Credit Suisse AG has agreed to settle a certified class action in a New York federal court. It had been alleged that it used misleading financial disclosure documents to trick a class of more than 300 investors into purchasing $1.6 billion in troubled mortgage-backed securities. At the heart of the class action are the bonds’ registration statements and offering documents, which lead Plaintiff New Jersey Carpenters Health Fund (NJCHF) contends concealed the fact that many pooled certificates were tied to inferior New Century Mortgage Corp. loans that were issued in violation of underwriting standards. It was alleged that the collateral later fell sharply in value when the housing bubble burst.
Judge Paul A. Crotty certified a class of an estimated 330 individual entities in August 2011 that purchased pass-through certificates from Aug. 28, 2006, to April 27, 2007. Pass-through certificates are securities comprising an undivided interest in a pool of federally insured mortgages. Judge Crotty later barred certain 2006 and 2007 certificate holders from entering the class, saying they lacked standing under the Securities Act since NJCHF had not bought from those trusts. In January 2013, Judge Crotty reinstated some claims related to a mortgage-backed securities offering from Aug. 28, 2006, to April 27, 2007, that allegedly relied on misleading offering documents.
In his decision to revive the claims, Judge Crotty cited the Second Circuit’s landmark NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. decision, which held that funds stemming from the “same set of concerns” could be combined in securities lawsuits. The judge also held that the Plaintiff did not have class standing to assert claims relating to mortgage-backed certificates that were arranged by Credit Suisse and issued by Home Equity Mortgage Trust (HEMT), the so-called HEMT 2006-4 and HEMT 2006-6 certificates.
In March 2014, Judge Crotty granted a motion to expand the certified investor class in the action brought by NJCHF against Credit Suisse to include participants in $825 million mortgage-backed securities offering for the so-called HEMT 2007-2 certificates. Judge Crotty ruled that while the claims raised by purchasers of the HEMT 2007-2 certificates were not directly tied to those of the already certified class, they were similar enough to allow them to be included in the action.
In opposing the expansion, Credit Suisse argued that while the Plaintiff might have standing under NECA, it would be inappropriate to integrate a “fundamentally different transaction” and a new set of affirmative defenses with the existing class. Judge Crotty ultimately certified a class of investors in two offerings totaling $1.6 billion. The judge dismissed NJCHF’s claims for portions of the $2.4 billion offering because it lacked class standing to represent investors who purchased substantially different HEMT certificates.
The lead Plaintiff is represented by Joel Laitman, Michael Eisenkraft, Daniel Rehns, Kenneth Rehns and Christopher Lometti of Cohen Milstein Sellers & Toll PLLC. The suit is in the U.S. District Court for the Southern District of New York.
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