Proving misrepresentation is trickier than it first seemed
According to LA Croix at Oakbridge Insurance, of the 240 lawsuits that have been filed in connection with the credit crisis maybe 50 to 60 are connected to structured finance deals. "The legal requirement is that the plaintiff must show misrepresentation, material loss, and that the loss was caused by the misrepresentation," he says. "This is harder to achieve than you would think. The case must be judged by what was known at the time, not what is known now." It can be a challenge just to get to the table. If cases are brought as class actions then all plaintiffs must have bought into the initial distribution – everyone in the class action must have bought every security. If they are claiming misrepresentation then plaintiffs also have to prove justifiable reliance – that they relied on that specific information in making their investment decision. Given the nature of complex structured deals, however, the option for a class action is often not even there.