Citigroup and Others Win Dismissal in Securities Act Class Action

April 6, 2010

Cleary Gottlieb won the dismissal for Citigroup and related defendants of a Securities Act class action involving offerings by 18 mortgage pass-through certificate trusts. U.S. District Judge Leonard Wexler agreed with the defendants that because the named plaintiffs had not purchased securities issued by 16 of the 18 trusts, they lack standing in relation to those 16 trusts, despite the fact that all 18 trusts were issued pursuant to one Registration Statement, and therefore cannot prosecute claims against them. He thereby joined a growing roster of judges who have dismissed claims against multi-tranche MBS offerings to the extent the named plaintiffs did not buy securities from a challenged tranche. This should have the effect of limiting the scope of these suits. The court postponed addressing Cleary Gottlieb’s argument that claims against the two remaining trusts are precluded by robust risk factor disclosures, pending plaintiffs’ compliance with his order that they replead those claims with greater particularity, while noting that, based on the original pleading, ”[t]he strong nature of the cautionary language contained in the disclosure materials brings this case very close to the dismissal line. . . .” The class action was dismissed on April 6.