Royal Bank of Scotland settles mortgage backed derivative class action

Posted on: April 4th, 2014 by Steve Larson

Stocks and sharesEmployee health and pension funds that launched a consolidated class action in New York federal court accusing Royal Bank of Scotland Group PLC of misleading investors in mortgage-backed securities offerings have agreed to a $275 million cash settlement.   The settlement with RBS is the nation’s third-largest MBS-federal securities class action settlement stemming from the 2008 financial collapse. The plaintiffs in the certified consolidated class action include the New Jersey Carpenters Health Fund, the Boilermaker Blacksmith Pension Trust, Iowa Public Employees’ Retirement System and Midwest Operating Engineers Pension Trust Fund.

In a joint letter filed with the U.S. District Court in the Southern District of New York, Cohen Milstein and RBS’ attorneys at Simpson Thatcher & Bartlett LLP said the parties had reached a settlement in principle and would submit a motion for preliminary approval once the settlement has been documented.  If approved by the court, the settlement will bring 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 so-called Harborview series mortgage-backed securities.

The plaintiffs alleged that the public offering documents RBS used to sell the Harborview MBS certificates failed to disclose that the mortgage loans collateralizing the certificates were not originated in accordance with the applicable underwriting guidelines. Those securities were purchased between March 2006 and October 2007. By late 2008, virtually all of those certificates collapsed in value and were downgraded to junk bond status, the funds alleged.

In December 2013, U.S. District Judge Harold Baer Jr. expanded the class of certified MBS purchasers in the Harborview case against RBS by adding 10 securities offerings to two offerings that were already certified. That ruling raised the stakes by vastly expanding the defendants’ potential liability.

The case is New Jersey Carpenters Vacation Fund et al. v. Royal Bank of Scotland Group PLC et al., case number 2:08-cv-05093, in the U.S. District Court for the Southern District of New York.