A New York federal judge has given preliminary approval to a $165 million settlement to be paid by Wells Fargo, Deutsche Bank and the Royal Bank of Scotland. This puts them one step closer to resolving a class action over their underwriting of $7.7 billion worth of mortgage-backed securities (MBS) issued by bankrupt subprime lender NovaStar.
U.S. District Judge Deborah A. Batts gave her initial approval to the settlement, which would end long-standing claims from investors, including union pension funds, which allege that Deutsche Bank Securities Inc., RBS Securities Inc. and Wachovia Capital Markets LLC – now Wells Fargo Advisors LLC – lied in offering documents on securities issued by NovaStar Mortgage Inc. The court will hold a settlement hearing on Sept. 13 to determine whether the settlement should get final approval.
According to the settlement, Plaintiffs would receive $30.84 per $1,000 of face value of the securities they purchased. This is in line with previous residential mortgage-backed securities settlements. The dispute stems from 2006, when NovaStar issued six securities tied to residential MBS. The securities, which together held more than $7.7 billion in assets, were underwritten by Deutsche Bank, RBS and Wachovia.
By June 2009, more than half of the mortgages behind the securities had defaulted during the housing collapse, causing massive investor losses, according to the suit, which a pension fund filed in June 2008. The class action alleged that offering documents filed when the securities were issued failed to disclose that NovaStar had abandoned its underwriting standards to increase the number of mortgages it could originate. The suit was ultimately revived by the Second Circuit Court of Appeals in March 2013. Judge Batts granted class certification under a third amended complaint in November.
The Plaintiffs are represented by Joel P. Laitman, Michael B. Eisenkraft and Christopher Lometti of Cohen Milstein Sellers & Toll PLLC. The case is New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group PLC, et al., (case number 1:08-cv-05310) in the U.S. District Court for the Southern District of New York.
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