The highest court in New York has ruled that Northern Rock Asset Management (NRAM), the UK taxpayer-owned institution salvaged from the ashes of the collapsed bank, should be allowed to take legal action against SocGen for mis-selling $34m of mortgage products in the run-up to the financial crisis.
The ruling is expected to pave the way for a flurry of similar lawsuits.
SocGen has tried to have the case thrown out of court on the grounds that it warned Northern Rock in its small print that it could not be held accountable for many of the statements in its marketing material, the Telegraph reports.
However, the New York Supreme Court has ruled that there was “no precedent for allowing an offerer of securities to use such a mechanic to amble away from liability for key misrepresentations”.
The products, which included collateralised debt obligations, were one of the factors which triggered Northern Rock’s implosion in 2007, and the start of the financial crisis in Britain.
The bank was nationalised with a £1.4bn bailout in February 2008, and later split into two. The good assets were sold to Virgin Money for £970m in a mix of cash and Tier 1 notes. The bad assets were placed into NRAM.
UK taxpayers have so far taken a loss of more than £250m on the sale of the failed lender.
The government is suing SocGen for the $34m value of the products. While a relatively small figure, lawyers said the case would help clear the way for the Government to take action against other institutions that played a part in its collapse.