Large Financial Firms Roundup: Securities Fraud Suit Against Citigroup is Dismissed by 2nd Circuit, AIG Wants to File MBS-Related Cases Against Banks, & District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case

Second Circuit Dismisses Securities Fraud Lawsuit Against Citigroup
The U.S. Court of Appeals for the Second Circuit has affirmed the district court’s decision to throw out the securities fraud lawsuit filed by a real estate developer against Citigroup (C) and its former CEO Vikram Pandit. Sheldon H. Solow had accused both of them of allegedly making omissions and misstatements that highlighted the bank’s liquidity and capitalization while downplaying financial problems. Because of this, he contends, the financial firm’s stock price became artificially inflated and then fell when the truth about the firm’s financial health became known.

The appeals court held that while Solow, in his securities lawsuit, did an adequate job of pleading alleged misstatements and omissions about Citigroup’s liquidity, he did not succeed in showing that the statements caused his financial losses. It also dismissed his control-person claim against Pandit, saying that there was a failure to plead a primary violation by the bank.

AIG Wants to File MBS-Related Cases Against Banks
American International Group (AIG) wants to be able to assert tort and fraud claims against financial institutions that marketed and securitized mortgage-backed securities that AIG bought between 2005 and 2007. The insurance corporation wants the New York Supreme Court to declare that it owns billions of dollars in these claims. The case is American International Group v. Maiden Lane II.

Per the 23-page complaint, the Federal Reserve Bank of New York had created Maiden Lane II to give the broader financial markets and AIG stability in 2008. Maiden Lane II is the possessor of contract claims related to these securities and the New York Fed believes AIG moved the tort and fraud claims to Maiden Lane II in the asset purchase agreement that was made. AIG, however, remains adamant that it owns the claims.

District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case
A district court in New York says it will reconsider its partial dismissal of class action allegations accusing Morgan Stanley (MS) and a number of its affiliates of violating federal securities laws involving mortgage-backed securities sales. According to Judge Laura Taylor Swain, because the 2nd Circuit’s ruling in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. constituted an “intervening change of controlling law,” so warrants another look of the district court’s own earlier opinion.

According to the institutional investor plaintiffs, Morgan Stanley and affiliates sold them securities backed by home mortgage loans that had almost no value or were flawed. Investor Public Employees’ Retirement System of Mississippi filed a securities complaint over its certificates purchase through one of 14 offerings by Morgan Stanley.
While the district court had partially dismissed the case in 2010 noting that MissPERS did not have standing to make claims on the other offerings from which it hadn’t bought certificates, in the wake of the Goldman ruling, plaintiffs of this case can now file an now file an amended complaint. The appeals court’s decision found that a putative lead plaintiff has class standing if having “plausibly alleged” that it experienced suffering from some actual injury because of conduct by the defendant that was “putatively illegal” and implicates the same concerns as the conduct (by the same defendants) that allegedly caused injury to the other class members.

Related Web Resources:
AIG Sues The New York Fed, Reuters/Business Insider, January 12, 2013

Federal appeals court dismisses Sheldon Solow’s lawsuit against Citigroup, The Real Deal, january 15, 2013

Intervening Change’ in Law Leads Court To Reconsider Standing Question in MBS Suit, BNA/Bloomberg, January 15, 2013

More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012