Derivate failure law suits

A series litigation acts follow after credit failure. Such law suits had no seemingly meaningful content except lawyers try to convince others that his client, investors, didn't know what he was doing when he signed a contract. Besides, investors normally sue investment banks for insufficient information before investing. The claim may be true as the complexity of some credit derivatives products leaves some risks are not hedged. For example, an interest swap has no hedge for opposite interest movement so that investors get burned badly.

Such losses bring in a string of law suits. No one wants to be in such situation. But what would it be if it does occur?

First, both sides would sue each other. Investment banks or whatever would sue investor for they are behind payment. Investor sues the banks that they are duped. Then lawyers are involved with so called "experts" are called in for professional judgement. The first option is to have case settled with the two parties, privately. It may settle if the banks think the case would hurt their relationship with other customers. If not, the case advances to a summary judgement.

A summary judge is to ask a judge in court to enforce the written contract. Thick expert reports are submitted after experts from both sides meet independently. Then a joint report, if the experts can reach it, is turned to the judge. Costly counsels are hired, the senior (who commands) and junior (who follows orders). Along the path, arbitration is also tried. When arbitration fails by a retired judge or senior lawyer, the judge intervenes.

Main job of the judge is to moderate or ask both parties to settle. It is still possible to settle this case at this stage. There is no other case than proving the investor didn't know what he was doing. It is hard so it is better to settle between them. But there are cases the judge has no favorite statement to the investor, such as the Lehman case in HongKong.