Second Circuit Drops Successors and Assigns Language – or Shoes – to Dismiss FHFA from Class Action

FHFA did not succeed to the interests of Freddie Mac until Sept. 2008, so it acquired no interest in Freddie Mac’s NovaStar bonds until then.
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N.J. Carpenters Health Fund v. NovaStar Mortg., 19-763-cv (L) (2d Cir. Mar. 14, 2022)

MAR 14, 2022 | REPUBLISHED BY LINY : MAR 30, 2022

This opinion is written to allow FHFA to pursue more claims, despite missing the deadline to ‘opt out of the class’ by falsely stating they did not receive the ‘opt out notice’, which they later admit that they did receive.

In order to allow FHFA to pursue more claims (they get special exceptions via HERA which means they are not going to fall foul of statute of limitations like the average litigant), the court decided that FHFA did not appear as conservator until a few month after the litigation began and can be separated.

That contradicts prior precedent:

A successors and assigns clause, sometimes also referred to as a binding effects clause, states the contracting parties’ intention that their respective successors and assigns be entitled to the benefits of, and subject to the obligations created by, the contract.

See also; Herron v. Fannie Mae, 857 F. Supp. 2d 87, 95 (D.D.C. 2012)

(“Fannie Mae was not converted into a government entity when it was placed into conservatorship; instead, FHFA stepped into the shoes of Fannie Mae. FHFA as conservator for Fannie Mae is not a government actor.”)

NEW JERSEY CARPENTERS HEALTH FUND, on Behalf of Itself and All Others Similarly Situated, Plaintiff-Appellee,

v.

NOVASTAR MORTGAGE, INC.,

NOVASTAR MORTGAGE FUNDING CORPORATION,

SCOTT F. HARTMAN,

GREGORY S. METZ,

W. LANCE ANDERSON,

MARK HERPICH,

RBS SECURITIES, INC. f/k/a GREENWICH CAPITAL MARKETS, INC., d/b/a RBS GREENWICH CAPITAL,

DEUTSCHE BANK SECURITIES, INC.

and

WELLS FARGO ADVISORS, LLC f/k/a WACHOVIA SECURITIES LLC,

Defendants-Appellees,

FEDERAL HOUSING FINANCE AGENCY, in its capacity as Conservator of the Federal Home Loan Mortgage Corporation,

and

THE FEDERAL HOME LOAN MORTGAGE CORPORATION, Objectors-Appellants

JOEL P. LAITMAN, New York, New York (Christopher Lometti, Michael Eisenkraft, Cohen Milstein Sellers & Toll, New York, New York, on the brief), for Plaintiff-Appellee.

ALAN C. TURNER, New York, New York (Simpson Thacher & Bartlett, New York, New York, on the brief for Defendants-Appellees RBS Securities, Inc., Deutsche Bank Securities, Inc.,

and Wells Fargo Advisors, LLC;

William F. Alderman, Orrick, Herrington & Sutcliffe, San Francisco, California, on the brief for Defendants-Appellees NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, Hartman, Metz, Anderson, and Herpich).

CHRISTOPHER P. JOHNSON, New York, New York (Kyle A. Lonergan, H. Lawrence Stierhoff, Drew B. Hollander, McKool Smith, New York, New York, on the brief), for Objectors-Appellants.


Objectors challenged the district court’s judgment approving a class action settlement that includes Freddie Mac, with FHFA as its conservator, as a member of the plaintiff settlement class and enjoins FHFA from further pursuing Freddie Mac claims that were at issue in the action.

The Second Circuit rejected FHFA’s contention that the Housing and Economic Recovery Act of 2008 (HERA) deprived the district court of subject matter jurisdiction to treat FHFA or Freddie Mac as a member of the settlement class or to rule that conservatorship assets were within the scope of the settlement.

However, the court concluded for other reasons that the district court’s March 8, 2019 prejudgment ruling that FHFA is a member of the settlement class was erroneous.

The court explained that the Settlement Class, as certified by the district court, consists of persons and entities who purchased or otherwise acquired interests in the NovaStar bonds “prior to May 21, 2008.”

