Banks may seek class action status

Banks including JPMorgan Chase & Co. and Bank of America Corp. may pay more to resolve claims over their alleged roles in the collapse of a $2.3 trillion mortgage-backed securities market if sophisticated investors are allowed to sue as a group along with less savvy ones, Thom Weidlich of Bloomberg News reports.

Class-action status allows investors to pool financial and legal resources, giving them greater leverage to win larger settlements or verdicts. The banks, however, have a court ruling on their side that may help fend off such blockbuster cases. It says class status is barred because some investors are too sophisticated -- in fact, because some of them are other banks, including JPMorgan.

“It is possible to be both an alleged perpetrator and victim at the same time,” said Jacob S. Frenkel, a former U.S. Securities and Exchange Commission lawyer now in private practice in Potomac, Maryland. “It's unprecedented that you have the most sophisticated institutions as victims, to be in a position where their losses are so great that they have sued.”

The ruling by U.S. District Judge Harold Baer Jr. in Manhattan, favoring defendants Royal Bank of Scotland Group Plc and Ally Financial Inc., held that investors may not sue as a class in part because some of them are being sued over the same claims. Last month, that ruling was countered by two judges in Baer's courthouse, both of whom ruled that investors in home- loan backed securities may sue as a class.

Pools of home loans securitized into bonds were a central part of the housing bubble that, once burst, helped push the U.S. into the biggest recession since the 1930s. Investors have filed class-action, or group, lawsuits against at least 16 private issuers of securities backed by mortgages.