Harborview MBS Litigation
Practice Area: Securities Fraud
New Jersey Carpenters Health Fund, et al., v. The Royal Bank of Scotland Group, PLC, Civ. No. 08-5093 (HB) (S.D.N.Y.)
Cohen Milstein represents Lead Plaintiffs New Jersey Carpenters Vacation Fund (“Carpenters Vacation Fund”) and Boilermaker Blacksmith National Pension Trust (“Boilermaker Pension Trust”) (collectively “Lead Plaintiffs” or “Plaintiffs”) in a securities class action lawsuit pending in the United States District Court for the Southern District of New York. Plaintiffs bring 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 certain Harborview Mortgage Loan Trusts (the “Harborview Trusts” or “Issuing Trusts”), pursuant to two Registration Statements and accompanying Prospectuses filed with the Securities and Exchange Commission by Greenwich Capital Acceptance, Inc. (“GCA”) on March 31, 2006 (the “2006 Registration Statement”) and on March 23, 2007. RBS Securities, Inc, f/k/a Greenwich Capital Markets, Inc. d/b/a RBS Greenwich Capital (“GCM” or the “Underwriter”) underwrote and sold to Plaintiffs and the Class $25.78 billion of Harborview Mortgage Loan Pass-Through Certificates (the “Certificates”). The Certificates were issued in fifteen (15) Offerings which took place between April 26, 2006 and October 1, 2007 (collectively, the “Harborview Offerings” or “Offerings”). The Defendants named in the Consolidated First Amended Securities Class Action Complaint (the “Complaint”) are GCA, who prepared and filed the Registration Statements, GCM, the underwriter on each of the Offerings, Greenwich Capital Financial Products, Inc. (“GCFP”), the Sponsor and Seller for each of the Offerings, The Royal Bank of Scotland Group, PLC (“RBS Group”), the parent company of GCFP GCA and GCM, certain officers and directors of GCA (the “Individual Defendants”) (RBS Group, GCFP, GCM, GCA and the Individual Defendants collectively, “Greenwich Capital”) and Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”), a division of Defendant The McGraw-Hill Companies, Inc. (“McGraw-Hill”) (collectively, the “Rating Agencies”), the Nationally Recognized Statistical Ratings Organizations (the “NRSROs”), who, along with GCM, determined the composition of the underlying mortgage pools and the Certificates’ structure.
The Complaint alleges, inter alia, that the 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 Certificate mortgage loan collateral was not originated in accordance with the loan underwriting guidelines stated in either the Registration Statements or the Prospectus Supplements, with the Originators having failed to conduct both a meaningful assessment of the borrowers’ creditworthiness or effective appraisal of the mortgaged properties; (ii) Greenwich Capital failed to conduct adequate due diligence with respect to the Originators’ compliance with the loan underwriting guidelines stated in the Offering Documents; m(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 between Greenwich Capital and the Ratings Agencies, including those reflected in the undisclosed “ratings shopping practices,” which incentivized the Ratings Agencies to understate what would have been the minimum required credit enhancement for the Certificates and inflate the Certificate ratings to maintain its relationship with the issuer banks; 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 Ratings Agencies’ models which had not been updated in a timely manner.
On March 26, 2010, Judge Harold Baer issued a decision denying in part Defendants’ pending motions to dismiss. Although dismissing the claims against the Rating Agencies and claims based on the Rating Agencies’ undisclosed structuring role and conflicts of interest, the Court allowed Plaintiff’s claims as to Greenwich Capital’s inadequate due diligence and the originators’ systematic disregard of their stated underwriting guidelines to proceed. In doing so, Judge Baer stated:
Plaintiffs have pled sufficient factual allegations to plausibly infer that the underwriting guidelines were disregarded by mortgage originators, and in conflict with the disclosures made in the Offering Documents. The Consolidated Amended Complaint details how each of the relevant mortgage originators, who underwrote the loans contained in the Harborview Trusts, sought to maximize the volume of loans they underwrote in order to benefit from the lucrative securitization process. As Plaintiffs allege through a myriad of press reports, government hearing testimony, and other factual sources, the originators did so at least in part by ignoring the guidelines, such as providing “stated income” loans to unqualified individuals; Plaintiffs even provide examples of outright fraud by employees of the originators. Taken together, the factual allegations demonstrate that this behavior permeated the originators such that that they systematically ignored their stated underwriting practices in order to process the most loans at the least cost.
In allowing Plaintiff’s claims to proceed, the Court held that Plaintiffs had standing to sue only on those Offerings in which they had themselves purchased, Harborview Mortgage Loan Trust 2006-4 and Harborview Mortgage Loan Trust 2007-7. As a result, the Court dismissed, without prejudice, Plaintiff’s claims as to the 13 Harborview Offerings that Plaintiffs had not purchased on.