## Facts

- An employee benefit fund purchased certificates in two residential mortgage-backed securities (RMBS) offerings structured under a single shelf registration statement with deal-specific prospectus supplements.
- The fund sued the underwriter, sponsor, depositor/issuer, certain officers, and issuing trusts under the Securities Act of 1933 on behalf of a putative class covering purchasers in 17 separate RMBS offerings.
- The complaint alleged materially false statements and omissions in offering documents, including:
  - mortgage originators’ compliance with stated underwriting guidelines,
  - accuracy of property appraisals and loan-to-value ratios, and
  - disclosure of credit risk and borrowers’ ability to repay.
- The fund alleged originators systematically departed from underwriting guidelines, appraisals were inflated, and subsequent rating-agency negative actions reflected increased default risk.
- The fund alleged injury from diminished certificate value and increased risk to the timing and amount of cash flows, even though the securities were alleged to be illiquid.
- The district court dismissed, holding (i) the fund lacked standing to assert claims for offerings and tranches it did not purchase, and (ii) the alleged injury was not cognizable under § 11 absent a realized loss.

## Issues

1. Whether a named RMBS purchaser has class standing to assert §§ 11 and 12(a)(2) claims for offerings it did not purchase when the securities were issued under the same shelf registration statement.
2. Whether a purchaser of illiquid RMBS must plead a realized out-of-pocket loss to state a cognizable § 11 injury, or whether plausible diminution in value and increased risk can suffice at the pleading stage.

## Decision

- The Second Circuit affirmed in part, vacated in part, and remanded.
- The court held the plaintiff had class standing to pursue claims for certain other offerings where the challenged statements were similar or identical and the underlying mortgages were originated by the same lenders as those backing the plaintiff’s own certificates.
- The court held the plaintiff lacked class standing as to offerings backed by loans from different originators because those claims did not necessarily present the same concerns about underwriting and loan performance.
- The court held that § 11 injury need not be pled as a realized loss; plausible allegations of diminished value in illiquid RMBS, supported by facts such as underwriting deficiencies and rating downgrades, are sufficient at the pleading stage.
- The court instructed reinstatement of §§ 11, 12(a)(2), and 15 claims only to the limited extent consistent with the class-standing ruling.

## Legal Principles

- Class standing in a putative class action turns on whether absent class members’ claims “implicate the same set of concerns” as the named plaintiff’s claims, not on formal identity of the purchased securities.
- In RMBS cases, “same set of concerns” may be satisfied where offerings share common alleged misrepresentations about loan quality tied to the same mortgage originators.
- Offerings involving different originators may defeat class standing because proving falsity and materiality can require originator-specific evidence.
- For Securities Act § 11, a plaintiff may plead injury by alleging a plausible diminution in value measured as of the time suit is brought; a realized resale loss or missed payments is not required at the pleading stage.
- Illiquidity and risk disclosures do not categorically preclude pleading a value decline when factual allegations plausibly link misstatements to increased credit risk and reduced security value.
- Control-person liability under § 15 may proceed to the same extent as the reinstated primary-liability claims.

## Conclusion

The Second Circuit allowed an RMBS purchaser to represent investors in other offerings only where the claims raised the same originator-linked misrepresentation concerns, and it held that § 11 injury may be pled through a plausible diminution in value of illiquid RMBS without alleging a realized loss.


NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012)