Asserting that investors knew exactly what they were getting, Prudential Insurance Company of America has filed for dismissal of a suit brought by disgruntled buyers of mortgage securities.
The complaint, filed by a Denver insurance company, fails to demonstrate that Prudential did anything "inaccurate or misleading" when packaging and selling the mortgage investments, according to a 35-page response Prudential filed this month.
The investors were "sophisticated" market players who received extensive written and spoken information about the mortgage securities, Prudential's response states.
Prudential also takes issue with the complaint itself, saying it "makes only generalized allegations" that are not backed by evidence.
Prudential is firing back at a group of investors led by Capitol Life Insurance, Denver, that bought securities whose value subsequently plummeted to about 5 cents on the dollar.
The legal action has drawn attention because it challenges Prudential over investors' loss of principal. Industry lawyers said most suits involving mortgage securities focus on prepayments, when investors feel cheated of profits because the mortgages that backed the securities paid off more quickly than expected.
Also, lenders have an interest in anything that could potentially jolt the mortgage securitization industry, a chief source of liquidity.
The Prudential units named in the suit include mortgage origination and securitization operations later sold to Norwest Mortgage Inc., Des Moines. Norwest is not directly involved in the suit but has given Prudential access to its former mortgage operations to help Prudential prepare its defense, an executive close to the matter said.
A spokesman for Prudential said it expects a decision on its request for dismissal this spring or in early summer. The claims and counterclaims were filed in state Superior Court in Newark, N.J., where Prudential Insurance is based.
Capitol Life alleged in February that former Prudential units engaged in "massive fraud" by unloading decaying investments. At issue is a $55 million subordinated piece of a $552 million collateralized mortgage obligation that Prudential put together in 1992.
