We entered into a Treasury Lock with our construction lender almost 2 years ago when rates were deemed to be at an all-time low (5% or so). The Lender (one of the top 5 banks) we are working with brought the idea to us proclaiming this as a "hedge" or risk reduction technique.

Our company, which is relatively very small and sophisticated in the world of real estate development (not derivatives) was presented the potential benefits to be gained by this product, and how any decrease in rates resulting in a payment by our Company to settle the hedge would be "offset" due to the fact we would be closing into a lower interest rate loan. And vice versa, if rates went up the and Lender was required to pay us, we would close into a higher interest rate loan to effectuate the "hedge".

Fast forward two years later in the troubled commercial real estate market, as our building is only 70% occupied and does not yet qualify for a permanent loan.

However, the hedge settlement date is just around the corner and we will be required to fund a large amount of $$$ to settle it.

The problem in this market environment is that the "Credit spread" increased from its normal 1.25% to about 4% offsetting any benefit this hedge would have. Not only are we forced to pay the $2M, even if our building were FULLY leased, we would not offset the $2M liability we have.

We are extremely troubled by this complex product offerred and are just now gaining a full understanding regarding:

1. Derivatives were issued as OTC and are unregulated
2. We believe the Lender misrepresented the fact this product was a "risk reduction technique", but that the vehicle is speculative in nature
3. We believe the Lender did not disclose the inherent risks in this product specifically involving the credit spread
4. We believe the Lender may have a conflict of interest in offerring these products to customers they have a vested interest in (especially if they are the counterparty to the derivative)
5. We relied on the Lender's expertise in making the purchase

I really see these products as a much more complex and sophisticated version of the subprime lending fiasco. But what troubles me further is that with subprime loans, although lenders are clearly part of the problem, they are bound under the Federal Regulation and Disclosure Requirements.

For the derivative we purchased, there is NOTHING that tells me what the potential risks are.

Do you have any thoughts here or lawyers who may be able to help us?

Thanks in advance for your time.

I can certainly understand this is a frustrating situation for you. It is also a very complex situation. I suggest you contact an attorney to determine your legal options. You can find an attorney through the locator service on LawInfo’s home page at: http://www.lawinfo.com/.

You can also browse through the information in LawInfo’s Free Legal Resource Center here: http://www.lawinfo.com/index.cfm/fus...lient.consumer, or search for your particular topic here: http://resources.lawinfo.com/index.html.

Hey, first time here.
I am researching for a way to setup a hedge fund company, as me and my partner have developed strategies in FX option trading. We are ready to serve the investors (as smalll as $500) to profit from our management.

Can you provide a good direction?

I responded to your other post.