Class Action Tsunami

A growing number of investor class actions are increasingly being filed by investors of mortgage-backed securities.

A class action filed in U.S. District Court for the Southern District of New York against Bank of America Corp. was announced last week by Coughlin Stoia Geller Rudman & Robbins LLP. Potential class members include sellers and buyers of BoA’s common stock between July 21, 2008, and Jan. 20, 2009. Also named among the defendants are BoA Chairman, President and Chief Executive Officer Kenneth D. Lewis and former Merrill Lynch & Co. Inc. chief Jonathan Thain.

As in most investor class actions, the defendants are accused of violating the Securities Exchange Act of 1934 by issuing materially false and misleading statements about the company’s operational and financial results. They allegedly concealed the Charlotte, N.C.-based institution’s failure to properly value its mortgage-related assets. In addition, the plaintiffs claim the bank hid its inadequate due-diligence process in its acquisition of Merrill Lynch, Pierce, Fenner & Smith Inc.

BoA’s stock reached an artificially high level of more than $38 on Oct. 1, then tumbled to just over $5 by Jan. 20, according to the lawsuit.

On Jan. 12, a group of Washington borrowers filed a lawsuit in U.S. District Court for the Western District of Washington in Seattle against BoA subsidiary Countrywide, a press release last month from Hagens Berman Sobol Shapiro said. Countrywide is accused of rigging property values through its subsidiary LandSafe — which reportedly marks up appraisal costs 200 percent.

Coughlin Stoia is also representing investors of 32 J.P. Morgan issuances from 2006 and 2007 in a class action filed on Jan. 21 in the U.S. District Court for the Eastern District of New York, a January announcement indicated. Defendants in the case are accused of misrepresenting the maximum debt-to-income ratios, documentation and payment ability of borrowers on loans included in the trusts.

“By the summer of 2007, the amount of uncollectible mortgage loans securing the certificates began to be revealed to the public,” Coughlin Stoia stated. “The delinquency and foreclosure rates of the mortgage loans securing the certificates has grown both faster and in greater quantity than what would be expected for mortgage loans of the types described in the prospectus supplements.”

Another lawsuit by Coughlin Stoia was filed on Jan. 26 in U.S. District Court for the Eastern District of New York on behalf of investors of 32 Deutsche Alt-A Securities Mortgage Loan Trust RMBS issued in 2006 and 2007 against the trusts and Deutsche Alt-A officers, directors, underwriters and issuers, a news release last month said. The defendants allegedly misrepresented DTI ratios, loan documentation and repayment ability on loans included in the trusts.

Investors of Wells Fargo Mortgage-Backed Securities 2006-AR-1-19 and 2006-1-17 are suing the trust and related parties in U.S. District Court for the Southern District of New York, attorney Daniel E. Rehns said in a statement. Investors were allegedly mislead about the offerings.

Schoengold Sporn Laitman & Lometti, P.C., announced in January a class action filed in U.S. District Court for the Western District of Washington against 17 WaMu Mortgage Pass-Through Certificates issued in 2006. Also named as defendants are Washington Mutual Bank, WaMu Asset Acceptance Corp., David Beck, Biane Novak, Thomas Green, Rolland Jurgens, Richard Careaga and WaMu Capital Corp..

Investors of HarborView Mortgage Loan Trust 2006-4, 2006-5, and 2006-9 have sued the trusts, the deals’ underwriter Greenwich Capital Acceptance Inc. and other individuals and credit ratings agencies, a statement last month from the plaintiffs’ attorney Frank R. Schirripa said. The case, filed in U.S. District Court for the Southern District of New York, alleges that the defendants made material misstatements and omissions in the offering of the securities.

A class action was filed in U.S. District Court for the Middle District of North Carolina on Jan. 29 against Triad Guaranty Inc., its former President and CEO Mark Tonnesen and President and CEO Kenneth W. Jones, Coughlin Stoia announced last week. The plaintiffs — investor’s of the company’s stock from Oct. 26, 2006, to Nov. 10, 2008 — claim the defendants publicly misrepresented the mortgage insurer’s operations and financial condition.

The company failed to fully disclose its exposure to Alt-A and option-ARM loans until November 2008, the lawsuit claims. Triad, which stopped issuing commitments for mortgage insurance on July 15, 2008, saw its stock fall from $58 in January 2007 to less than a dollar by November 2008.