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PLAINTIFF’S LOSS WAS DUE TO THE MARKET COLLAPSE OF RESIDENTIAL-BACKED MORTGAGE SECURITIES, LOSS CAUSATION ELEMENT OF FRAUD CAUSE OF ACTION THEREFORE NOT DEMONSTRATED.

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Kapnick, determined defendant TCW’s motion for summary judgment in this residential-backed mortgage securities (RBMS) fraud action should have been granted. TCW represented it could select less risky RBMS’s and plaintiff invested $27,000,000 . The market subsequently collapsed. The First Department found the proof of “loss causation” lacking:

” Loss causation is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff'” … . To establish loss causation a plaintiff must prove that the ” subject of the fraudulent statement or omission was the cause of the actual loss suffered'” … . Moreover, ” when the plaintiff’s loss coincides with a marketwide phenomenon causing comparable losses to other investors, the prospect that the plaintiff’s loss was caused by the fraud decreases’, and a plaintiff’s claim fails when it has not . . . proven . . . that its loss was caused by the alleged misstatements as opposed to intervening events'” … . Indeed, when an investor suffers an investment loss due to a “market crash [] of such dramatic proportions that [the] losses would have occurred at the same time and to the same extent regardless of the alleged fraud,” loss causation is lacking … . Basis PAC-Rim Opportunity Fund (Master) v TCW Asset Mgt. Co., 2017 NY Slip Op 01644, 1st Dept 3-2-17

SECURITIES (PLAINTIFF’S LOSS WAS DUE TO THE MARKET COLLAPSE OF RESIDENTIAL-BACKED MORTGAGE SECURITIES, LOSS CAUSATION ELEMENT OF FRAUD CAUSE OF ACTION THEREFORE NOT DEMONSTRATED)/RESIDENTIAL-BACKED MORTGAGE SECURITIES (PLAINTIFF’S LOSS WAS DUE TO THE MARKET COLLAPSE OF RESIDENTIAL-BACKED MORTGAGE SECURITIES, LOSS CAUSATION ELEMENT OF FRAUD CAUSE OF ACTION THEREFORE NOT DEMONSTRATED)/FRAUD (RESIDENTIAL-BACKED MORTGAGE SECURITIES, PLAINTIFF’S LOSS WAS DUE TO THE MARKET COLLAPSE OF RESIDENTIAL-BACKED MORTGAGE SECURITIES, LOSS CAUSATION ELEMENT OF FRAUD CAUSE OF ACTION THEREFORE NOT DEMONSTRATED)/LOSS CAUSATION (FRAUD, RESIDENTIAL-BACKED MORTGAGE SECURITIES, PLAINTIFF’S LOSS WAS DUE TO THE MARKET COLLAPSE OF RESIDENTIAL-BACKED MORTGAGE SECURITIES, LOSS CAUSATION ELEMENT OF FRAUD CAUSE OF ACTION THEREFORE NOT DEMONSTRATED)

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