Investors Revive Suit Against U.S. Bank in State Court Over $743 Billion Worth of RMBS

A group of dozens of investors, led by BlackRock, Inc., have revived a lawsuit in a New York state court that was dismissed in a federal court last month, accusing U.S. Bank of failing in its duties as trustee for more than $743 billion worth of mortgage backed securities.

Last month, U.S. District Judge Katherine Forrest in Manhattan dismissed claims by a group of institutional investors that included BlackRock Inc, Allianz SE's Pacific Investment Management Co, and TIAA-CREF, claiming that U.S. Bank was responsible for 843 toxic mortgage-backed securities totaling about $778 billion in collateral. Pursuant to a ruling from the Second Circuit Court in December 2014, Forrest ruled that the claims were not pleaded correctly on 33 of the trusts and that the remaining 810 trusts did not fall under federal jurisdiction.

The claims that were revived in the state court involved 794 private-label residential mortgage-backed securities that were securitized during a three-year period immediately prior to the financial crisis (2004 to 2007). According to reports, at the time of securitization, the trusts were worth about $743.8 billion. The investors are accusing the Minneapolis-based bank, as a trustee for the securities, of ignoring defects in the loans and failing to take action, which subsequently caused investors to lose billions of dollars in the aftermath of the crisis.

The suit was originally filed in the New York state court in June 2014, but was voluntarily dismissed when it was filed in the federal court in New York five months later.

An attorney for BlackRock declined to comment on the complaint, as did a spokesman for U.S. Bank, when DS News reached them by email.

A similar suit filed by BlackRock Inc., Allianz SE's Pacific Investment Management Co., and TIAA-CREF in June 2014 claims that HSBC Holdings breached its duties as the trustee in 283 trusts, causing more than $34 billion in losses when the financial crisis hit in 2008. Earlier in June, Judge Shira Sheindlin of the U.S. District Court for the Southern District of Manhattan rejected HSBC's attempt to have the suit dismissed, saying in her ruling that it was "plausible" to infer that HSBC knew about the breaches.