Bloomberg News

Sealink Funding Bear Stearns $2.4 Billion Suit Moved to Federal Court

February 27, 2012

Sealink Funding Ltd.’s lawsuit against JPMorgan Chase & Co. (JPM) over $2.4 billion in residential mortgage-backed securities was moved to federal court from New York state court.

Sealink sued New York-based JPMorgan Chase and units including Bear Stearns and EMC Mortgage LLC in September, accusing them of making misrepresentations about the risks and characteristics of the loans underlying securities bought between 2005 and 2007.

The lawsuit was moved to U.S. District Court in Manhattan by the defendants because it’s related to federal bankruptcy proceedings and because it involves a party outside the U.S., according to documents filed in New York State Supreme Court on Feb. 24.

The lawsuit was one of several filed in New York state court during the past six months over residential mortgage- backed securities by Sealink, an Ireland-based fund created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed.

Sealink has also sued Bank of America Corp.’s Countrywide unit over $1.6 billion in securities and Morgan Stanley over $556 million of the investments. The Countrywide case was moved to federal court in October. Sealink said last week that it intends to sue banks including Royal Bank of Scotland Group Plc and Credit Suisse AG over $948.8 million in mortgage securities.

Pools of Loans

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

SachsenLB, a state-owned lender, received a 17.3 billion- euro ($23.2 billion) bailout in 2007 to support an investment vehicle that ran out of funding amid the credit crunch. Saxony agreed a week later to sell the bank to Landesbank Baden- Wuerttemberg to avoid closure.

As part of the agreement, the state guaranteed to cover as much as 2.75 billion euros in possible losses from investments backed by assets including U.S. subprime mortgages that were placed in Sealink.

The case is Sealink Funding Ltd. v. Bear Stearns & Co. Inc., 652681/2011, New York State Supreme Court, New York County, Manhattan.

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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