Alt-A

S.D.N.Y. Grants Motion for Reconsideration Under a New Materiality Standard Laid Out by the Second Circuit in Litwin, but Returns the Same Result

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Freidus v. ING Groep N.V., No. 09 Civ. 1049 (S.D.N.Y. Mar. 29, 2011) (Kaplan, J.)

Following the court’s partial grant and partial denial of defendants’ motion to dismiss Section 11, 12, and 15 claims under the ’33 Act, plaintiffs moved for reconsideration of that ruling, arguing that Litwin v. Blackstone Group, L.P., No. 08-cv-03601, 2011 WL 447050 (2d Cir. Feb. 10, 2011) changed the standard of materiality and therefore a different result was warranted in this case. The court had originally dismissed plaintiffs’ claims against ING on the basis that there were no allegations showing that defendants’ disclosures concerning the quality of the Alt-A and RMBS securities at issue were false. The court granted the motion for reconsideration but returned the same result, finding that even under the new standard plaintiffs nonetheless failed to allege facts sufficient to make a plausible claim of a material misstatement. The court also noted that the allegedly misleading statement that ING “considered its subprime [and] Alt-A . . . exposure to be of limited size and of relatively high quality” was an inactionable statement of opinion. Decision.

CalPERS Sues Former Lehman Officers, Directors, and Underwriters for Misstatements and Omissions Related to Subprime and Alt-A Lending

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On February 7, 2011, the California Public Employees’ Retirement System (“CalPERS”) filed suit in the Northern District of California against 12 former executive officers and directors of Lehman Brothers Holdings Inc. (“Lehman”) and Lehman’s underwriters, asserting claims under sections 10(b) and 20(a) of the Exchange Act and sections 11, 12(a) and 15 of the Securities Act for losses suffered in its June 2007 through September 2008 investments in Lehman common stock and bonds. The complaint alleges that during that period Lehman did not conduct proper due diligence when it securitized subprime and Alt-A loans and that Lehman failed to adequately disclose risks associated with subprime and Alt-A mortgages. CalPERS also alleges that Lehman failed to adequately disclose risks relating to increased leverage in its investments and that it manipulated its balance sheet by removing debt on a quarterly basis through the use of “Repo 105” transactions. Complaint.