Lawsuits filed by investors of financial institutions and mortgage-backed securities are piling up in federal courts across the country.
A class action filed in U.S. District Court for the Southern district of New York against Barclays Bank PLC was announced last week by Coughlin Stoia Geller Rudman & Robbins LLP. Potential class members include buyers of Barclay’s preferred stock issued in April 2006. Also named as defendants are the company’s “senior insiders” and offering underwriter.
As is common in many investor class actions, the defendants are accused of violating the Securities Exchange Act of 1933 by issuing materially false and misleading statements about the company’s operations and financial results. London-based Barclays allegedly failed to properly record losses for impaired assets, was not well capitalized and did not have adequate internal controls.
According to the lawsuit, Barclays raised $750 million through the sale of 30 million shares of preferred stock at $25 a share. In August 2008, Barclays announced a “huge multi-billion impairment” related to mortgage backed securities. The stock did not decline because Barclays allegedly indicated it was not in need of new capital. But by mid-November, the price was down to $8.30 a share after the company admitted it would need to raise money, the plaintiffs allege.
On Feb. 26, a group of Bank of America Corp. shareholders filed a class action lawsuit in U.S. District Court for the Northern District of California alleging the bank concealed that it failed to properly value troubled assets, including MBS, collateralized-debt obligations and related derivatives. Also named among the defendants are BoA Chief Executive Officer Kenneth D. Lewis and former Merrill Lynch & Co. Inc. chief.
According to the lawsuit, BoA shareholders approved the acquisition of Merrill, which closed on Jan. 1. On Jan. 16, BoA disclosed Merrill Lynch’s $15.3 billion fourth quarter loss.
The suit was filed by firm of Cotchett, Pitre & McCarthy and represents shareholders who purchased shares between Oct. 16 and Jan. 20.
Shareholders who bought stock of Colonial BancGroup of Montgomery, Ala., between Dec. 2, 2008, and Jan. 27 are suing the company in U.S. District Court for the Middle District. The suit was announced Feb. 24 by the plaintiffs law firm, Finkelstein Thompson LLC.
The company is accused of failing to disclose that $550 million in funding from the federal government’s Troubled Asset Relief Program was conditioned on raising another $300 million from “outside sources.” When the conditions of the TARP money were finally announced after the markets closed on Jan. 27, Colonial’s stock price “plunged” by 46 percent to 85 cents a share the next day, according to the lawsuit.
Colonial was listed as the second most riskiest U.S. commercial bank by RBC Capital Markets in a forecast last month.
Another securities law firm, Shepherd Smith Edwards & Kantas LLP, said last month that it is investigating and filing claims on behalf of investors who have been hurt by investments in the preferred shares of financial companies. Shepherd Smith said it is targeting brokerage firms including Morgan Stanley and Citigroup that provided incentives for brokers to invest excessive shares of customers’ portfolios in these preferred shares.
GMAC has disclosed in a filing with the Securities and Exchange Commission that Folksam Asset Management sued the company in 2005 a class action lawsuit filed in U.S. District Court for The Southern District of New York. The suit was brought on behalf of investors in the company’s stock and debt and alleges that General Motor’s cash flow during the period in question — February to March of 2005 — were overstated.
In U.S. District Court for the Middle District of North Carolina, Triad Guaranty Inc. has been sued by investors who bought the company’s common stock between Oct. 26, 2006 and Nov. 10, 2008. The law firm of Dyer & Berens announced the lawsuit in a March 4 press release. Triad Guaranty allegedly did not adequately account for loss reserves, failed to engage in proper underwriting practices and “had far greater exposure to anticipated losses and defaults” including it its Alt-A and pay-option ARM portfolios and failed to disclose true risks.
Triad reported a third quarter loss of $160.1 million.
But at least one financial firm has recently won a class action lawsuit when a judge tossed the case out of court.
According to published reports, Delaware judge William Chandler threw out a lawsuit brought by shareholders of Citigroup. The plaintiffs alleged the company wasted money in approving a severance package for former Citi CEO Charles Prince, who left the company in 2007. But the judge ruled that the shareholders failed to show that the company failed to properly monitor and disclose its exposure to subprime securities.
In cases tied to mortgage-backed securities, the Mississippi Public Employees Retirement System and other buyers of RMBS classes have filed a lawsuit against GS Mortgage Securities Corp. in U.S. District Court for the Southern District of New York. The complaint was filed by Bernstein Litowitz Berger & Grossman and alleges GS Mortgage made false statements and omitted information about underwriting standards used by loan originators, appraisal standards used to value the properties collateralizing the loans and the ratings assigned to each tranche of the certificates.
“As a result, the certificates are no longer marketable at prices near the price paid … and the holders of the certificates are exposed to much more risk,” the law firm said in a Feb. 6 press release.
