Real Estate Securities—Class Action Against Underwriter of Collateralized Debt Obligations—Alleged Fraud and Fraudulent Concealment—Motion to Dismiss Denied—Allegations That Loans Did Not Meet Underwriting Guidelines and Underwriter Prevailed on Rating Agencies to Use Outdated Ratings Model—The Peculiar Knowledge Exception Applies Where Facts Allegedly Misrepresented Were Within the Exclusive Knowledge of Defendant and Where the Truth “Theoretically Might Have Been Discovered, Though Only With Extraordinary Effort or Great Difficulty”
This appeal involved “the question of whether a sophisticated investor has sufficiently alleged that it justifiably relied on credit ratings of securities that defendants [underwriter], the organizers of the offering, allegedly had manipulated and otherwise knew, from nonpublic information, to be inaccurate.” The Appellate Division, First Department (court) held that “the element of reasonable reliance has been sufficiently pleaded in support of plaintiff’s fraud and fraudulent concealment causes of action….” Thus, the court affirmed the denial of the underwriter’s motion to dismiss.
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