A judge at the Los Angeles federal court recently ruled that the Dutch fund ABP has waited too long with filing fraud claims against mortgage lender Countrywide

As the disputed sales now fall outside the five year statute of repose - it was filed 14 February 2011 - there no longer was a case to prosecute, said the judge.

The Netherlands' largest pension fund will therefore potentially have to write off "hundreds of millions" in losses on its purchase of mortgage-backed securities after all.

The state and federal claims initially handed to the court by civil servant scheme ABP stated that the bank made untrue statements regarding the mortgage-backed securities it offered.

Statutes of limitations differ from statutes of repose because the former 'bars (a) Plaintiff' from bringing an already accrued claim after a specified period of time,' whereas the latter 'terminates a right of action after a specific time, even if the injury has not yet occurred'.

Countrywide, which was acquired by Bank of America in early 2008, before the merger with Merrill Lynch, was accused by ABP of being the reason for "material misrepresentations and omissions". The initial case presented to the court stated that this led to ABP purchasing "securities that were far riskier than represented, backed by mortgages worth significantly less than represented, made to borrowers who were dramatically less creditworthy than had been represented".

It also states that: "ABP reasonably and justifiably relied on these untrue statements and omissions of material information in deciding to purchase the certificates."

A spokesperson for the pension scheme made a short comment after the loss of the case by saying: "ABP is disappointed by the ruling and we are considering the merits of an appeal."

As the case currently stands, ABP would not have a strong case in an appeal as much of the litigation against Countrywide has been out in the open for years and therefore the scheme should have been aware of possible fraudulent behaviour within the time limits that state and federal ligigation of this kind carry – as was pointed out by the judge.

The scheme's lawfirm Grant & Eisenhofer was not able to comment on this case before going to press.

ABP's results for the quarter ending 30 June reported that assets had increased by €3bn to a total value of €242bn.

The full judgment, provided by Thomson Reuters, can be read here.

23.08.2011

azeevalkink@wilmington.co.uk