Merrill Lynch Prevails in Lawsuit Over Mortgage-Backed Securities

Skadden client Merrill Lynch secured a dismissal of a securities fraud lawsuit in the U.S. District Court for the Eastern District of Pennsylvania in which the court held that the plaintiffs had failed to plead economic loss and loss causation. The opinion may have widespread implications for other lawsuits seeking to recover damages for losses suffered from investments in mortgage-backed securities or similar investments tied to the real estate downturn. The plaintiffs, several real estate investment trusts (REITs), claimed that they had suffered losses because defendants had allegedly "misrepresented and failed to disclose material information relating to the mortgage-backed securities." In a decision issued on August 20, 2009, Judge R. Barclay Surrick dismissed the case, stating in his 40-page opinion that "the Amended Complaint is . . . silent as to how the loss [alleged by plaintiffs] can be distinguished from the market-wide losses in the mortgage-backed securities generally."