Bank Foreclosed Home Saved Merrill Lynch

by Peter Vernon on Foreclosure Help

The collapse of the mortgage industry turned out to be the savior for Merrill Lynch and its subsidiaries. Eastern District of Pennsylvania’s U.S. District Judge R. Barclay Surrick dismissed the securities fraud lawsuit filed against Merrill Lynch and its subsidiaries.

In his decision for the case of Luminent Mortgage Capital Inc. versus Merrill Lynch and Co., Surrick said that the bank foreclosed home crisis is most likely the cause of plaintiffs’ loses. The judge said that there is no evidence to support plaintiffs’ allegation that the defendants committed misrepresentations in 2005, thereby causing their economic loss. He added that the market’s downturn in 2007 was the cause of the plaintiffs’ economic loss.

The securities fraud lawsuit was filed against Merrill Lynch and its subsidiaries by two real estate investment trusts that alleged that they were fooled by false statements issued by Merrill Lynch. They claimed that they invested nearly $26 million on mortgage-backed securities which proved to be full of problem accounts.

Merrill Lynch’s defense team is composed of Karen Pieslak Pohlmann and Marc J. Sonnenfeld of Morgan Lewis and Bockius and Paul J. Lockwood and Jay B. Kasner of Skadden Arps Slate Meagher and Flom.

The defense team sought the dismissal of the case by arguing that plaintiffs committed several fatal flaws, including their failure to prove that Merrill Lynch and its brokers have committed securities fraud that led to their losses.

In his decision, Surrick compared the Merrill Lynch case with a previous lawsuit filed against the company before the 2nd U.S. Circuit Court of Appeals which dismissed the case.

He agreed with the defense team’s argument that the losses incurred by the plaintiffs stemmed from the collapse of the mortgage industry and the subsequent failure of mortgage-backed securities.

Plaintiffs’ lawyers said that Merrill Lynch intentionally withhold information about the risks surrounding the mortgage-backed certificates which it sold to Mercury Mortgage Finance Statutory Trust and Luminent Mortgage Capital Inc.

In its argument, plaintiffs’ lawyers said that Merrill Lynch falsely represented the underlying mortgage loans as having prepayment penalties which would have provided Luminent and Mercury Mortgage with steady income.

Surrick said that in securities fraud lawsuits, plaintiffs must show more than motive and opportunity to prove intentional fraud.

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