The lead Plaintiffs and underwriter banks in a class action accusing JPMorgan Chase & Co. and other financial institutions of misleading investors about the inherent risks of IndyMac Bank’s mortgage-backed securities have reached a proposed $340 million settlement. Banks, including JPMorgan, Credit Suisse Group AG, Deutsche Bank AG, UBS AG, Morgan Stanley and The Royal Bank of Scotland PLC, reached the agreement to pay the investors to solve claims the banks knew the loans wrapped up in the securities offering weren’t as good as promised.
The settlement, if approved, would end the IndyMac litigation that has been ongoing since 2009. This was just a few months after the bank faltered because of unpaid loans after the housing market collapsed. The motion also calls for the participants in an earlier settlement to be given notice of the settlement.
The settlement doesn’t include claims on appeal in the U.S. Supreme Court. Those claims, against Goldman Sachs & Co., will be argued before the high court in early October. The Plaintiffs also have agreed to dismiss their claims against the IndyMac unit created to sell the securities, saying that, because the bank is no longer in business and has no assets or insurance to speak of, it wasn’t worth pursuing a judgment against it. IndyMac – the Independent National Mortgage Corp. – failed in 2008 and when it was taken over by the Federal Deposit Insurance Corp. (FDIC), it had $32 billion in assets and $19 billion in deposits, according to FDIC regulators.
The case was filed in May 2009 by pension fund Wyoming Retirement System and the Wyoming state treasurer and it was consolidated in July 2009 with a similar suit brought by the Police and Fire Retirement System of the City of Detroit. The pension funds accused a host of banks – underwriters for more than $61 billion in “Alt-A” mortgage-backed securities issued by IndyMac from 2005-07 – three credit-rating agencies, several IndyMac units and IndyMac executives and board members of failing to disclose risks inherent to the mortgages underlying the MBSs.
In February 2010, U.S. District Judge Lewis A. Kaplan dismissed the three credit-rating agencies from the suit saying they had facilitated the MBS offerings, but had not participated in the sale of the securities and thus were not legally responsible. Those agencies were: Standard & Poor’s Financial Services LLC, Moody’s Investors Service Inc. and Fitch Inc. The Second Circuit upheld that decision in May 2011.
In August 2012, the lead Plaintiffs reached a tentative $6 million partial settlement with five former IndyMac executives. In July of last year, the court agreed to keep alive class claims over securities in which the Plaintiffs did not actually invest, keeping the Wyoming entities as lead Plaintiffs.
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