Pension funds’ financial crisis lawsuits against big banks take a step forward

Several financial crisis-related class action cases brought by institutional investors against major US banks got given the go-ahead this week.

The Pasadena-based Operating Engineers Pension Trust’s action against J.P. Morgan Chase, first filed in 2009, won the all-clear from US District Judge Katherine Forrest in Manhattan.

She blocked the bank’s attempt to have the putative action dismissed. The trust claims the banking giant breached its fiduciary duties by investing in Lehman Brothers notes, despite knowing Lehman was on the verge of collapse.

And in another development, Judge Forrest also blocked Deutsche Bank’s attempt to end a suit brought by a group of institutional investor plaintiffs in 2011.

The investors are the $1.5bn Wisconsin-based Building Trades United Pension Fund and two mutual funds from the screened, faith-based Steward Mutual Funds family that are managed by Houston-based Capstone Asset Management, the $5.5bn fund firm.

They accuse the German giant of misrepresenting the risk of packaging home loans into complex financial products.
“Plaintiffs have certainly set forth sufficient plausible allegations to support a claim for a fraudulent scheme against Deutsche Bank,” Forrest wrote.The suit focuses in part on Deutsche trader Greg Lippmann, although Forrest is also allowing claims to proceed against former Deutsche CEO Josef Ackermann. But she dismissed claims against former supervisory board chair Clemens Börsig.

“Plaintiffs have certainly set forth sufficient plausible allegations”

Elsewhere, Citigroup has won the dismissal of a mortgage-related lawsuit that was brought by South Korea-based Woori Bank. US District Judge Laura Taylor Swain said Woori failed to prove the US banking giant acted fraudulently when it sold it $95m of collateralized debt obligations backed by mortgage-backed securities.

And Judge Forrest is also involved in a pension fund case relating to UBS’s $2.3bn rogue trading loss scandal of 2011. This week the Swiss bank urged her to dismiss the case saying the funds have failed to demonstrate bank executives knew of wrongdoing by ex-trader Kweku Adoboli.

Earlier, on March 19, the US Supreme Court declined to review an earlier decision by the Second Circuit Court of Appeals, forcing investment bank Goldman Sachs to face a putative class action alleging it misled investors about potential risks of mortgage-backed securities. The case was brought by the NECA–IBEW Health & Welfare Fund.