However, because FHFA did not succeed to the interests of Freddie Mac until September 6, 2008, it acquired no interest in Freddie Mac’s NovaStar bonds until that date.

Therefore, FHFA is not a member of the Settlement Class and the court modified the judgment to reflect the court’s ruling.

Amalya L. Kearse is a United States Circuit Judge of the U.S. Court of Appeals for the Second Circuit. At the time of her appointment in 1979, she was a partner in the New York law firm of Hughes, Hubbard & Reed.

Judge Kearse received her B.A. degree from Wellesley College in 1959, and her J.D. degree from the University of Michigan Law School in 1962.

She practiced law with the New York firm of Hughes, Hubbard & Reed from 1962 to 1979, becoming a partner in 1969. She also served as an adjunct lecturer at the New York University School of Law from 1968 to 1969.

In 1979, Judge Kearse became the first woman to be elected to a fellowship in the American College of Trial Lawyers. She was a member of the University of Michigan Law School Committee of Visitors from 1971 to 1979.

Judge Kearse is a native of Vauxhall, New Jersey.

Why I Didn’t Invest in Subprime Mortgages

Original Publish Date: November 20, 2007

I sit in wonderment at the story of W. Lance Anderson, the president of NovaStar Financial in Kansas City, who while handing out subprime mortgages to any applicant wearing shoes and a shirt managed to sink the company’s stock from $40 in June to $1.72. This is a man who earned $1.7 million in salary and bonuses last year, plus $711,386 in deferred compensation, plus more dough in various arrangements that dopes like me can’t quite grasp. Meanwhile, all the little investors in NovaStar are cutting back on Christmas gifts and canceling their winter vacations in Daytona Beach.

I myself would never invest money in a company headed by a man named W. Lance Anderson. The very name inspires distrust. What’s the W for? Wolfgang? Whoopee? Weasel? A man who goes by W. Lance is likely to wear tinted glasses and two-toned shoes, smoke Kools, and have a gun fetish. Nonetheless, a small army of hopeful investors bought into the idea that you can make money on bad loans and now they are left holding the bag while W. Lance goes on to his next great idea, perhaps a scheme for making purses from dog poop, and I wish him and his family well, but I will not be there for him at the IPO.

Something in my little brain resists the idea of big profits, windfalls, bonanzas. Maybe the story about the tortoise and the hare made too big an impression. Maybe it’s the fact that a writer like me has to make one sentence at a time: there are no great leaps in this field unless you lift whole passages from other people’s work, and there is an awful price to be paid for that.

Maybe it’s due to the fact that back in my youth, the Anoka Tornadoes basketball team was riding high, aces in hand, a cinch to go to State, and we played St. Francis in the first round of the districts and the game was close and in the last two minutes our heroes froze at the prospect of losing to those pimply-faced farmboys, and guess what? We lost. The memory is fresh, fifty years later. The Tornado who missed those two free throws with seconds remaining is now almost 70 and I imagine he thinks about it sometimes too. And I imagine he is a conservative investor.

Our high school teachers — some of them — tried to get us to Dare To Dream. They tried to sell us on the idea that we use only a fraction of our brain’s capacity — one teacher said 10 percent and another said 2 percent, but he was probably thinking of the class before ours. I was floundering in physics and plane geometry, bored with English, struggling to remember the Smoot-Hawley Tariff, and I was supposed to get my 360-horsepower brain out of first gear, but how? Deep breathing? Wheaties, the Breakfast of Champions? Prayer? (O Lord who hath created this brain, we beseech Thee to rev it up a little.) I tried nicotine and caffeine and achieved some excitation, but smarter? Nooooo.

I now think the 10-percent-of-capacity theory is hogwash. I believe that we are doing about as well as we can do. I think the brain soaks up bits of information — a wild turkey can fly as fast as 55 mph, 63 percent of Americans surveyed support the writers in the Hollywood strike, woodpeckers don’t get headaches because their skulls are spongy, nearly 60 percent of blind musicians have perfect pitch. Each fact you absorb squeezes out another — the name of Frank Sinatra’s first big hit with the Dorsey band or the order of the minor prophets or the location of Ukiah, California. The brain is full. Learn one thing, lose another. In comes a song, out goes math.

