Several investors in collateralized-debt obligations have been busy litigating their losses in court. Many of the actions involving mortgage bonds are tied to loan originated by Countrywide Home Loans. Plaintiffs in several of the cases are insurance firms. Criminal charges were recently filed in one case.
Kareem Serageldin, David Higgs and Salmaan Siddiqui were charged with fraudulently inflating the prices of asset-backed bonds known as ABN1, according to an announcement from the Department of Justice and the Federal Bureau of Investigation. Their employer, Credit Suisse, in March 2008 had to write down $2.65 billion, including $0.54 billion from the ABN1 book, which was secured by subprime residential mortgage-backed securities and commercial MBS.
Serageldin and Higgs were managing directors, and Siddiqui was a vice president. The trio, along with other unnamed co-conspirators, didn’t sell the bonds because they were trading well below the inflated values that the books showed, and a sale would force a loss to be realized. Serageldin, who lives in the United Kingdom, allegedly pocketed $1.7 million in bonuses and $5.2 million in incentives, though Credit Suisse rescinded the compensation once it discovered the fraud.
Higgs and Siddiqui each pled guilty on Feb. 1 to one count of conspiracy to falsify books and records and commit wire fraud and are cooperating with the government’s investigation.
Motions to dismiss nine separate but nearly identical lawsuits filed by Massachusetts Mutual Life Insurance Co. against various MBS sponsors, depositors and underwriters, as well as some officers and directors, were allowed “to a modest degree” by U.S. District Judge Michael A. Ponsor on Feb. 14. The actions, tied to billions of dollars that the insurer invested in MBS issued between 2005 and 2007, allege that the defendants violated sections 410(a) and (b) of the Massachusetts Uniform Securities Act by misstating or omitting material facts in the offering documents.
The defendants claimed that the plaintiff failed to plead any actionable misstatements or omissions in the offering documents. They also claim that non-underwriter defendants aren’t considered offerers or sellers under the act. In addition, the defendants allege that some of the plaintiff’s claims are barred by the statute of limitations and that the court lacks personal jurisdiction over the individual defendants.
MBIA has requested that Justice Eileen Bransten of the New York State Supreme Court order Countrywide to turn over an internal fraud-tracking database so it can prepare for motions for summary judgments. MBIA says it has paid out nearly $3 billion on insured bonds backed by Countrywide loans.
Counsel for Bank of America Corp. has separately asked that a request for deposition of BofA Chief Executive Officer Brian Moynihan be denied because CEOs of major corporations can only be deposed if they are the only ones who know of unique information.
BofA, an investor group that includes Blackrock Inc., and trustee Bank of New York Mellon Corp. have asked the U.S. Appeals Court in Manhattan to reverse a ruling that moved an MBS lawsuit involving an $8.5 billion settlement from a state court in New York to U.S. District Court for the Southern District of New York, a story from Bloomberg said. Entities under the name Walnut Place said the case should remain in federal court because approval for the massive settlement is being sought without providing adequate protection for investors.
A lawsuit filed in U.S. District Court for the Western District of New York by M&T Bank Corp. against Greenwich Capital Markets and BofA subsidiary LaSalle Bank was dismissed by Chief Judge William M. Skretny, The Buffalo News reported. M&T sought at least $500,000 in interest payments or a refund of the $50 million it paid for the collateralized-debt obligation.
A subpoena has been issued to BofA by the Massachusetts Secretary of the Commonwealth William Galvin over records relating to the LCM VII Ltd. and Bryn Mawr CLO II Ltd. issued in 2007, published reports indicate. Galvin wants to determine “what did the issuers know at the time of the sales and were the assets being priced truthfully.”
BofA was dismissed from an MBS lawsuit filed in U.S. District Court for the Central District of California by Allstate Corp., though Countrywide remains a defendant.
Klayman & Toskes, P.A., has launched an investigation into sales of Jupiter High Grade CDO VI by BofA subsidiary Merrill Lynch, a Feb. 7 statement said. The 2007 deal was marketed to high net worth and institutional customers.
“By the summer of 2008, of the 30 CDOs Merrill Lynch underwrote in 2007, every one either had its best-rated portion cut to junk, was in technical default, was being liquidated, or was in danger of being liquidated,” the securities arbitration law firm stated. “K&T believes that this poor performance shows that Merrill Lynch knew or should have known the CDO deals completed in 2007 were bad given the then-existing mortgage market conditions.”
Deutsch Bank AG subsidiary Phoenix Light SF Ltd. filed a lawsuit on Feb. 14 in the Supreme Court of the State of New York, County of New York, against Ace Securities Corp. for allegedly misrepresenting the quality of $512 million in RMBS. At least $300 million in damages is sought because Ace Securities was allegedly aware of the underwriting deficiencies as a result of reports provided by Clayton Holdings.
EMC Mortgage was sued by Syncora Guarantee Inc. in the Supreme Court of the State of New York, County of New York, over the $310 million SACO I Trust 2006-1. The transaction is backed by home-equity lines-of credit. Syncora claims that it has paid out $52 million in claim payments because the JPMorgan Chase & Co. unit allegedly didn’t conduct the promised due diligence and made materially false and misleading representations in order to get the bond insurer to cover the transaction.
A lawsuit filed in U.S. District Court for the Southern District of New York against Goldman Sachs Group Inc. by the Public Employees’ Retirement System of Mississippi can move forward as a class action, the judge ruled. Bloomberg said that the class includes investors in a $698 million MBS holding loans originated by New Century Financial Corp.
Goldman also faces an MBS lawsuit filed on Jan. 27 by Dutch pension fund ABP in New York State Supreme Court.
Morgan Stanley was sued by Bayerische Landesbank in New York State Supreme Court on Jan. 25 over almost $486 million in RMBS. Morgan Stanley allegedly provided offering materials that indicated conservative underwriting standards were used.
“Morgan Stanley represented that it had conducted due diligence on the mortgage originators before purchasing for securitization the loans they issued, providing assurance that the loans backing BayernLB’s RMBS investments conformed to the stated underwriting standards, that the appraisal values and other characteristics were valid and accurate, that the certificates were deserving of the investment-grade ratings they had been assigned, and that the quality of the RMBS as represented in the offering materials matched Morgan Stanley’s reputation,” the complaint says. “In truth, and as BayernLB and the world would only later discover, the originators whose loans collateralized the Morgan Stanley RMBS at issue were among the worst of the worst culprits in the subprime lending industry.”
In addition, Dexia filed a similar complaint against Morgan Stanley in the same court on more than $680 million in RMBS. Both the Bayerische and Dexia cases involve issuances from 2006 and 2007.
Around $965 million in subprime CDOs acquired in 2006 and 2007 are at issue in a lawsuit filed by Loreley Financing against Citigroup Inc.
A stay blocking the heavily discounted sale of the J.W. Marriott Las Vegas Resort & Spa in Las Vegas to Galante Holdings was upheld Thursday by a state appellate court in New York, according to Dow Jones Newswires. Galante, a junior CMBS investor, didn’t have the right to buy the resort because its $10 million position in the transaction was worthless, plaintiffs including Angelo, Gordon & Co. allege in the December 2011 lawsuit.
