GLOBAL – A group of international banks was dealt a blow last week when a US court of appeals reversed a lower-court dismissal of a class-action lawsuit filed by the New Jersey Carpenters Health Fund over $1.3bn (€1bn) in mortgage-backed securities sold in 2007.
In 2011, the US pension fund filed a lawsuit against a number of institutions, including Royal Bank of Scotland, Deutsche Bank, Wells Fargo and NovaStar Mortgage.
The pension fund claimed that the $1.3bn in securities sold by the institutions were riskier than what had been promised and argued that a "disproportionately" high number of the mortgages defaulted.
It also claimed that the offer documents put together by the banking institutions contained "misstatements" and "omissions" about the true nature of the securities.
According to the claim, RBS, Deutsche Bank and Wachovia – which has since been acquired by Wells Fargo – were underwriters for the deal, while the loans, mostly residential, were originated by NovaStar.
A court of justice in Manhattan previously dismissed the New Jersey Carpenters Health Fund's complaint in 2011, ruling that it "lacked standing" to pursue claims based on securities in which it "had not invested" and said the pension fund failed to state a claim.
The scheme decided to appeal the ruling in the summer of last year.
In a court document released last week, the US Court of Appeals in Manhattan backed the claim made by the New Jersey Carpenters Health Fund and urged the court of justice, which dismissed the pension fund in the first place, to investigate the claim further.
The Court of Appeals said the pension fund's claims allowed the court to make the "reasonable inference" that the banks could be held responsible under federal securities laws.
"We vacate the district court's holding that the fund, as the representative of a proposed class, lacked standing to assert claims based on securities in which it had not invested," the court said.
"After the district court entered its judgment, this court issued an opinion that addressed the issue of class-standing. Thus, we instruct the district court to reconsider the issue of standing presented here in light of that recent opinion."