The idea that time is wasting and our jets are idling and we must figure out the code and then we can take the great leap forward and fly up in the air — this is what inspires people to invest in the subprime mortgage business, or the Jerusalem artichoke, or the Florida time-share. It’s what makes people see the Current Occupant as a conservative. He is no more conservative than I am Eleanor of Aquitaine. He saw an America of plodders and pluggers like me and he put the government at the service of the W. Lances among us and he appointed a whole regiment of W. Lances to high office and here we are, seven years later, holding the bag.

Linkedin (Former Law Partner)

 

 

 

 

 

Joel Laitman served as lead counsel in many of the firm’s mortgage backed securities class actions brought against investment banks including:

HEMT (Credit Suisse), Harborview (RBS Greenwich Capital), RALI (UBS, Goldman Sachs, Citi), and NovaStar (RBS Greenwich Capital, Wachovia, Deutsche Bank) and Lehman MBS.

In four of these cases Mr. Laitman’s efforts resulted in settlements totaling $885 million dollars.

The Harborview MBS case settled for $275 million in 2014;

the RALI MBS action settled for $335 million in 2015;

the HEMT MBS action settled for $110 million in 2016

and

the Novastar MBS case settled for $165 million in 2017.

Mr. Laitman also participated in the commencement and prosecution of the Countrywide MBS case that settled for $500 million in 2013

and

the Bear Stearns MBS action that settled for $500 million in 2015.

In approving the Harborview settlement, Chief Judge Loretta Preska of the Southern District of New York commended counsel on a “job well done.”

The National Law Journal cited the prosecution of this case, among others, in designating Cohen Milstein as one of the country’s “Elite Trial Law Firms.”

In 2016 Mr. Laitman was selected as one of the Law Dragon 500 leading lawyers in the nation.

Novastar MBS Litigation

On March 8, 2019, U.S. District Judge Deborah Batts granted final approval to a $165 million settlement in connection with losses from securities issued by NovaStar Mortgage Inc., a major subprime lender prior to the housing crisis, and several top Wall Street banks. The settlement, which was initially announced in March 2017, brings over 10 years of litigation to a close.

In the years leading up to the financial crisis, NovaStar specialized in authorizing risky residential mortgage loans that banks underwrote and packaged into investment portfolios called mortgage-backed securities (MBS). The class action lawsuit settled today charged NovaStar, the Royal Bank of Scotland, Wells Fargo and Deutsche Bank with misleading investors into believing that the securities they bought were safer than they proved to be. The suit argued the company hid how it systematically disregarded its own underwriting guidelines to increase the number of mortgages it could originate and incentivized its employees to make noncompliant loans to extremely risky borrowers.

The New Jersey Carpenters Health Fund, the lead plaintiff in the case, and Iowa Public Employees’ Retirement System, a class representative, were among many worker pension funds that bought mortgage-backed securities from NovaStar in 2006. When these securities were downgraded to junk bond status, the Funds took a painful financial hit. Cohen Milstein represents the lead plaintiff in this litigation.  Please visit https://www.novastarmbssettlement.com/ for additional information on this settlement.

Case Background

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 McGraw-Hill Companies, Inc. (“S&P”) and Moody’s Investors Services, Inc. (“Moody’s”) (the “Rating Agency Defendants”).1

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 November 4, 2016, Judge Deborah Batts of the Federal District Court for the Southern District of New York  granted, in its entirety, Plaintiffs’ motion for class certification. This means that the certified class encompasses investors who purchased on any of the  six Novastar mortgage backed securities offerings at issue in the case.

[1] NMI, NMFC, and the Rating Agency Defendants are no longer in the action.

On November 4, 2014, a federal judge granted final approval to a $275 million cash settlement in the mortgage-backed (MBS) class action litigation against Royal Bank of Scotland (RBS) and others led by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust, along with additional class representatives Iowa Public Employees’ Retirement System and Midwest Operating Engineers Pension Trust Fund.

