A lawsuit brought by Stichting Pensioenfonds ABP, Europe’s second-biggest pension fund, against a Deutsche Bank AG affiliate over residential mortgage-backed securities can proceed, a New York judge ruled.
Ace Securities Corp. must face two claims in the suit, for common-law fraud and fraudulent inducement, New York State Supreme Court Justice Jeffrey Oing in Manhattan said today. The judge dismissed claims of aiding and abetting fraud and negligent misrepresentation. The plaintiffs could refile the aiding-and-abetting claim, he said.
“There’s enough salt and pepper on the steak,” Oing said at a hearing.
ABP, based in Heerlen, Netherlands, sued Ace Securities, Deutsche Bank and four other bank affiliates in state court in Manhattan in September, saying it bought residential mortgage-backed securities while relying on allegedly false and misleading statements.
The defendants had asked Oing to dismiss the lawsuit, saying that ABP’s claims are barred by a statute of limitations and that the pension fund was told that a “substantial number” of the underlying loans were defective and wouldn’t comply with underwriting guidelines, according to court documents.
The defendants also argued that ABP is a “highly sophisticated financial institution” that failed to conduct its own due diligence on the loans and that the pension fund hasn’t shown that it hasn’t received the payments it was promised, the court documents said.
ABP has sued other banks in the same court over similar allegations, including Credit Suisse Group AG, JPMorgan Chase & Co. and Goldman Sachs Group Inc.
Ace Securities, based in Charlotte, North Carolina, was formed by Deutsche Bank Securities Inc. to facilitate the sale of residential mortgage loans through securitizations, ABP said in the complaint.
Oing dismissed Deutsche Bank, Deutsche Bank Home Lending LLC and DB Structured Products Inc. from the case, leaving Ace Securities, Deutsche Bank Securities and another Deutsche Bank affiliate as defendants.
Oing ruled from the bench and a written decision wasn’t immediately available.
“We are encouraged that the judge dismissed several claims and defendants and is still considering whether to dismiss the entire case on statute of limitations grounds,” Duncan King, a New York-based spokesman for Deutsche Bank, said in a statement.
The ruling “shows that investors will be able to get to discovery on these claims,” Geoffrey C. Jarvis, an attorney with Grant & Eisenhofer who is representing ABP, said after today’s hearing. The fraud allegation is the “key claim” in the suit, he said.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
The case is Stichting Pensioenfonds ABP v. Ace Securities Corp., 652460/2011, New York state Supreme Court (Manhattan).