A group of banks and investors is challenging Hylands product, saying they can’t afford to fight back against a legal challenge.
The case, in which Hylands wants to buy Hylands’ business, has already generated about $100 million in litigation for the banks, according to the Wall Street Journal.
In October, the U.S. Securities and Exchange Commission voted unanimously to approve Hylands application for a $7.2 billion loan from the Federal Deposit Insurance Corp. to cover its $1.6 billion in investments.
Hylands argues that the bank must repay the loan within 30 days or risk losing its investment in the company.
The bank’s application for the loan has raised eyebrows in recent months, as banks are facing growing scrutiny over their use of derivative products to hedge their risk in the financial crisis.
Hyland said in a statement that the application has raised “many questions” about the bank’s ability to meet the bank guarantee requirements, which are outlined in the bank charter.
The lawsuit argues that Hylands must make a series of disclosures about the products it uses to hedge its risk and disclose that its products have been purchased by the banks.
It is the first time that Hyland has been sued in a court case over derivatives.
In its lawsuit, Hylands says the banks “misused and/or abused” Hylands investment funds in an attempt to prevent Hylands from selling its products and making profits.
The banks contend that Hyomes products, which include the Hylands Forex Desk and the Hyland Asset Management System, are derivative products.
They say that Hylanders derivatives products have no underlying underlying value and have been sold on the secondary market without providing investors with any benefit, according the Wall St. Journal.
Hylanders lawyers said the lawsuit has been filed in a federal court in New York, where the bank has offices.
The company is a holding company with a U.K. subsidiary, according a company news release.
The WSJ report said the case is “not expected to go to trial until the end of this year.”
The suit also alleges that Hyves products have “failed to provide investors with a financial return, and that Hywoods’ derivative products have contributed to a deterioration in investor confidence in the banks.”
Bank of America and Bank of Nova Scotia also are named in the suit, which seeks class action status.
The Wall Street Times reported that Hyles lawyers have declined to comment on the case.
In the lawsuit, the banks argue that Hyas derivatives products are not derivative products and that the company should not be allowed to sell them.
They also say Hylands derivative products are highly volatile and that its derivatives are not hedged.
The suit says Hylands derivatives products, “are not products designed to facilitate the efficient execution of derivative transactions and thus cannot be hedged.”
Hylands claims that the banks’ use of derivatives “has not resulted in any of the bank guarantees that are required to protect against the risks of the derivative product.”
Hyland says it has “not received any financial benefits from the derivative products,” but Hylands is “an accredited investor.”
The bank says it is seeking class action certification for Hyland derivative products in the U