Subprime lawsuits seen hitting more industries

By Martha Graybow

NEW YORK (Reuters) - Investor lawsuits spurred by the U.S. subprime crisis likely will spread beyond the financial and housing sectors, as more companies reveal writedowns linked to bad mortgage investments, a shareholder lawyer said on Tuesday.

Already, institutional investors have brought securities fraud class-action cases against lenders and banks related to their subprime mortgage businesses.

Now, more big investors are looking at potential claims against other kinds of companies that made their own forays into subprime-linked investments, said Salvatore Graziano, a partner at law firm Bernstein Litowitz Berger & Grossmann LLP.

"We expect non-real estate companies to start being impacted by this," Graziano said at the Reuters Housing Summit in New York.

He said his firm, which recently formed a subprime litigation task force aimed at representing investors, has "already gotten a number of inquiries from clients" who are "suffering losses from investments they thought were very safe."

Last month, drugmaker Bristol Myers Squibb Co (BMY.N: Quote, Profile, Research, Stock Buzz) became one of the first companies outside the financial sector to disclose exposure to subprime mortgage investments, announcing a $275 million write-down from so-called auction-rate securities linked to risky mortgage loans. The securities are often pitched to investors as safe alternatives to cash.

Shareholders could potentially bring legal claims against companies that take these kind of writedowns if the assets were not properly valued, Graziano said. He said it's likely that more companies will be forced to reveal similar writedowns this year as their accountants scrutinize asset valuations.

"What Bristol Myers did puts a lot of pressure on the auditors for the other companies," he said. "That's why I expect a lot more in the coming quarters."

New York-based Bernstein Litowitz is one of the top U.S. class action firms. It is best known for negotiating settlements worth more than $6 billion for investors in the WorldCom Inc securities fraud litigation.

The firm represents investors in lawsuits against subprime lenders New Century Financial Corp NEWCQ.PK and Fremont General Corp FMT.N, as well as in mortgage cases against Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz) and others.

Graziano said recent disclosures by American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) of potential losses of up to $5 billion in its derivatives portfolio were another area of interest for his team. The expected AIG losses are linked to credit derivatives backed by mortgage debt.

"I think AIG, without reaching an ultimate conclusion, is a case we're interested in looking at further," he said.

Graziano said about a dozen of the firm's 50 lawyers are focusing on subprime matters, and that more of its attorneys may get involved as cases expand.

"I think it will be years of litigation for us," he said. "I think we already have in the pipeline years of work because of the cases we already have."

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Martha Graybow; editing by Jeffrey Benkoe)