Davis Polk has been representing GSC Group and a hedge fund that one of its subsidiaries managed that invested principally in subprime mortgage debt instruments in litigation brought in the Commercial Division of New York state court by investors in the fund (Investors) who suffered losses after the market for the securities held by the fund substantially deteriorated and the fund was unable to complete an SEC registration.

The fund raised money in the summer of 2005 through a private placement. The deal included a registration rights agreement that contemplated a public offering within six months, which would have allowed original investors, like the plaintiff, to get their money out if they wished. As the mortgage-backed securities market declined in 2006, however, it became unfeasible to go forward with completion of the offering, and the Investors were unable to sell. In addition to suing the fund for breach of the registration rights agreement, the Investors also sued GSC Group and the manager of the fund, charging that they were legally responsible to cause the fund to complete a public offering. GSC Group and the manager moved to dismiss the claims against them, including breach of contract and fraud. The court recently issued an opinion granting the motion and dismissing all claims against GSC Group and the fund manager.

The Davis Polk litigation team consisted of partner Robert F. Wise Jr. and associates Jonathan D. Martin and Sarah McDonald Egan.