Banca Cremi, S.A. v. Alex. Brown & Sons, Inc.
United States Court of Appeals for the Fourth Circuit
132 F.3d 1017 (4th Cir. 1997)
Banca Cremi (plaintiff), a Mexican bank, bought roughly $40 million in high-risk collateralized mortgage obligations from Alex. Brown & Sons (defendant) after a cold call, using three well-educated investment professionals and consulting five outside brokerage firms before investing. Banca profited for years until interest rates rose unexpectedly in 1994, the CMO market collapsed, and Banca lost about $21 million; Banca then sued Alex. Brown for fraud, alleging misrepresentation of the risks, and the district court granted summary judgment for Alex. Brown.
Whether an investor's own lack of diligence amounts to recklessness that bars its securities-fraud claim under the eight-factor test in Myers v. Finkle.