In issuing her order approving the settlement, Judge Loretta A. Preska, of the U.S. District Court, Southern District of New York, commented that the case brought on behalf of the plaintiffs was “interesting and different” and that settlement on their behalf “was a job well done.”  The Court’s approval of the settlement brings to a close the consolidated class action lawsuit brought in 2008 by the pension funds against RBS and other defendants for securities violations involving the packaging and sale of 14 public offerings of “Harborview” series MBS.

Case Background

Cohen Milstein represents Lead 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 Harborview Mortgage Loan Pass-Through Certificates (the “Certificates”).  The Certificates were issued in fourteen (14) Offerings which took place between April 26, 2006 and October 1, 2007 (collectively, the “Harborview Offerings” or “Offerings”).

On July 17, 2014, the Court granted preliminary approval of a $275 million settlement of this Action and ordering that Notice be sent to potential Class Members. A hearing to determine the fairness and reasonableness of the Settlement is schedule for October 28, 2014 at 9:30 am in Courtroom 12A of the United States District Courthouse, Southern District of New York, 500 Pearl Street, New York, NY 10007.  The deadline for submission of Proofs of Claim Forms is November 14, 2014.

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; and (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.

On July 15, 2010, Lead Plaintiffs moved to certify a class of purchasers of certificates in the two Offerings in the case at that time, Harborview Mortgage Loan Trust, Series 2006-4 and 2007-7, to certify Lead Plaintiffs as Class Representatives and to appoint Cohen Milstein Sellers & Toll PLLC as Lead Counsel (the “First Class Certification Motion”).

On January 3, 2011, Lead Plaintiffs filed the Consolidated Second Amended Securities Class Action Complaint, which, inter alia, added the claims of intervenor plaintiffs Laborers’ Pension Fund and Health and Welfare Department of the Construction and General Laborers’ District Counsel of Chicago and Vicinity (“Chicago Laborers”), Midwest Operating Engineers Pension Trust Fund (“Midwest OE”) and Iowa Public Employees’ Retirement System (“IPERS”).

On January 18, 2011, the District Court denied the First Class Certification Motion (the “First Class Certification Decision”).  While the District Court found that Lead Plaintiffs had satisfied all of the Rule 23(a) factors, including numerosity, commonality, adequacy and typicality, it found pursuant to Rule 23(b)(3) that individual issues of knowledge predominated and that the class action device was not the superior method of adjudication, precluding class certification.

On August 6, 2012, Lead Plaintiffs filed their renewed motion for class certification as to the two Offerings they purchased (the “Second Class Certification Motion”).  Lead Plaintiffs restricted the temporal scope of the class to encompass only purchases prior to any downgrades of the certificates and eliminated the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation from the class definition.  On October 15, 2012, the Court granted in part the Second Class Certification Motion and appointed Lead Plaintiffs as the class representatives for the two Offerings they purchased.

On November 16, 2012, Lead Plaintiffs sought reconsideration of the Court’s March 26, 2010 Order dismissing claims as to those offerings in which no Lead Plaintiff purchased securities in light of NECA-IBEW Health & Welfare Fund v. Goldman, Sachs & Co., 693 F.3d 145 (2d Cir. 2012) (“NECA-IBEW”).  Plaintiffs’ reconsideration motion sought to reinstate claims with respect to twelve of the Fifteen Original Offerings that had previously been dismissed.  On November 16, 2012, Defendants filed a motion to dismiss the Intervenor Offerings as barred by the statute of repose. That motion was granted on April 30, 2013.

On May 10, 2013, Plaintiffs filed a Consolidated Third Amended Securities Class Action Complaint, and on May 13, 2013 filed a Corrected Consolidated Third Amended Securities Class Action Complaint (“Third Amended Complaint”), which asserted claims in relation to the 14 remaining offerings in the case.

On June 25, 2013, Lead Plaintiffs filed a motion to modify the class to encompass the additional reinstated offerings and add IPERS and Midwest OE as Additional Class Representatives.  On December 27, 2013, the District Court granted the motion, expanding the class to encompass the 14 remaining offerings and appointing Midwest OE and IPERS as additional Class Representatives.

On February 24, 2014, after extended discovery by both sides, the Parties reached a settlement of this action as detailed in the Notice.

