Barclays Sued Over Golden Key, Mainsail SIV-Lite Funds
A SIV-lite investment fund called Golden Key has turned out to be anything but golden. Now investors are facing losses totaling hundreds of millions of dollars after the fund, initially promoted by Barclays Capital as a “super-safe” and “desirable” investment with triple AAA credit ratings, ultimately was reduced to junk status.
Created by Barclays and managed by Swiss-based Avendis Financial Services, Golden Key is a type of structured investment vehicle (SIV) that issues cheap commercial paper to buy higher-yielding assets - assets that typically are backed by risky subprime- related securities.
Barclays is now facing several lawsuits over the demise of Golden Key, including one from Oddo Asset Management, a French money manager, who says the UK bank used Golden Key as a dumping ground to move toxic investments out of its own accounts into those held by outside investors, namely Golden Key and another SIV-lite fund called Mainsail. The transfer of the toxic mortgages into the two SIV-lites occurred just as another division of Barclays was facing massive losses from its investment in two Bear Stearns hedge funds that ultimately collapsed last year.
Both Golden Key and Mainsail imploded in the summer of 2007 when they became unable to service their own debt. At the time, Mainsail had more than $2 billion of assets and Golden Key managed $1.8 billion. As for investors, they have been unable to withdraw funds from Golden Key ever since the vehicle hit a wall over restructuring plans with creditors. In April 2008, Golden Key was placed into receivership with Deloitte.
The concept of SIV-lites was the brainchild of Edward Cahill, a former manager of collateralized debt obligations (CDOs) at Barclays. Ironically, Cahill left the company in August 2007, right before two SIV-lites that he and his team created - Golden Key and Mainsail - had their ratings slashed to junk status by Standard & Poor’s.
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