By Jonathan Stempel
NEW YORK (Reuters) - A Manhattan federal judge on Friday expanded the scope of class-action litigation accusing banks of concealing the risks of more than $34 billion (20 billion pounds) of mortgage-backed securities prior to the financial crisis.
U.S. District Judge Harold Baer said investors may now pursue claims as a group against Citigroup Inc (NYS:C), Goldman Sachs Group Inc (NYS:GS) and UBS AG (VTX:UBSN) over an estimated $11.9 billion (7.2 billion pounds) of securities.
Those offerings were linked to the RALI Mortgage Asset-Backed Pass-Through Certificates, which were issued in 2006 and 2007 by the former Residential Capital LLC. One offering was the subject of a partial $100 million (60 million pounds) settlement this year.
Baer also said investors may pursue a similar case against Royal Bank of Scotland Group Plc (LSE:RBS) over an estimated $22.5 billion (13.6 billion pounds) of securities in 12 offerings linked to the Harborview Mortgage Loan Trusts, which were also created in 2006 and 2007.
The judge also named the Iowa Public Employees Retirement Systems and Illinois' Midwest Operating Engineers Pension Trust Fund as class representatives in the Harborview case.
Lawyers for the bank defendants did not immediately respond to requests for comment.
The lawsuits are among the larger cases accusing banks that packaged mortgages into securities of deceiving investors in prospectuses about the quality of the underwriting, causing investors to lose money when market conditions deteriorated.
Baer rejected arguments that the investor claims were too dissimilar to justify grouping them, which can result in higher recoveries at lower cost and that some class members had been sophisticated enough to know the risks of what they bought.
But he also said many of the same arguments have been pressed by various parties over the course of more than five years of litigation. Both lawsuits were filed in 2008.
"At the outset, as I reread defendants' papers and this opinion, I was reminded of a thought ascribed to Albert Einstein, it goes like this, insanity is doing the same thing over and over and expecting different results," Baer wrote.
Joel Laitman, a partner at Cohen, Milstein, Sellers & Toll representing the lead plaintiffs in both cases, and who previously estimated the sums at issue, called Baer's decision "very, very positive for the litigation."
The cases in the U.S. District Court, Southern District of New York are New Jersey Carpenters Vacation Fund et al v. Royal Bank of Scotland Group Plc et al, No. 08-05093; and New Jersey Carpenters Health Fund et al v. Residential Capital LLC et al, No. 08-08781.
(Reporting by Jonathan Stempel in New York; Editing by Kenneth Barry)