The Bernstein firm is also representing the Mississippi retirement system and investors in several mortgage-backed certificates in a similar suit against Merrill Lynch Mortgage Investors. The suit makes most of the same allegations made in the GS Mortgage suit and was also filed in U.S. District Court for the Southern District of New York. It was filed Feb. 17.
A case filed in Washington state court in August by the New Orleans Employees Retirement System and the MARTA/ATU Local 732 Employers Retirement Plan filed against Washington Mutual Inc. has been moved to federal court. Four classes of mortgage pass-through certificates are at issue. Two law firms – Labaton Sucharow and Barroway Topaz Kessler Meltzer and Check – filed the suit.
The complaint alleges that Washington Mutual, which has gone into bankruptcy, used registration statements to tout its supposedly strong underwriting standards “when in fact, it had systematically inflated the appraised values of the properties that secured the mortgages by improperly pressuring supposedly independent appraisers to artificially inflate real estate appraisals”, the complaint alleges.
“By inflating the appraised values, Washington Mutual was able to close more loans and earn more fees by issuing mortgages to unqualified borrowers. Then by pooling and selling those mortgages to the issuing trusts, Washington Mutual shifted the undisclosed and increased risk of loss from mortgage defaults to unwitting class members,” according to the lawsuit.
On Jan. 12, the Boilermakers National Annuity Trust Fund joined the suit.
Finally, the Securities Litigation and Consulting Group has announced that Dr. Joseph R. Prendergast has joined the firm as a principal. The firm provides consulting and expert witnesses for “complex litigation”, according to a March 3 press release.
Prendergast was previously director of mortgage Research at Smith Breeden Associations in Durham, N.C., where he specialized in mortgage-related investments.
Case filed by investors of Barclays Bank PLC preferred stock 6.625% Dollar-Denominated Non-Cumulative Callable Preference Shares, Series 2 issued April 2006.
Docket No. 09-CV-1989
Docket No. 09-CV-833 (U.S. District Court for the Southern District of New York)
Case filed by Bank of America investors
Docket No. 09-CV-00544, Feb. 26, 2008 (U.S. District Court for the Northern Kentucky of California)
Case filed by Colonial BankGroup Inc. investors
(U.S. District Court Middle District of Alabama)
Case filed by Mississippi Public Employees Retirement System and other buyers of GS Mortgage Securities Corp. certificates GSAMP Trust 2006-S2, Series 2006-S2; GSAA Home Equity Trust 2006-3, Series 2006-3; and GSAA Home Equity Trust 2006-2, Series 2006-2.
Docket No. 09-CV-1110 (U.S. District Court for the Southern District of New York).
Case filed Feb. 17 by Mississippi Public Employees Retirement System and other buyers of Merrill Lynch Mortgage Investors certificates First Franklin Mortgage Loan Trust, Series 2007-Ffc; Merrill Lynch Alternative Note Asset Trust, Series 2007-A2; Merrill Lynch, Alternative Note Asset Trust, Series 2007-A3; Merrill Lynch Alternative Note Asset Trust, Series 2007-Af1; Merrill Lynch Alternative Note Asset Trust, Series 2007-Oar2;Merrill Lynch Alternative Note Asset Trust, Series 2007-Oar3; Merrill Lynch Alternative Note Asset Trust, Series 2007-Oar4; Merrill Lynch Alternative Note Asset Trust, Series 2007-Oar5; Merrill Lynch, First Franklin Mortgage Loan Trust, Series 2007-1; Merrill Lynch First Franklin Mortgage Loan, Trust, Series 2007-2; Merrill Lynch First Franklin Mortgage Loan Trust, Series 2007-3; Merrill, Lynch First Franklin Mortgage Loan Trust, Series 2007-4; Merrill Lynch First Franklin, Mortgage Loan Trust, Series 2007-5;Merrill Lynch First Franklin Mortgage Loan Trust, Series, 2007-A; Merrill Lynch First Franklin Mortgage Loan Trust, Series 2007-H1; Merrill Lynch, Mortgage Backed Securities Trust, Series 2007-2; Merrill Lynch Mortgage Backed Securities, Trust, Series 2007-3; Merrill Lynch Mortgage Investors Trust, Series 2007-He2; Merrill Lynch, Mortgage Investors Trust, Series 2007-He3; Merrill