Amended Override Agreement and forced releases. In the final act of domination, the Defendants terminated their respective agreements with the estates, liquidated their collateral and left the Debtors to file a free-fall chapter 11 case to address their remaining creditors. This action seeks recovery of nearly $2 Billion in transfers under those agreements as avoidable fraudulent conveyances and transfers. While the Defendants will mechanically chant the tired mantra of "safe harbor" protection from the claims asserted in this complaint, those Bankruptcy Code provisions have no application to the contracts at issue and do not immunize the conduct and harm the Defendants perpetrated against the Debtors and on their estates. JURISDICTION 1. This Court has jurisdiction over the subject matter of this Adversary Proceeding pursuant to 28 U.S.C.A. §§ 157 and 1334 and 11 U.S.C. §§ 105, 502, 542, 544, 548, 550. 2. Venue is proper in this Court pursuant to 28 U.S.C. § 1409. 3. This Adversary Proceeding constitutes a core proceeding pursuant to 28 U.S.C. § 157 (b)(2). The claims asserted seek, inter alia, a determination that Defendants‟ conduct violates provisions of the Bankruptcy Code and the recovery of fraudulent transfers and/or conveyances. In addition, resolution of the claims asserted will have a significant impact on the administration of the Debtors' chapter 11 cases, the value of their estates and any distributions to unsecured creditors. 3 Case 09-17787 Doc 1333 Filed 04/30/11 Page 4 of 85 THE PARTIES 4. On May 1, 2009 (the “Petition Date”), each of the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. 5. Plaintiff Joel I. Sher is the Court-appointed Chapter 11 Trustee for the Debtors pursuant to an Order of the Court entered on October 28, 2009. 6. Proposed Intervenor Plaintiff, the Official Committee of Unsecured Creditors of the Debtors, was appointed by the Office of United States Trustee on or about May 7, 2009, pursuant to Section 1102(a)(1) of the Bankruptcy Code. 7. TMST is a publicly-traded entity that was incorporated under the laws of the state of Maryland, with its principal place of business in Santa Fe, New Mexico. TMST conducted its operations as a real estate investment trust for income tax purposes. Until it was delisted in December of 2008, the common stock of TMST traded on the New York Stock Exchange. The remaining Debtors are wholly-owned direct or indirect subsidiaries of TMST. 8. TMHL is a corporation that was incorporated under the laws of the state of Delaware. TMHL is a taxable REIT subsidiary of TMST that engaged in the business of originating, acquiring, securitizing and servicing residential mortgage loans. 9. TMHS is a corporation that was incorporated under the laws of the state of Delaware. TMHS, inter alia, entered into derivative auction swap transactions to support TMHL‟s securitizations. 10. Defendant JPMorgan Chase Funding Inc. (“JPMorgan”), a subsidiary of JPMorgan Chase & Co., is an investment banking and securities firm, incorporated under the laws of the state of Delaware with its principal place of business in New York, New York. 4 Case 09-17787 Doc 1333 Filed 04/30/11 Page 5 of 85 JPMorgan, as successor to Bear Stearns Investment Products Inc. (“Bear Stearns”), is a party to that certain Master Repurchase Agreement with TMST dated on or about March 14, 2008. 11. Defendant Citigroup Global Markets Limited (“Citi Global Ltd”), a subsidiary of Citi Global Markets Europe Limited, is an investment banking and securities firm, formed under foreign law, with its principal place of business in London, England that transacts business throughout the United States. Citi Global Ltd is a party to that certain Global Master Securities Lending Agreement with TMST dated on or about September 20, 2007. 12. Defendant Citigroup Global Markets, Inc. (“Citigroup Global Inc.”), and collectively with Citi Global Ltd, “Citi”) is a corporation formed under the laws of the state of New York with its principal place of business in New York, New York. Citigroup Global Inc. served as Citi Global Ltd‟s intermediary agent with respect to that certain Global Master Securities Lending Agreement with TMST dated on or about September 20, 2007 13. Defendant Credit Suisse Securities (USA) LLC (“CSSU”) is an investment banking and securities firm, formed under the laws of the state of Delaware with its principal place of business in New York, New York. CSSU, as successor to Credit Suisse First Boston Corp., is a party to that certain Master Repurchase Agreement with TMST, as successor to Thornburg Mortgage Asset Corporation, dated on or about September 20, 1997, as supplemented and superseded by the terms of that certain Master Repurchase Agreement between Credit Suisse First Boston (Hong Kong) Limited and TMST, as successor to Thornburg Mortgage Asset Corporation, dated on or about September 20, 1998. 14. Defendant Credit Suisse International (“CSI”, collectively with CSSU, “Credit Suisse”) is an investment company dealing in over-the-counter derivatives, formed under foreign law, with its principal place of business in London, England, that transacts business throughout 5 Case 09-17787 Doc 1333 Filed 04/30/11 Page 6 of 85 the United States. CSI, as successor to Credit Suisse Financial Products, is a party to that certain ISDA Master Agreement with TMST as successor to Thornburg Mortgage Asset Corporation, dated on or about September 22, 1993 and is a party to that certain ISDA Master Agreement with TMHS dated on or about March 30, 2006. 15. Defendant RBS Securities, Inc. (“RBS Securities”) (f/k/a Greenwich Capital Markets Inc.), a wholly owned subsidiary of RBS Holdings USA Inc., is an investment banking and securities firm, incorporated under the laws of the state of Delaware, with its principal place of business in Connecticut. RBS Securities, as successor to Greenwich Capital Markets Inc., is a party to that certain Master Repurchase Agreement with TMST dated on or about September 14, 2007. 16. Defendant Greenwich Capital Derivatives Inc. (“GCD”) is an investment banking firm dealing in over-the-counter derivatives, incorporated under the laws of the state of Delaware, with its principal place of business in Connecticut. GCD, by Greenwich Capital Markets, Inc. (n/k/a RBS Securities) as its agent, is a party to that certain ISDA Master Agreement with TMST dated on or about June 26, 2002, which agreement was thereafter assigned to TMHS on or about December 31, 2007. 17. Defendant The Royal Bank of Scotland PLC (“RBS PLC”, and collectively with RBS Securities (f/k/a Greenwich Capital Markets, Inc.) and GCD, “RBS”) is an investment banking and securities firm dealing in over-the-counter derivatives, formed under foreign law, with its headquarters in Edinburgh, Scotland and doing business in the United States through RBS Securities Inc.
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