New York Federal Court Certifies Class in MBS Litigation

RMBS

On June 29, the U.S. District Court for the Southern District of New York granted the plaintiffs’ motion to certify a class in a putative class action concerning the sale of mortgage backed securities (MBS) by an investment bank. Tsereteli v. Residential Asset Securitization Trust 2006-A8, No. 08 Civ. 10637, 2012 WL 2532172 (S.D.N.Y. June 29, 2012). In Tsereteli, the plaintiffs alleged that the sale of the MBS violated the Securities Act of 1933, because the offering documents falsely represented that the underlying mortgage loans were originated in accordance with the lender’s underwriting standards. According to the plaintiffs, the lender had in fact abandoned its underwriting standards and routinely made “loans to borrowers who were unable to meet their repayment obligations.” The bank, among other things, argued that Rule 23’s predominance requirement was not met because certain sophisticated investors were aware of the alleged misstatements when they purchased the securities. The court, however, found that “[g]eneral investment sophistication of certain class members does not show that any of the class members knew anything at all about [the lender’s] alleged deviation from its underwriting guidelines.”