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Investments / The Ticker

Faulty mortgage lawsuit against Wells Fargo clears hurdles

Deals with $1.5 billion MBS fraud scheme

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A lawsuit over an alleged $1.5 billion subprime mortgage-backed securities fraud scheme against Wells Fargo (WFC) and Fortis Securities cleared a significant hurdle last week when a federal judge denied the defendants extensive motions to dismiss.

European bank LBBW Luxemburg S.A.’s charges stayed on breach on contract, negligent misrepresentation and constructive fraud charges.  

The lawsuit comes from a deal 2006 in which Wells Fargo sold $40 million of what it claimed to be highly rated securities to LBBW.  

 The securities were collateralized by subprime residential mortgages, and defaulted within a year.

This was a significant ruling in a massive fraud case where the sellers greedily squeezed money from investors despite knowing the underlying securities were riskier than represented and not even worth the price," says David Warden of the Houston-based litigation boutique Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C.

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