ING Wins Substantial Victory in Securities Class Action Related to its RMBS Investments

Cleary Gottlieb sweepingly prevailed in its motion to dismiss class action claims asserted against ING in a ruling issued by Judge Lewis Kaplan on September 14, leaving one narrow claim left for further litigation. The lawsuit was brought by investors who had purchased securities in three bond offerings, in June 2007, September 2007, and June 2008, respectively. The allegations concerned ING’s disclosures in the offering documents about ING’s own investments in Alt-A and subprime residential mortgage-backed securities (RMBS). The case was notable in part because, unlike much of the other pending RMBS litigation, ING did not issue or underwrite the securities; it was merely an investor in them. Judge Kaplan dismissed all claims relating to the first two offerings and dismissed all but one claim regarding the June 2008 offering. The opinion discusses a variety of legal issues relevant to MBS-related litigation generally–including statute of limitations issues, the disclosure obligations of an issuer with respect to its RMBS investments, the requirement to link general market allegations with the specific assets at issue and issuer liability for disclosures of FICO/LTV scores and credit agency ratings.

In his ruling, Judge Kaplan dismissed claims relating to the June 2007 offering as barred by the statute of limitations, finding that the company’s general disclosure of its RMBS and Alt-A holdings gave plaintiffs sufficient notice of their claims more than a year before they filed suit. With respect to the September 2007 offering, Judge Kaplan held that plaintiffs did not sufficiently allege that ING had a duty to disclose additional loan-level details regarding its RMBS, noting that plaintiffs’ allegations largely relied on market-wide turmoil that post-dated the offering. He also rejected claims based on ING’s alleged failure to update FICO scores and LTV ratios on the mortgages underlying its RMBS, finding that there was no allegation that these metrics had changed. Finally, he further denied claims based on ING’s disclosure of the credit agencies’ ratings of the RMBS, referencing his holdings in earlier cases that ratings are opinions and are thus only actionable if it is alleged they were not truly held at the time they were made. As for the June 2008 offering, Judge Kaplan dismissed many of the same arguments lodged against the prior offerings, and additionally dismissed allegations that the offering documents failed to disclose certain impairments, finding that the impairments were immaterial and that plaintiffs’ supporting allegations were largely hindsight-driven. While noting that it was a “close call,” Judge Kaplan sustained plaintiffs’ claim that the June 2008 offering documents were misleading for failing to disclose additional details regarding the risk-level of the RMBS investments. Kaplan held that there were sufficient allegations that ING’s assets had deteriorated by the time of the June 2008 offering such that he could not say as a matter of law that additional disclosures would have been immaterial.