Legal

Last month U.S. District Judge Jed Rakoff of Manhattan federal court entered a very interesting order in a class action that asserts Securities Act claims against Merrill Lynch on behalf of investors in 18 mortgage-backed securities trusts. Rakoff's one-page order said that Merrill had reached a settlement with the MBS class. The filing received almost no notice -- I heard about it from the brilliant analyst Chris Whalen at Institutional Risk Analytics -- perhaps because it didn't disclose the terms of the settlement, which Rakoff said the parties would file on Dec. 5.

But now you don't have to wait. A source familiar with the deal told me that Merrill Lynch has agreed to pay $315 million -- by far the most any MBS defendant has agreed to pay in a public settlement of investors' securities claims. This is only the fourth publicly-known MBS securities settlement (as opposed to settlements of breach-of-contract claims), following this summer's $125 million Wells Fargo class action deal and last week's National Credit Union agreements with Deutsche Bank ($145 million) and Citigroup ($20.5 million). The Merrill settlement should certainly reinforce what I said about the NCUA deals: It's beginning to look like there's considerable value in these MBS securities cases.

The Merrill settlement, according to my source, also carves out claims by class members that have already brought their own suits against Merrill. That list includes, most prominently, AIG and the Federal Housing Finance Administration, which were investors in some of the 18 trusts but don't have to opt out of the settlement. A BofA spokesman declined to comment on the settlement; Merrill's lawyers at Skadden, Arps, Slate, Meagher & Flom didn't return my calls.

The class, which was represented by Bernstein Litowitz Berger & Grossmann, had leverage thanks to Rakoff's fast-track schedule for the case. The judge certified the class in June, in a landmark ruling that broke with the only previous Manhattan federal court finding on MBS class certification. In an August opinion, Rakoff rejected additional arguments by Merrill's lawyers at Skadden and reaffirmed certification of the class. Discovery was to conclude on Oct. 31; summary judgment briefing was due by Dec. 13; and the final pretrial conference was scheduled for Jan. 27.

This is the first MBS securities case BofA has agreed to settle. The bank is facing a securities class action by Countrywide MBS investors that's before U.S. District Judge Mariana Pfaelzer in Los Angeles federal court, as well as more than a dozen cases by individual investors suing Merrill, Countrywide, or BofA. BofA has fared much better before Pfaelzer -- who has restricted claims in the Countrywide class action to individual tranches in which name plaintiffs invested, and has interpreted the statute of limitations in a way that favors the bank -- than it did before Rakoff, who rejected Merrill's statute-of-limitations argument in his rulings on defense motions to dismiss.

The Bernstein Litowitz team that led the litigation on behalf of the name plaintiff, the Public Employees' Retirement System of Mississippi, included partners David Wales, David Stickney, and Timothy DeLange. The firm declined comment on the settlement.

(Reporting by Alison Frankel)