Quantcast

Republic of Kentucky Loses Appeal in Securities Lawsuit

JUN 26, 2012 1:02pm ET

A federal appeals court has denied Republic Bancorp's bid to recover $14 million it lost on securities investments because it believes the Louisville, Ky., company should have been aware of the risks it was taking.

Republic had purchased roughly $52 million of mortgage-backed securities from the now-defunct Bear Stearns between 2003 and 2006 only to see the value of the securities plummet after the real estate market crashed.

Republic then sued, claiming that Bear Stearns misrepresented the securities as safe investments, but the case was dismissed, and the U.S. Sixth Circuit Court of Appeals in Cincinnati upheld the lower court's ruling, according to Business First in Louisville. (Bear Stearns was taken over by JPMorgan Chase in 2008.)

In its ruling, the appeals court said that the investment prospectus clearly spelled out that the securities contained packages of loans made to borrowers with questionable credit histories. In its opinion, the court said that Republic officials didn't bother to read the prospectus.

As a "sophisticated institutional investor spending tens of millions of dollars, Republic had an obligation to protect itself, at least by reading the prospectus supplements, which contained descriptions of the risks involved in investing," the court wrote.

The $3.2-billion-asset Republic has not decided if it plans to appeal the court's ruling, Business First reported.