The U.S. Court of Appeals for the Second Circuit on March 1 reinstated a multibillion-dollar class action brought on behalf of investors in a mortgage-backed securities offering underwritten and sold by several major banks, including The Royal Bank of Scotland Group PLC, Wells Fargo & Company, and others. The decision gives the investor plaintiffs hope that they can revive five other related offerings for a total of $7 billion in claims. (RBS owns a minority stake in ALM Media LLC.)
Joel Laitman and Christopher Lometti of Cohen Milstein Sellers & Toll brought the case in 2008 on behalf of New Jersey Carpenters Health Fund. The fund alleges that three banksRBS, Wells Fargo, and Deutsche Bank AGmisrepresented the underwriting standards they used for six trusts backed by subprime mortgages originated by NovaStar Mortgage Inc. The trusts, marketed between June 2006 and May 2007, were each valued at more than $1 billion. According to Cohen Milstein, half of the underlying mortgages eventually defaulted, and ratings agencies downgraded the securities because of allegedly lax underwriting.
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