Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al.

Court: Commonwealth of Massachusetts
Case Number: 10-2741
Judge: Hon. Thomas P. Billings
Case Contacts: Gerald H. Silk, David R. Stickney, David Wales, Timothy A. DeLange, Jonathan D. Uslaner, Lauren McMillen Ormsbee, Jai K. Chandrasekhar, Rebecca E. Boon, Richard D. Gluck

This direct action asserts Massachusetts state securities law claims against 16 Wall Street Banks, including Morgan Stanley, Citigroup, Goldman Sachs, JPMorgan and Merrill Lynch, and 44 issuers related to the offer and sale of residential mortgage-backed securities ("RMBS") to Plaintiff Cambridge Place Investment Management Inc. ("CPIM").

On July 9, 2010, CPIM filed a Complaint in the Superior Court for the Commonwealth of Massachusetts alleging that Defendants offered or sold the Securities to CPIM by means of untrue statements of material facts and omissions of material fact in violation of Mass. Gen. Laws Ch. 110A, § 410.  The case involves 270 offerings of RMBS.  As a result of Defendants' conduct, CPIM incurred losses exceeding $1.5 billion. 

As alleged in the Complaint, Defendants' written and oral representations concerning RMBS that CPIM purchased contained untrue statements and omissions related to: (1) the mortgage originators' underwriting standards that were purportedly applied to evaluate the ability of the borrowers to repay the loans underlying the RMBS; (2) the appraisal standards applied to evaluate the value and adequacy of the mortgaged properties as collateral; (3) the loan-to-value ("LTV") ratios, debt-to-income ratios, and purported occupancy status of the mortgaged properties, including whether the properties were "owner occupied," "second homes," or "investment properties;" (4) the due diligence conducted on the mortgage loans to ensure compliance with stated underwriting practices; (5) various forms of credit enhancement applicable to certain tranches of securities; and (6) whether the issuing trust for each offering had good title to the mortgage loans comprising the pool.

In reality, the mortgages underlying the CPIM's RMBS purchases were originated by a group of now notorious subprime mortgage originators including New Century Mortgage Corporation, Long Beach Mortgage Company, Fremont Investment & Loan and Accredited Home Lenders, Inc.  These originators violated their own underwriting standards, encouraged and relied on inflated appraisal values, and accepted untrue information in loan applications.  In addition, the Complaint alleges that while the Wall Street Bank Defendants represented to CPIM that they performed careful due diligence on the loan pools and the originators' practices, in reality their reviews were increasingly cursory and were solely concerned with loan quantity, rather than quality.

On March 12, 2012, the Court denied Defendants’ Joint Motion to Dismiss For Lack of Standing in its entirety. On September 28, 2012, the Court denied in principal part Defendants’ Joint Motion to Dismiss For Failure to State a Claim. The parties are engaged in discovery and preparing for trial.

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