According to Bloomberg (06/21/11), the lawsuit was filed on behalf of union and public employee retirement funds and concerned mortgage-backed securities that were offered from February 2006 through September 2007. The plaintiffs allege that Merrill Lynch omitted material facts and made misleading statements about the securities in their offering documents. Included in those misleading statements were reportedly promises that the underlying mortgages met underwriting requirements. The lawsuit alleges that the mortgages did not meet those requirements.
The lawsuit, which involves approximately 1,800 investors, has been certified class action. Among the plaintiffs included in the lawsuit are the Mississippi Public Employees' Retirement System, the Connecticut Carpenters Pension Fund and the Los Angeles County Employees Retirement Association. The lawsuit was initially filed in 2008. Class-action certification means that the investors are joined together in the lawsuit, rather than suing Merrill Lynch individually.
Meanwhile, J.P. Morgan Chase & Co. and Royal Bank of Scotland (RBS) Group PLC have been accused by federal officials of fraud in relation to mortgage bonds. According to The Wall Street Journal, officials allege the two financial firms tricked credit unions into buying $3 billion in mortgage bonds. Those bonds performed poorly, resulting in the credit unions failing.
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JP Morgan Chase reportedly recently settled a different lawsuit filed by the Securities and Exchange Commission, which alleged the company sold $150 million in mortgage-backed investments, promising investors rising returns even though a hedge fund, which played a role in determining what would go in the portfolio, bet $600 million that the investments would fail. JP Morgan will pay $153.6 million in fines and in compensation to investors.