Most of a lawsuit that charges Barclays (BCS) with misleading mortgage investors may proceed, a federal judge in Manhattan has ruled.
The decision means the company must prepare to defend itself against allegations by the Federal Housing Finance Agency of wrongdoing in the sale of securities backed by residential mortgages.
U.S. District Judge Denise Cote of the southern district of New York, made the ruling Monday. Cote had previously rule that the FHFA may proceed with lawsuits that accuse Goldman Sachs (GS), Deutsche Bank (DB), JPMorgan Chase (JPM) and Bank of America's (BAC) Merrill Lynch unit with misleading investors.
Monday's ruling was first reported by Reuters.
The lawsuits against the five companies are among 16 cases before Cote that the FHFA has brought involving charges of misconduct by underwriters of securities backed by residential mortgage loans. Fannie Mae and Freddie Mac purchased the securities over a roughly two-year period beginning in 2005. FHFA filed the lawsuits last December as part of its role as conservator for Fannie and Freddie.
The FHFA alleges that Barclays and the other defendants falsely asserted that the underlying mortgages complied with certain underwriting guidelines and standards.
The suit against Barclays concerns mortgage-backed securities purchased by Fannie and Freddie in eight securitizations by the bank.
In its motion to dismiss, Barclays contended that its affiliate known as Securitized Asset Backed Receivables Trust and several individual defendants named in the suit could not be held liable under the Virginia Securities Act, one of the laws that the FHFA cited in its complaint, because they did not themselves sell securities to Fannie and Freddie.
Cote agreed. "Virginia has purposefully sought to ensure that the scope of private liability under its statutes is more limited than that under federal law …consequently, parties …who do not pass title to a plaintiff are not liable" under the Virginia law, Cote wrote in her opinion, which dismissed the Virginia Securities Act claims against SABR and the individual defendants but otherwise allowed the case against Barclays to continue.
A spokesman for Barclays declined to comment on the ruling.
The court it expects depositions to take place next year in anticipation of a trial in January 2015.