Unionized workers and other individual and institutional investors a $165 million all-cash settlement on Wednesday in connection with losses from securities issued by, NovaStar Mortgage Inc, The Royal Bank of Scotland (RBS), Wells Fargo, and Deutsche Bank. This settlement will end the nine-year class action lawsuit if approved by the U.S. District Court.
The class action lawsuit settled on Wednesday charged NovaStar, RBS, Wells Fargo, and Deutsche Bank with misleading investors into believing the securities they bought were safer than they proved to be. In the years leading up to the financial crisis, NovaStar had specialized in authorizing risky mortgage loans that banks underwrote and packaged into mortgage-backed securities. The suit argues that the company hid how it systematically disregarded its own underwriting guidelines to increase the number of mortgages it could originate and incentivized its employees to make noncompliant loans to extremely risky borrowers.
Lead plaintiff The New Jersey Carpenters Health Fund, as well as class representative Iowa Public Employees’ Retirement System, were among the many worker pension funds that bought mortgage-backed securities from NovaStar in 2006. The funds took a painful hit when these securities downgraded to junk bond status.
“After years of hard-fought litigation – which included a dismissal, an appeal, and even the bankruptcy of some of the defendants – thousands of workers will finally get some financial relief,” said Steven J. Toll, Managing Partner at Cohen Milstein Sellers & Toll, which represented the plaintiffs in this class action. “We will continue to seek justice for those who suffered because of irresponsible lending and investments that burst the housing bubble and crashed our economy."
“This has been a long, complex process, and our clients and the attorneys on the case have overcome significant obstacles in reaching this settlement,” said the plaintiffs’ lead attorney, Joel P. Laitman of Cohen Milstein Sellers & Toll. “This settlement will give closure and monetary relief to investors who suffered losses in connection with these NovaStar MBS.