MBS Fraud Cases: Wells Fargo, Deutsche Bank AG, and Royal Bank of Scotland Reach $165M Class Action Settlement, Bank of NY Mellon Ordered to Face $1B Lawsuit Brought by Commerzbank, and Judge Says Royal Park Must Better Define “Class” in Securities Case

$165M Class Action Settlement Reached in MBS Fraud Case Involving NovaStar Securities
Royal Bank of Scotland Group Plc (RBS), Wells Fargo & Co. (WFC), and Deutsche Bank AG (DB) have reached a $165M with investors in their class action mortgage-backed securities case involving underwriting for NovaStar Mortgage Inc., a former subprime lender. The lead plaintiff in the case is the New Jersey Carpenters Health Fund.

NovaStar, which filed for bankruptcy last year, had specialized in low quality residential mortgages. Many of these were bundled into risky securities that were issued prior to the 2008 financial crisis. The class action settlement resolves claims contending that the offering documents put together by the banks misled investors into thinking that the loans underlying about $7.55B of NovaStar MBSs were safe and had been underwritten properly.

A district court judge must still approve the settlement. Meantime, despite the resolution, the banks continue to deny wrongdoing.


Judge Allows Commerzbank’s Institutional Investor Fraud Case Against Bank of NY Mellon

In Manhattan, U.S. District Judge George Daniels said that Commerzbank may go forward with its negligence and breach of contract claims against Bank of New York Mellon (BK). The German lender sued Bank of NY Mellon in 2015 over what it claims were toxic mortgage-backed securities that it purchased from the bank prior to the financial crisis. Bank of New York Mellon had served as trustee of the Millston II collateralized debt obligation and 72 mortgage trusts.

Commerzbank claims that it lost over $1B because of these poor investments. The German lender accused the bank of “idly” standing by for years as the losses grew instead of making lenders purchase defective loans and insist that the defaulted loans be dealt with more rapidly.

Judge Daniels said that Commerzbank could move forward with its contention that the bank did not act prudently and may have been reluctant to act against certain services and lenders out of fear of hurting profitable business ties.The German lender has similar mortgage-backed securities cases pending against HSBC Holdings Plc (HSBC), Deutsche Bank, and Wells Fargo.

Royal Park Ordered to Better Define “Class” in $3.1B RMBS Fraud Case Against Deutsche Bank
A federal judge in New York said that investors that are suing Deutsche Bank National Trust Co. in a more than $3.1B residential mortgage-backed securities case must do a better job of defining their proposed class. Royal Park Investments SA/NV had sought class certification for its case and U.S. District Judge Alison Nathan denied their motion without prejudice. However, she invited the lead plaintiff to renew its motion by proposing a class that was “appropriately defined.”

Royal Park sued the German lender in 2014 contending that thousands of RMBSs in 10 trusts didn’t meet standards. The investment firm also accused the bank of not disclosing to certain parties that there were these poorer quality securities and/or repurchasing the loans.

Royal Park’s lawsuit contends that Deutsche Bank had been aware as early as April 2011 that the loans tied to its RMBSs were “obviously defective” to the point that “they had already been foreclosed on, liquidated, and written off as losses.” Yet the bank did not take action. The result, contends the plaintiff, was further harm to investors in the wake of the statute of limitations expiring.

Royal Park has brought similar mortgage-backed securities cases against Goldman Sachs Group (GS), Bank of America Corp. (BAC), and US Bank NA (USB).

If you suspect that your investment losses may be due to MBS fraud, contact The SSEK Partners Group today.

Wells Fargo, RBS, Deutsche Bank in $165 million NovaStar settlement, Reuters, March 15, 2017

Commerzbank’s $1B BNY Mellon RMBS Case Clears Hurdle, Law360, March 21, 2017

U.S. Judge Will Not Certify Deutsche Bank Mortgage Class Action, US News, March 21, 2017