(Reuters) – Wells Fargo Bank sued Lone Star Funds alleging that the private equity firm, which won the bid to buy Accredited Home Lenders Holding Co in 2007, implemented a deliberate scheme to purchase the firm for significantly less than the auction price.
Shortly after entering into a merger agreement with Accredited, Lone Star made disparaging remarks about the company’s financial condition in public and drove away other potential bidders, Wells Fargo said in a lawsuit filed on Wednesday.
Lone Star was not immediately available for comment.
Wells Fargo, which filed the lawsuit in its capacity as indenture and property trustee, demanded a jury trial.
The lawsuit said that Lone Star, which bought San Diego, California-based Accredited for $296 million, saved nearly $100 million of its original price.
After the acquisition, Lone Star did a u-turn and praised Accredited and said it intended to inject hundreds of millions of dollars into the company to bolster its finances, the complaint said.
The about-face led to an improved credit rating for Accredited, which helped Lone Star avoid repurchasing junior subordinated notes as required if its credit rating fell more than one “notch,” the lawsuit said.
Accredited, a provider of subprime mortgages, filed for Chapter 11 bankruptcy in May. (Reporting by Santosh Nadgir in Bangalore; Editing by Ratul Ray Chaudhuri)