(February 7, 2013) – Europe’s second-largest pension fund, Stichting Pensioenfonds ABP, has agreed to end its mortgage-backed securities lawsuit against a unit of Deutsche Bank in exchange for an undisclosed settlement, according to a source close to the matter.
ABP sued Ace Securities Corporation in September 2011, claiming the Deutsche Bank arm had falsely represented the default probability of certain mortgage-backed securities when selling the financial instruments. The original complaint is sealed, but subsequent documents detail ABP’s claims.
“The fraud committed by [the] defendants in their securitization of mortgage loans into residential mortgage-backed securities lies at the very heart of the economic crisis our nation faces today,” APB’s attorneys wrote in a memo filed April 2012. Ace Securities “originated or purchased thousands of loans that they knew did not comply with their stated underwriting guidelines,” the document alleges. “Then, fully aware of the high probability that the improvidently granted loans would default, they bundled those loans together and sold them off to third party investors such as ABP.”
The Deutsche Bank unit countered in a filing to dismiss the allegations that the €274 billion ($365 billion) ABP “is a highly sophisticated financial institution that invested billions of dollars in residential mortgage-backed securities (RMBS). In the wake of the greatest financial crisis since the Great Depression, ABP regrets these investments and complains that it was defrauded by the financial institutions that sold it RMBS.”
The documents go on to argue that “although ABP attempts to paint itself as the unwitting victim of a massive fraud perpetrated by financial institutions and mortgage loan originators, the more plausible scenario is that ABP, like so many other sophisticated investors, made a calculated bet on the mortgage market that did not pay off when the housing market collapsed.”
In August, the judge agreed to throw out all of ABP’s claims against Deutsche Bank itself, as well as the allegations of negligent misrepresentation and aiding and betting fraud. However, the justice ordered also Ace Securities to face the pension fund’s claims of common-law fraud and fraudulent inducement (in other words, misleading someone into entering an agreement that is to his or her disadvantage).
The two parties agreed to end the lawsuit with prejudice, meaning it cannot be refiled, according to court documents dated February 4. One of ABP’s lead attorneys in the case, Geoffrey Jarvis of Grant & Eisenhofer, declined to remark on the case. Moses Silverman of Paul, Weiss, Rifkind, Wharton & Garrison, representing Ace Securities/Deutsche Bank, did not immediately response to a request for comment.
The case is number 652460/2011, filed in New York State Supreme Court.