Liquidators sue Carlyle Group

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The Independent Online

The liquidators of a mortgage securities fund set up by the Carlyle Group are filing a lawsuit against the private equity firm.

The lawsuit, which is being filed in Guernsey in the Channel Islands and in New York, Delaware and Washington, alleges that the Washington DC-based private equity firm and former directors of Carlyle Capital Corp (CCC) breached their fiduciary duty to investors in the $1bn-plus (£660m) fund, which collapsed in 2008.

The Carlyle Group set up Carlyle Capital in 2006 and the fund was publicly traded in Europe after selling shares in an initial public offering in July 2007. A copy of the complaint alleges that in the "short space of eight months the entirety of CCC's capital was spectacularly lost under the reckless and grossly negligent direction, supervision, management and advice of the defendants".

It is the second time Carlyle has been sued over the collapse of its mortgage fund. A year ago, Michael Huffington, a former Republican Congressman for the state of California, sued the company, claiming that he lost his entire $20m investment in Carlyle Capital. Mr Huffington is the former husband of Arianna Huffington, who founded the US political website The Huffington Post.

The liquidators' lawsuit alleges that Carlyle Capital used too much leverage and short-term borrowing to invest in mortgage-backed securities at a time the US housing market was crumbling.