NU Online News Service, Aug. 31, 3:52 p.m. EDT
A group of policyholders sued Ambac Financial Group to prevent the corporation from taking funds from Ambac Assurance Corp. while it is in runoff.
Six financial funds that are holders of residential mortgage-backed securities policies sued the New York-based guaranty insurer in the Circuit Court of Dane County, Wis., to prevent what they allege is acceptance of payments from Ambac Assurance to the parent company Ambac Financial.
Ambac Assurance, which ran into trouble in the midst of the financial crisis over its insurance of residential-backed securities, is now in runoff. The company has said there is a high likelihood that it will have to file for bankruptcy.
The Wisconsin Department of Insurance took Ambac Assurance, which is domiciled in Wisconsin, into rehabilitation earlier this year.
In the suit, Aurelius Capital Management LP; Fir Tree Inc.; King Street Capital, LP; King Street Capital Master Fund, Ltd.; Monarch Alternative Capital LP; and Stonehill Capital Management accused Ambac Financial Group of taking funds out of Ambac Assurance in the form of dividend payments without first settling the outstanding claims of its insureds.
The group said it represents over $1 billion in securities and other indebtedness insured by Ambac Assurance Corp., just a portion of more than $57 billion of policies insured by Ambac Assurance.
The plaintiffs said in their suit that despite the "dire financial condition" of Ambac, Ambac Assurance paid more than $230 million in dividends to Ambac Financial. The suit seeks to cease such transfers, holding that there should be no transfer of funds. It also accuses the two entities of having a conflict of interest in its decision-making, noting that both companies have identical boards.
"This common management further demonstrates the utter lack of arm's length dealing between these two entities despite their dire financial condition," the suit states.
The plaintiffs say they sought information and assurances from Ambac that its policyholders will get appropriate consideration, but the entities have turned "a deaf ear" to their requests.
When contacted, a spokesman for Ambac said the company does not comment on ongoing litigation.
A spokesperson for Wisconsin's Office of the Commissioner of Insurance said, "In the rehabilitation of the segregated account of Ambac Assurance Corp. and related matters, the first priority of the Office of the Commissioner of Insurance is to protect all policyholders. OCI remains focused on its duty under Wisconsin insurance law to implement a durable solution that serves the interests of all policyholders, as well as the general public."
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