Cityscape Financial Corp. came out swinging this week after taking months of unfavorable press in the United Kingdom.
The Elmsford, N.Y.-based subprime mortgage lender initiated libel proceedings Monday against The Times of London, charging it with making "grossly defamatory, highly damaging, and false allegations."
The action follows an Aug 16 article, "Tory Links of British Loan Firm Tied to Proven U.S. Fraudsters," about Cityscape and its U.K. subsidiary, City Mortgage.
The article alleged that a City Mortgage consultant improperly used his access to the House of Commons to "distribute pro-City Mortgage propaganda," and that one of City Mortgage's brokers is run by people who were associated with a company whose consumer credit license was withdrawn because of "deceitful and oppressive lending."
In addition, the article called attention to the backgrounds of several people who were instrumental in founding the U.S. company but now hold none of its stock, and who Cityscape contends have no say in its management.
One of them is Abraham Salaman, who provided Cityscape with the shell company, Mandee of Essex, that it used to go public.
The story noted that he was once suspended from securities dealings for three years by the U.S. Securities and Exchange Commission. In addition, the SEC has a stock fraud case pending against Mr. Salaman, and he is the subject of a string of civil cases brought by disgruntled investors alleging stock manipulation and misrepresentation.
The article also claimed that Jay Botchman, a consultant who helped set up Cityscape's U.K. business, was involved in an Atlantic City land development scam.
The allegations against Mr. Botchman have been extensively reported in the U.S. press. He sold his stake in Cityscape to Franklin Mutual Advisors, a fund controlled by well-known activist investor Michael Price, earlier this year.
For many in the United States, the thrust of the story is old news. Since the company's initial public offering in 1995, short-sellers have made much of Cityscape's rumored links to alleged criminals.
"A lot of people have links with others who have done bad things in the past-it doesn't really mean anything. So has the President of the United States," said one analyst who covers the sector.
But mortgage lenders in the United Kingdom, noting that nonconventional lenders have already been the focus of bad publicity, say that it may have a serious effect there. The Office of Fair Trade warned more than 70 lenders that the rates they charge may be too high; the office is expected to issue new guidelines.
"I think it's very negative for Cityscape, and negative for the whole market," said one lender, who did not want to be named. "It's a step backward for everyone."
Cityscape declined to elaborate on the press release it issued to announce that libel proceedings had been initiated. The company is asking for a retraction, an immediate apology, and damages, the release said.
The Times is planning to defend the piece, said Antony Whitaker, legal manager of Times Newspapers Ltd. Because of U.K. legal procedures, it will be a "good long time before the case gets to court," Mr. Whitaker added.