One of the largest holders of MBIA Insurance Corp. surplus notes has sued the insurer over what it calls a "fraudulent transfer," adding to the legal challenges that have come out of MBIA Inc.'s restructuring.

Two investment funds managed by Third Avenue Management LLC own approximately $400 million of the $1 billion of surplus notes issued last January. Third Avenue's suit alleges the restructuring is "illegal" and seeks to "defraud" MBIA Insurance debtholders, according to the complaint filed in Delaware Chancery Court.

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