Many of the toxic mortgage-backed securities that were a key part of the subprime mortgage meltdown were sold in multiple separate offerings based on the same shelf registration statement but separate prospectuses. Each separate offering included multiple securities at varying tranches of seniority and subordination. In the litigation following the subprime meltdown, defendants in suits bought by mortgage-backed securities investors have had considerable success in arguing that the claimants have standing only to assert claims only with respect to the specific offerings and tranches in which the claimant had invested, and lacked standing to assert class claims on behalf of investors who purchased securities in other offerings and tranches.
The plaintiffs may now have a potent tool to try to fight these standing arguments. In a September 6, 2012 opinion (here), the Second Circuit ruled -- in a case involving mortgage-backed securities issued by a unit of Goldman Sachs -- that the investor plaintiff had standing to assert claims relating not only to the specific offerings in which the plaintiff invested but also the claims of investors in other related offerings, to the extent that the securities in the other offerings were backed by mortgages originated by the same lenders that originated the mortgages backing the plaintiff's securities. The Second Circuit also rejected the argument that the plaintiff lacked standing to assert claims on behalf of investors in the different tranches. Finally, the Second Circuit also held the plaintiff need not plead an out-of-pocket loss in order to allege a cognizable diminution in the value of an illiquid security under Section 11.
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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