A complaint with far-reaching implications for the commercial mortgage-backed securities sector was unsealed Monday (13 April), after the New York State Attorney General’s office declined to pursue the matter.
The complaint alleges outstanding CMBS deals led by Wells Fargo relied on inflated net income figures, disqualifying them for the pass-through tax treatment that securitized mortgage transactions rely on.
It names seven CMBS trusts holding loans originated between 2015 and 2017, Wells, and trustee Wilmington Trust as defendants.
The plaintiff is a whistleblower, John Flynn, who came to prominence in 2020 after a Pro Publica report revealed him as the source of a 2019 Securities and Exchange Commission whistleblower complaint focused on similar irregularities and also naming Wells as a defendant. Flynn has doggedly pursued the thesis that CMBS underwriting has failed to comply with regulations and used inflated figures.
The just-unsealed matter, first filed in 2022 as a False Claims Act (FCA) complaint, is now set to proceed in New York State Supreme Court, where the filings appeared Monday.
A source familiar with the matter said Wells is expected to remove the matter to federal court, putting it in the jurisdiction of the US Southern District of New York, and...
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