MANHATTAN (CN) - Ameriquest Mortgage Co., Argent Mortgage Co., and ACC Capital Holdings defrauded investors of hundreds of millions of dollars in mortgage-backed securities, Ellington Management Group says in a federal class action. Ellington says it spent $354 million on the shaky paper. "The Mortgage Company Defendants' liability arises not from increasing default rates associated with a general economic downturn, but from their fraud - from lying to Ellington about the riskiness of the loans in the securitized mortgage pools," the complaint states.
Ellington and six Ellington affiliates also sued Ameriquest Mortgage Securities, Argent Securities, ACC Capital Holdings Corp., and Ameriquest Capital Corp. nka SBP Capital Corp. The complaint involves five series of securities issued by the defendants.
Ellington says it bought more than $354 million to buy "various mortgage-backed securities" from the defendants. It claims the defendants "made misrepresentations and omissions in prospectuses and other disclosure documents, including documents filed with the Securities and Exchange Commission, and in direct communications with Ellington representatives."
As is typical in these cases, the defendants allegedly made quick profits by selling loans to risky or unqualified borrowers, bundled them and passed them on, transferring the risk to the buyers of the securities, according to the complaint. Ellington claims the defendants violated underwriting standards by making the loans, then "knowingly misrepresented the nature and quality of the underlying mortgages," and sold the paper through misrepresentations and omissions.
The practice is believed to be a major reason for the nation's economic catastrophe.
Ellington is represented by Robin Henry with Boies, Schiller & Flexner of Armonk, N.Y.
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