Norwest Mortgage's capital markets chief has become caught up in a lawsuit alleging "massive fraud" in connection with a $552 million issue of mortgage securities.

Jim Svinth, a senior vice president at Norwest, has been added to the list of defendants alleged to have defrauded investors when he was with the residential lending division of Prudential Insurance company. Mr. Svinth came to Norwest last year when it bought the Prudential operations.

At issue is more than $55 million of "subordinated" or secondary classes of an issue of collateralized mortgage obligations, or CMOs, that Prudential put together in 1992. The complaint alleges Prudential used a battery of fraudulent tactics to sell the securities, which today are worth as little as a few cents on the dollar. Investors that lost money on the deal include Prudential, which held on to a piece of the package.

Norwest is not a defendant, nor had any Norwest executive previously been named in the suit, which was filed in February solely against Prudential. Mr. Svinth was pulled in this summer, when the plaintiffs-two life insurance companies that bought the bonds-amended their complaint. Lehman Brothers, Merrill Lynch & Co., and Salomon Brothers, which acted a distributors of the loan package, were also added to the list of defendants.

The suit does not put a dollar amount on damages sought; it seeks relief based upon alleged "conspiracy to commit fraud and deceit," and the Racketeer Influenced and Corrupt Organizations Act.

Norwest declined to make Mr. Svinth available to comment, but he is contesting the allegations: His name is included in the latest round of legal filings, in an Aug. 11 motion for dismissal filed by Prudential. The motion is before a state Superior Court in Newark, N.J., where Prudential is based.

The action has been a jolt to the mortgage securities market, which has been rebuilding its reputation after difficulties several years ago. The market gives lenders a key source of capital by purchasing the loans.

The Prudential loan pool was made up of 14,600 mortgages originated by the company's residential units primarily in the Northeast and California between 1985 and 1992.

To move the deal, Prudential "manipulated the financials" to make the securitized loans appear more solid than they actually were, said an attorney with Prongay & Borderud, the law firm representing two of the issue's biggest investors, Capital Life Insurance Co. and American Investors Life Insurance Co.

Prudential, in its motion to dismiss, said the investors were given ample warning that they were taking on additional risk for investing in securities that could produce higher returns.

The offering documents pointed out that almost 40% of the loans were originated using limited documentation, a signal of possible riskiness, Prudential said in the motion.

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A Wall Street money management firm is heading to Europe this month to introduce Freddie Mac mortgage securities to a new audience of investors.

Fisher Francis Trees & Watts and executives from Freddie Mac's securitization unit will host "road shows" in France and Germany to build interest for a new mutual fund that invests only in mortgage securities. The fund will buy Freddie Mac mortgage investments and some securities issued through Ginnie Mae. Fannie Mae, Freddie Mac's rival, will not be represented in the fund's holdings, organizers say.

The Freddie Mac mutual fund is a way to bring the company's mortgage securities to more overseas investors, said Robert Ryan, vice president for Freddie Mac's mortgage securities department.

"The world is getting smaller," Mr. Ryan said. "There is a huge universe of institutional investors abroad."

The fund "is designed for investors who don't have easy access to the market" for mortgage investments, said Karen Calby, a director with Fisher Francis.

Right now, foreign investors hold about 10% of the $1.8 trillion of mortgage securities outstanding. The buyers are mostly very large institutional investors that can handle steep investment minimums for open- market purchases.

The mutual fund will be much more affordable, and managed to appeal to European financial institutions, Ms. Calby said. It will seek an incremental yield over the London interbank offering rate.

Organizers expect the fund to have at least $1 billion of assets within a year, fueled by investor interest and initial funding provided by Freddie Mac and Bayerische Vereinsbank AG, a European bank that will also play a role in distribution.

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