Mashreq Sues ING Over Losses Tied To ‘Roach Motel’ Debt

Mashreq, Dubai’s second largest bank, has filed a US lawsuit accusing Netherlands-based ING Groep NV of losing 40 per cent of a $108 million investment by improperly putting the money in risky debt.

In a complaint filed on Monday in the US District Court in Manhattan, Mashreq said it lost more than $43 million after ING plowed more than two-thirds of its investment into 11 “toxic, illiquid structured securities,” in 2007, hoping to win extra fees and ignoring instructions that the money be invested conservatively.

Mashreq said the securities, which it characterised as “roach motels,” had “innocuous, respectable-sounding names” such as Liberty Harbour and Madison Park, but were actually backed by poor-quality loans that had been “cast off” by investment banks.

It said Amsterdam-based ING hid this by mixing the securities with more conventional loans in some reports and categorising them incorrectly in others, making them appear safer than they were.

Mashreq said that at one time it had at least $60 million in losses on its investment, which began in 2005, but was able, through its own efforts, to reduce the sum to what it now seeks.

The lawsuit seeks to recoup the alleged losses and punitive damages.

Dana Ripley, an ING spokesman, declined to comment.

The lawsuit is one of many accusing banks of misleading investors or mismanaging investor funds by putting money into mortgage-backed, structured or other securities that lost much of their value in the global credit and financial crisis.

The case is MashreqBank PSC v. ING Groep NV et al, U.S. District Court, Southern District of New York, No. 13-02318.