Federal Court Approves Landmark $505 Million Settlement with JPMorgan Chase & Co. in Bear Stearns Mortgage Pass-Through Certificates Litigation

On May 27, 2015, U.S. District Judge Laura Taylor Swain gave final approval to a class action settlement with JPMorgan Chase & Co., which agreed to pay $500 million and up to an additional $5 million in litigation-related expenses to resolve claims arising from the sale of $27.2 billion of mortgage-backed securities issued by Bear Stearns & Co. during 2006 and 2007 in 22 separate public offerings. This is the largest recovery ever achieved in a class action involving mortgage-backed securities.

The settlement resolves claims that Bear Stearns violated federal securities laws by selling certificates backed by approximately 71,000 largely “Alt-A” mortgages.  Investors alleged that the offering documents used to issue the mortgage-backed securities contained material misstatements and omitted key facts relating to the underwriting guidelines used by Bear’s EMC Mortgage unit, Countrywide Home Loans, and other lenders; the accuracy of associated property appraisals, and the overall quality of the collateral.

Cohen Milstein, which was appointed co-lead counsel in this case in December 2009, represents co-lead plaintiff the New Jersey Carpenters Health Fund as well as additional plaintiffs Boilermakers Blacksmith National Pension Trust, the Oregon Public Employees Retirement System and the Iowa Public Employees Retirement System.

Cohen Milstein’s team included Daniel S. Sommers, Christopher Lometti, Richard Speirs, and S. Douglas Bunch.

The case is In re Bear Stearns Mortgage Pass-Through Certificates Litigation, Case No. 1:08-cv-08093, in the U.S. District Court for the Southern District of New York.

Countrywide Mortgage Backed Securities (MBS) Litigation

On December 5, 2013 the Court granted final approval of a $500 million landmark, mortgage-backed securities (MBS) class action litigation against Countrywide Financial Corporation and others, led by Lead Plaintiff, the Iowa Public Employees’ Retirement System (IPERS).  It is the nation’s largest MBS-federal securities class action settlement.  The settlement brings to a close the consolidated class action lawsuit brought in 2010 by multiple retirement funds against Countrywide and other defendants for securities violations involving the packaging and sale of MBS. Bank of America acquired Countrywide in 2008.

In addition to the Lead Plaintiff, the Iowa Public Employees’ Retirement System, Orange County Employees’ Retirement System (“OCERS”), the State of Oregon, by and through the Oregon State Treasurer and the Oregon Public Employee Retirement Board on behalf of the Oregon Public Employee Retirement Fund (“Oregon”) and the General Board of Pension and Health Benefits of the United Methodist Church (“the General Board”),  all were appointed class representatives and Cohen Milstein was appointed Class Counsel in the litigation in October 2011.

Case Background

On April 17, 2013, Plaintiffs in the landmark mortgage-backed securities (MBS) class action litigation against Countrywide Financial Corporation and others, led by Lead Plaintiff, the Iowa Public Employees’ Retirement System (IPERS), agreed to a $500 million settlement.

If approved by the U.S. District Court in the Central District of California, the settlement will bring to a close the consolidated class action lawsuit brought in 2010 by multiple retirement funds against Countrywide and other defendants for securities violations involving the packaging and sale of MBS. Bank of America acquired Countrywide in 2008.

On May 14, 2010, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California appointed Cohen Milstein lead counsel in the securities litigation case pending against Countrywide Financial Corporation.  Cohen Milstein’s client, the Iowa Public Employees’ Retirement System (IPERS), was appointed lead plaintiff.

You can view a copy of the Order here and to the left under “Case Documents”.

Cohen Milstein Sellers & Toll PLLC (“Cohen Milstein”) announces that a class action lawsuit has been filed on behalf of purchasers of certain mortgage-backed securities sponsored by affiliates of Countrywide Financial Corporation and its wholly-owned subsidiary Countrywide Home Loans, Inc. (collectively, “Countrywide”) and related trusts (the “Issuing Trusts”), issued between 2005 and 2007. The case has been assigned a civil action number of 10-cv-00302-SJO-PJW and is pending in the United States District Court for the Central District of California.

