(Adds denial of wrongdoing, legal fees)
By Jonathan Stempel
NEW YORK, March 15 Wells Fargo & Co,
Royal Bank of Scotland Group Plc and Deutsche Bank AG
have reached a $165 million class-action settlement
over their underwriting for the now-bankrupt subprime lender
NovaStar Mortgage Inc.
It resolves claims that offering materials prepared by the
banks misled investors into believing that loans underlying
roughly $7.55 billion of NovaStar mortgage-backed securities
they bought were properly underwritten, and were safe.
The accord was made public on Wednesday, and requires
approval by U.S. District Judge Deborah Batts in Manhattan.
The defendants denied wrongdoing in agreeing to settle.
NovaStar had specialized in lower-quality residential
mortgages, including many packaged into what proved to be risky
securities issued in 2006 and 2007.
The company filed for Chapter 11 protection last July, and
is not contributing to the payout.
Steven Toll, a lawyer for investors led by the New Jersey
Carpenters Health Fund, said participants in the settlement are
expected to receive about 3.1 cents per dollar of face value.
He said that exceeded recoveries in similar settlements
involving Bank of America Corp, IndyMac Bancorp Inc,
JPMorgan Chase & Co, Morgan Stanley and others.
"This is a significant recovery," Toll, a partner at lead
counsel Cohen Milstein Sellers & Toll, said in an interview.
"Thousands of workers associated with the New Jersey fund and
others are going to benefit."
Holders of $2.2 billion of the NovaStar securities are not
expected to join in the settlement.
The plaintiffs' lawyers plan to seek legal fees of up to
$46.2 million, or 28 percent of the settlement amount, plus up
to $3.5 million for expenses, according to settlement papers.
Hundreds of lawsuits have been filed nationwide against
banks over mortgage securities sold prior to the 2008 financial
crisis. The NovaStar settlement is one of the last remaining
private class actions of this type to settle.
The case is New Jersey Carpenters Health Fund vs Royal Bank
of Scotland Group Plc et al, U.S. District Court, Southern
District of New York, No. 08-05310.
(Editing by Jonathan Oatis and Jeffrey Benkoe)