On September 8, 2009, the Connecticut Superior Court entered an order requiring two UBS entities to put aside more than $35 million to ensure that a hedge fund claiming fraud in its purchase of notes tied to UBS collateralized debt obligations (CDOs) would be adequately compensated in the event it was successful in its lawsuit against UBS.  The case, Pursuit Partners, LLC et al. v. UBS AG, et al., is notable for a number of reasons.  Chief among these is the rarity of lawsuits filed by purchasers of CDOs notwithstanding the anecdotal evidence indicating that most CDOs have suffered massive declines in value.  The lack of lawsuit filings by CDO purchasers has continued to puzzle industry experts who confidently predicted that the subprime mortgage crisis would result in an explosion of litigation by purchasers of securities and derivatives tied to subprime mortgages including CDOs.  There is no obvious explanation for why this expected litigation explosion did not occur beyond the general distaste that non-public institutional investors seem to have for lawsuits in general and the almost universally held assumption within the hedge fund industry that nobody could have anticipated the collapse of the subprime mortgage securities market.  The Pursuit case however, renders that assumption highly suspect.  As the limitations clock for filing suit continues to tick down for purchasers, hedge funds with significant losses in mortgage-backed securities, especially those headquartered in Connecticut, should examine closely the Pursuit court’s holding in evaluating any decision not to pursue litigation against sellers.  In a guest article, Darren Kaplan, a Partner at Chitwood Harley Harnes LLP, analyzes the factual background of the Pursuit case; the court’s legal analysis; and the lessons that hedge fund managers can draw from the case.