U.S. District Judge Denise Cote continues to frustrate banks facing claims over mortgage-backed securities they sold or underwrote. On Tuesday, Cote refused to dismiss claims against Wells Fargo Securities LLC brought by the National Credit Union Administration, following a January ruling in which she allowed a similar NCUA suit to go forward against Morgan Stanley & Co. Inc. The Manhattan judge has also repeatedly shot down banks’ defense arguments in a similar and larger group of MBS cases brought by the Federal Housing Finance Agency.
In a 17-page ruling, Cote held that the NCUA had sufficiently pled violations of Texas Blue Sky laws, which impose strict liability for misrepresentation in securities offering materials. The NCUA, the liquidator for failed credit unions, alleged that Wachovia Capital Markets LLC (which was later acquired by Wells Fargo) misrepresented the quality of the mortgages underlying two MBS certificates bought by Southwest Corporate Federal Credit Union for $25.7 million in 2006.
