The nasty litigation between a group of banks and the bond insurer MBIA just got nastier.
A lawyer for the banks has accused Joseph W. Brown Jr., MBIA’s chief executive, of illegally trading in MBIA stock while in possession of confidential information. The insider trading claim was made during a hearing late Friday at Federal District Court in Manhattan.
Robert J. Giuffra Jr., the banks’ lawyer, said that Mr. Brown was “pregnant with inside information” about MBIA’s pending February 2009 restructuring when he bought his company’s stock in the months before the announcement.
“Mr. Giuffra’s accusations are false and irresponsible,” Marc E. Kasowitz, a lawyer for MBIA, said in a statement. “All of Mr. Brown’s stock purchases were approved in advance by counsel, fully disclosed, and in full compliance with both securities laws and company policies.”
MBIA’s restructuring is at the centre of the banks’ lawsuit, which accuses the insurer of defrauding them when it split itself into two operations, separating its traditional municipal bond insurance business from its exposures to mortgage-backed securities. They say that the restructuring — made in the depths of the financial crisis — was a sham, making it likely that MBIA would eventually be able to avoid paying out losses from insuring mortgage-backed securities owned by the banks.