A New York federal judge has given preliminary approval to a $110-million settlement to resolve a class action brought by investors alleging Credit Suisse AG used misleading financial disclosure documents to trick them into purchasing $1.6 billion in troubled mortgage-backed securities. U.S. District Judge Paul A. Crotty granted preliminary approval of the deal, which ends claims brought by the New Jersey Carpenters Health Fund (NJCHF) and other investors who had claimed that registration statements and other documents proffered by Credit Suisse concealed the quality of the underlying loans, an alleged violation of underwriting standards. A final fairness hearing is scheduled for May 10. If final approval is granted, the settlement would end a suit dating to 2008. The parties told the court in November that they had reached a deal in principle.
Judge Crotty certified a class of an estimated 330 individual entities in August 2011 that purchased pass-through certificates from August 2006 to April 2007. Pass-through certificates are securities comprising an undivided interest in a pool of federally insured mortgages. The judge later barred certain 2006 and 2007 certificate holders from entering the class on the ground of lacking standing under the Securities Act since NJCHF had not bought from those trusts.
In January 2013, Judge Crotty reinstated some of those claims, citing 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. In March 2014, Judge Crotty granted a motion to expand the class to include participants in an $825 million mortgage-backed securities offering for so-called HEMT 2007-2 certificates. The judge ruled that while the claims raised by purchasers of those 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 had 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. The investors are represented by Joel P. Laitman, Christopher Lometti, Michael B. Eisenkraft, Steven J. Toll and Times Wang of Cohen Milstein Sellers & Toll PLLC. The suit is New Jersey Carpenters Health Fund et al. v. DLJ Mortgage Capital Inc. et al., in the U.S. District Court for the Southern District of New York.
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