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Wells, Deutsche Bank, RBS to Pay US$165 Million in NovaStar Deal

A US$165 million cash settlement has been reached in a class-action lawsuit that alleged investors were misled about the safety of mortgage-backed securities comprised of loans originated by now-defunct subprime lender NovaStar Mortgage Inc. The settlement with Deutsche Bank, NovaStar, Royal Bank of Scotland, and Wells Fargo is pending approval by the U.S. District Court in the Southern District of New York, according to Cohen Milstein Sellers & Toll, the law firm representing the plaintiff class, which includes multiple worker pension funds.

The proposed settlement, filed in federal district court in Manhattan, requires approval from U.S. District Judge Deborah A. Batts. If that approval is granted, the settlement would resolve long-standing claims from investors, including union pension funds, who allege that Deutsche Bank Securities Inc., RBS Securities Inc. and Wachovia Capital Markets LLC, now Wells Fargo Advisors LLC, lied in offering documents on securities issued by NovaStar Mortgage Inc. When the bulk of the mortgages underlying those securities went into default during the financial crisis, the investors lost significant amounts of money, according to court documents.

According to the settlement documents, plaintiffs would receive US$30.84 per US$1,000 of face value of the securities they purchased, bringing it in line with previous residential mortgage-backed securities settlements. Holders of around US$2.2 billion worth of NovaStar-issued mortgage-backed securities are expected to opt out of the deal, according to the settlement documents. The settlement, if approved, would bring to a close litigation that was launched in June 2008.

News Characteristics

Date : Mar 15, 2017
Region : North America
Industry : Banks
Function : Risk Management
Sub-Function : Fraud Management