New York court rejects claim against UBS New York's Supreme Court has dismissed a fraud claim brought against UBS by HSH Nordbank over its sale of a complex mortgage product, a decision that lawyers said could have broader implications for investors seeking damages for losses incurred in the financial crisis. HSH said it suffered "near-total" losses on a $500m collateralised debt obligation bought from UBS in 2002 when the US real estate market collapsed. It alleged the Swiss bank had deliberately selected mortgage bonds at high risk of default. But the court found that there were adequate disclosures as the deal documents were "replete with detailed disclosures of the considerable risks involved and of the conflicts of interest arising from UBS's multiple roles." HSH had complained that although the mortgage bonds UBS selected for the transaction met minimum credit ratings, they had higher than average credit spreads, suggesting that the market was pricing in a higher risk of default. "At bottom, HSH is complaining that UBS ... induced it to enter into a deal that would enable UBS to exploit, at HSH's expense, a feature of the relevant securities market that was common knowledge among participants in that market," the court ruling said. This does not constitute a legally sufficient cause of action for fraud, certainly not when pleaded by a sophisticated business entity that disclaimed reliance on the party it now accuses of fraud. HSH was described in the original lawsuit as "a regional German bank with little familiarity with international structured finance." But the court found that HSH should have been able to conduct its own due diligence. Allowing the suit to go forward would be "judging the sufficiency of a claim asserted by a €140bn commercial bank by a standard more lenient than the one by which this court has judged similar claims made by individual investors against their retail brokers." UBS said: "The decision confirms what UBS has claimed throughout the course of this case. This was a transaction between sophisticated parties that became unprofitable for everyone when the credit crisis hit. Quinn Emanuel, which represented HSH, did not return a request for comment. HSH has parallel lawsuits against UBS, alleging breach of contract. Paul Hastings acted for UBS. By finding that HSH was a sophisticated investor that should have been able to judge the risks accompanying its investment, the court's opinion is expected to be cheered by securities issuers, who have argued that aggrieved investors that have sued them should have known all along that their investments were risky and required their own due diligence. However, the court's decision runs counter to opinions expressed by Edward DeMarco, the US regulator overseeing state-controlled home loan financiers Fannie Mae and Freddie Mac. Mr DeMarco filed 18 lawsuits against 16 global banks for misrepresenting the quality of since-soured home loan bonds they sold to the mortgage giants. "It does not matter how "big" or "sophisticated" a security purchaser is," Mr DeMarco said in September. The seller has a legal responsibility to accurately represent the characteristics of the loans backing the securities being sold. The nation's financial system cannot function if sellers of securities fail to fulfil this legal responsibility.