Novastar MBS Litigation
Practice Area: Securities FraudNew Jersey Carpenters Health Fund v. NovaStar Mortgage, Inc., et al. (“NovaStar MBS Litigation”)
Cohen Milstein represents the Lead Plaintiff, New Jersey Carpenters Health Fund (“Carpenters”), in a securities class action lawsuit pending in the United States District Court for the Southern District of New York. In addition to NovaStar Mortgage, Inc. (“NMI”), the Defendants named in the action are NMI’s wholly-owned subsidiary NovaStar Mortgage Funding Corporation (“NMFC”); certain officers and directors of NMFC (the “Individual Defendants”); the Underwriters of the securities, RBS Securities, Inc., f/k/a Greenwich Capital Markets, Inc. d/b/a RBS Greenwich Capital (“GCM”), Deutsche Bank Securities, Inc. (“DBS”) and Wells Fargo Advisors LLC f/k/a Wachovia Securities LLC (“Wachovia”) (the “Underwriter Defendants”); and the Nationally Recognized Statistical Ratings Organizations, which assigned credit ratings to the securities at issue, The Mc-Graw Hill Companies, Inc. (“S&P”) and Moody’s Investors Services, Inc. (“Moody’s”) (the “Ratings Agency Defendants”).
Plaintiff brings this action pursuant to the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77a, et seq., on its own behalf and as a class action on behalf of all persons and entities (the “Class”) who purchased or otherwise acquired interests in various NovaStar Mortgage Funding Trusts (the “NovaStar Trusts” or “Issuing Trusts”), pursuant or traceable to a single Registration Statement and accompanying Prospectuses filed with the Securities and Exchange Commission (the “SEC”) by on June 16, 2006 (the “Registration Statement”). Pursuant to the Registration Statement and the Prospectus Supplements incorporated therein (the “Offering Documents”), the Underwriter Defendants in conjunction with the Ratings Agency Defendants underwrote and sold to Lead Plaintiff and the Class $7.75 billion of Home Equity Loan Asset-Backed Certificates (the “NovaStar Certificates”). The NovaStar Certificates were issued in six (6) Offerings which took place between June 22, 2006 and May 25, 2007 (the “NovaStar Offerings).
The lawsuit alleges, inter alia, that Offering Documents contained material misstatements and omissions of material facts in violation of Sections 11 and 12 of the Securities Act, including the failure to disclose that: (i) the mortgage loan collateral underling the Certificates was not originated in accordance with the stated mortgage loan underwriting guidelines set forth in the Registration Statement and the Prospectus Supplements (ii) NMFC, the Underwriter Defendants and Ratings Agency Defendants failed to conduct adequate, and in some cases any, due diligence with respect to compliance with the stated mortgage loan underwriting guidelines; (iii) the stated credit enhancement did not support the investment grade ratings assigned to the Certificates in light of the true undisclosed and impaired quality of the mortgage collateral; (iv) there were material undisclosed conflicts of interest among the various Defendants, including the undisclosed “ratings shopping practices” Defendants engaged in; and (v) the amount of credit enhancement provided to the Certificates was inadequate to support the AAA and investment grade ratings because those amounts were determined primarily by the Ratings Agency Defendants’ models which had not been updated in a timely manner. Soon after issuance of the Certificates, and as a result of massive increases in borrower delinquency, foreclosure, repossession and bankruptcy in the mortgage loans underlying the Certificates revealing the true defective nature of the collateral, the value of the Certificates collapsed.
On June 23, 2009, Lead Plaintiff filed its Consolidated First Amended Class Action Complaint. Defendants are expected to file their motion to dismiss on August 17, 2009.