You can view a copy of the Complaint here and to the left under “Case Documents”.

The Complaint alleges claims under the Securities Act of 1933 (the “Securities Act”) as a class action on behalf of investors who purchased or otherwise acquired the following certificates (the “Class” or “Plaintiffs”): Alternative Loan Trust Certificates issued by CWALT, Inc. (“CWALT”); CWABS Asset-Backed Trust Certificates issued by CWABS, Inc. (“CWABS”); CHL Mortgage Pass-Through Trust Certificates issued in 2005 and 2006 by CWMBS, Inc. (“CWMBS”); and CWHEQ Revolving Home Equity Loan Trusts and Home Equity Loan Trusts issued by CWHEQ, Inc. (“CWHEQ”) (collectively referred to as the “Certificates”).

The Complaint alleges that defendants issued the Certificates pursuant or traceable to certain registration statements (the “Registration Statements”) filed with the U.S. Securities and Exchange Commission (“SEC”).  The Certificates were then sold to Class members pursuant to certain prospectuses (the “Prospectus Supplements”), which also were filed with the SEC and incorporated by reference into the Registration Statements.

The Complaint charges that the Registration Statements and Prospectus Supplements issued in connection with the Certificates contained materially false and misleading statements and omitted material information in violation of Sections 11, 12(a)(2) and 15 of the Securities Act.

Specifically, the Complaint charges that Countrywide, certain officers and directors of CWALT, CWABS, CWMBS and CWHEQ, and certain investment banks, which served as underwriters of the Certificates, violated the Securities Act by issuing the Certificates pursuant to Registration Statements and Prospectus Supplements that misstated and omitted material information regarding, inter alia, the process used to originate and the quality of mortgages that were pooled in the Issuing Trusts and were used as the financial basis for the Certificates.  For example, the Complaint alleges that Countrywide did not follow the underwriting and appraisal standards described in the Registration Statements and Prospectus Supplements.  Indeed, Countrywide issued mortgages to borrowers that did not satisfy the requisite eligibility criteria as described in the Registration Statements and Prospectus Supplements.  Likewise, the mortgages held by the Issuing Trusts and underlying the Certificates were based on collateral appraisals that overstated the value of the underlying properties, thus exposing the Issuing Trusts and Class members to losses in the event of foreclosure.  As a result of the material misrepresentations and omissions in the Registration Statements and Prospectus Supplements, investors purchased securities that were far riskier than represented.

According to the Complaint, by mid-2007 the mortgages held by the Issuing Trusts and underlying the Certificates began suffering accelerating delinquencies and defaults. The defaults led to real estate foreclosures, which revealed that the properties underlying the mortgages were worth materially less than the loans issued to the borrowers, and the borrowers did not have sufficient financial wherewithal to cover the outstanding mortgage balances.  The representations made in the Prospectus Supplements were materially false and misleading because at the time of the Certificates offerings, Countrywide’s underwriting standards were not designed to evaluate a borrower’s ability to repay or the true value of the mortgaged property underlying the Certificates.  These adverse factors were not revealed and/or adequately addressed in the offering documents.  Had Plaintiffs and the other members of the Class known the truth, they would not have purchased the Certificates, or they would not have purchased them at the inflated prices that were paid.  Plaintiffs seek to recover damages on behalf of all purchasers of the Certificates issued between 2005 and 2007.

Cohen Milstein Sellers & Toll PLLC has significant experience in prosecuting investor class actions and actions involving securities fraud.  The firm has offices in Washington, D.C., New York, Philadelphia, and Chicago, and is active in major litigation pending in federal and state courts throughout the nation.

The firm’s reputation for excellence has been recognized on repeated occasions by courts which have appointed the firm to lead positions in complex multi-district or consolidated litigation.  Cohen Milstein Sellers & Toll PLLC has taken a lead role in numerous important cases on behalf of defrauded investors, and has been responsible for a number of outstanding recoveries which, in the aggregate, total in the billions of dollars.

If you have any questions about this action, or with regard to your rights, please contact either of the following:

Steven J. Toll, Esq.
Julie Goldsmith Reiser, Esq.
Cohen Milstein Sellers & Toll PLLC

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