loan quality

New York Appellate Court Allows Fraud Claim to Proceed Against Morgan Stanley

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On August 11, 2016, the First Department of the Appellate Division of the Supreme Court of the State of New York affirmed a trial court ruling that investor-plaintiff IKB International to proceed with claims that RMBS sponsor and underwriter Morgan Stanley knowingly misrepresented loans’ credit quality and characteristics. The Court affirmed a ruling that justifiable reliance was adequately pleaded as the complaint contained allegations that (i) plaintiffs hired investment advisors to analyze the offering documents for the 18 RMBS deals at issue; and (ii) plaintiffs lacked the access to (and the ability to demand) loan files prior to purchase.

Additionally, the Court agreed that the plaintiffs adequately pleaded the fraud element of scienter by alleging that Morgan Stanly learned about the loans’ defects during the course of its own due diligence reviews, and in its role as underwriter. Order.

WMC Settles $1 Billion RMBS Suit During Pendency Of Appeal

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On August 9, 2016, RMBS trustee Deutsche Bank National Trust Company and WMC Mortgage, LLC, filed a joint motion to stay an appeal pending in the Court of Appeals for the Second Circuit. The parties requested the stay to allow them time to finalize the settlement of a lawsuit alleging that WMC misrepresented the quality of loans it sold in a $1 billion 2006 RMBS offering. The trial court had previously dismissed the lawsuit in 2015 (covered here) as time-barred under New York’s six-year statute of limitations. Joint Motion.