NEW YORK Bank of New York Mellon Corp must face a lawsuit seeking to hold it liable for causing $1.12 billion of investor losses by failing to properly monitor five trusts backed by toxic residential mortgages, a Manhattan federal judge ruled.
U.S. District Judge Gregory Woods said Belgium's Royal Park Investments SA/NV may pursue claims that the bank, as trustee for trusts dating from 2005 to 2007, ignored widespread, systemic abuse in how the underlying loans were underwritten and serviced, and failed to require that bad loans be repurchased.
"Indeed," Woods wrote in his decision on Wednesday, "it would be implausible to assume that somehow all of the mortgage loans underlying the trusts miraculously avoided the pervasive practices of the industry at the time."
The judge let Royal Park pursue claims including breach of contract, breach of trust, and violations of the federal Trust Indenture Act. Some other claims were dismissed.
Royal Park contended that Bank of New York breached its duties in part out of fear it might anger or lose business from other financial services companies in retaliation.
Other Manhattan federal judges have in the last year let Royal Park pursue similar claims against Deutsche Bank AG and HSBC Holdings Plc.
A spokesman for Bank of New York Mellon declined immediate comment.
Royal Park has sought class-action status on behalf of other investors. It said its own residential mortgage-backed securities in the five trusts overseen by Bank of New York Mellon have become "completely worthless."
Bond issuers appoint trustees to ensure that payments are funneled to investors, and handle back-office work after securities are sold.
The case is Royal Park Investments SA/NV v. Bank of New York Mellon, U.S. District Court, Southern District of New York, No. 14-06502.
(Reporting by Jonathan Stempel in New York; Editing by Tom Brown)