Lynch Mortgage Investors Trust, Series, 2007-Mln1; Merrill Lynch Mortgage Investors Trust, Series 2007-Sd1; Merrill Lynch Mortgage Investors Trust, Series 2007-Sl1; Merrill Lynch Mortgage Investors Trust, Series Mlcc 2007-2; Merrill Lynch Mortgage Investors Trust, Series Mlcc 2007-3; Specialty Underwriting And Residential Finance Trust, Series 2007-Bc2; 2006-CB8 Trust; 2006-CB4 Trust; First Franklin Mortgage Loan Trust, Series 2006-Ff18; First Franklin Mortgage Loan Trust, Series 2007-Ff1; First Franklin Mortgage Loan Trust, Series 2007-Ff2; First Franklin Mortgage Loan Trust, Series 2007-Ffa; Merrill Lynch Alternative Note Asset Trust Series 2007-A1; Merrill Lynch Alternative Note Asset Trust, Series 2007-F1; Merrill Lynch Alternative Note Asset Trust, Series 2007-Oar1; Merrill Lynch Mortgage Investors Trust, Series 2006-A2; Merrill Lynch Mortgage Backed Securities Trust, Series 2007-1; Merrill Lynch Mortgage Investors Trust, Series 2006-Sd1; Merrill Lynch Mortgage Investors Trust Series 2006-A3; Merrill Lynch Mortgage Investors Trust Series 2006-A4; Merrill Lynch Mortgage Investors Trust Series 2006-Af1;Merrill Lynch Mortgage Investors Trust, Series 2006-He5; Merrill Lynch Mortgage Investors Trust, Series 2006-Mln1; Merrill Lynch Mortgage Investors Trust, Series 2006-Opt1; Merrill Lynch Mortgage Investors Trust, Series 2006-Rm4; Merrill Lynch Mortgage Investors Trust, Series 2006-Sd1; Merrill Lynch Mortgage Investors Trust Series Mlcc 2006-3; Merrill Lynch Mortgage Investors Trust Series Mlcc 2007-1; Merrill Lynch Mortgage Investors Trust, Series 2006-Fm1; Merrill Lynch Mortgage Investors Trust Series 2006-Af2; Merrill Lynch Mortgage Investors Trust, Series 2006-F1; Merrill Lynch Mortgage Investors Trust, Series 2006-Ff1; Merrill Lynch Mortgage Investors Trust, Series 2006-He6; Merrill Lynch Mortgage Investors Trust, Series 2006-Rm2; Merrill Lynch Mortgage Investors Trust, Series 2006-Rm5; Merrill Lynch Mortgage Investors Trust, Series 2006-Sl2; Merrill Lynch Mortgage Investors Trust, Series 2007-He1; Merrill Lynch Mortgage Investors Trust Series Mlcc 2006-2; Ownit Mortgage Loan Trust, Series 2006-4; Ownit Mortgage Loan Trust, Series 2006-5; Specialty Underwriting And Residential Finance Trust, Series 2006-Ab2; Merrill Lynch Mortgage Investors Trust, Series 2006-Ahl1; Merrill Lynch Mortgage Investors Trust, Series 2006-Ar1; Merrill Lynch Mortgage Investors Trust, Series 2006-He2; Merrill Lynch Mortgage Investors Trust, Series 2006-He3; Merrill Lynch Mortgage Investors Trust, Series 2006-He4; Merrill Lynch Mortgage Investors Trust, Series 2006-Rm3; Ownit Mortgage Loan Trust, Series 2006-7; Ownit Mortgage Loan Trust, Series 2006-3; Ownit Mortgage Loan Trust, Series 2006-6; Specialty Underwriting And Residential Finance Trust, Series 2006-Ab3; Specialty Underwriting And Residential Finance Trust, Series 2006-Bc4; Specialty Underwriting And Residential Finance Trust, Series 2006-Bc3; Specialty Underwriting And Residential Finance Trust, Series 2006-Bc5; Specialty Underwriting And Residential Finance Trust, Series 2007-Ab1; and Specialty Underwriting And Residential Finance Trust, Series 2007-Bc1.
Docket No. 09-CV-1392 (U.S. District Court for the Southern District of New York).
Case filed by Folksam Asset Management against GMAC on behalf of investors in the company’s debt and securities between February 25, 2002 and March 16, 2005.
Docket No. 05-CV-8088 (U.S. District Court for the Southern District of New York).
Case filed by investors of Triad Guaranty Inc. who purchased common shares between Oct. 26, 2008 and Nov. 10, 2008.
Docket No. 09-CV-00071. March 4, 2008 (U.S. District Court for the Middle District of North Carolina.)
Case filed by New Orleans Employees retirement system and MARTA/ATU Local 732 Employers Retirement Plan and other institutional investors of Washington Mutual Inc. mortgage pass-through certificates WaMu Mortgage Pass-Through Certificates Series 2006-AR1 through Series 2006-AR19 and WaMu Mortgage Pass-Through Certificates Series 2007-HY1 through Series 2007-HY7.
Docket No. CV-00134, Jan. 29, 2009 (U.S. District Court for the Western District of Washington.)
