Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets
Read the 5th Circuit Opinion (PDF)

Our Texas securities fraud lawyers represent clients with claims and investment fraud lawsuits against investment banks. Contact Shepherd Smith Edwards & Kantas LTD LLP.