The U.S. Court of Appeals in Manhattan has reversed a lower-court ruling that allowed a quartet of financial institutions to avoid facing a lawsuit over problematic mortgage bonds that were sold to a pension fund in 2007.
Bloomberg News reports that Deutsche Bank AG, NovaStar Mortgage Inc., Royal Bank of Scotland Group PLV and Wells Fargo & Co. must now face a $1.32 billion lawsuit brought by the New Jersey Carpenters Health Fund, which argued that the four companies sold mortgage-backed securities to investors that carried greater risks than promised. The pension fund also claims that the documents backing the securities were riddled with misstatements and omissions regarding the loans backing the issuance.
Wells Fargo's role in the lawsuit comes because of its acquisition of Wachovia, which was one of the underwriters in the 2007 transaction. The four companies did not publicly comment on the court's ruling.