A recent ruling from a federal judge denying class action status to a group of investors suing Ally Financial (GJM) and the Royal Bank of Scotland will hurt them and other investors hoping to get compensation for soured mortgage-backed securities, Moody’s Investors Service said. U.S. District Judge Harold Baer ruled last week that the investors in the Ally and RBS case rose “individualized issues” and even said some plaintiffs knew that the underwriting standards for the underlying loans were being lowered, while other plaintiffs were in the dark. Collectively, the claims are worth $37.6 billion according to court documents. Moody’s analysts said the ruling “will negatively affect plaintiffs in the large number of similar multibillion-dollar securities lawsuits pending in federal court against large investment banks and chill future lawsuits based on similar legal theories.” In this case, the varying amount of knowledge of the loans held by the investors and the varying dates that they made their purchase kept them from the class-action status. Moody’s said this might mean plaintiffs in the future will have to pursue litigation on an individual basis, resulting fewer such cases for the banks. However, analysts stopped short of saying the ruling will set a meaningful precedent for class-action lawsuits against issuers for representations and warranties. The legal issues in those cases would likely be different, Moody’s said. “The ruling is particular to securities laws claims that depend on the level of knowledge of the purchaser,” Moody’s said. “Claims for breaches of representations and warranties are based in contract law and do not hinge on the particular knowledge of the investors.” Write to Jon Prior. Follow him on Twitter: @JonAPrior

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