Defendants in more than a dozen lawsuits accused of violating the Securities Exchange Act of 1934 have had varying degrees of success fighting mortgage-backed securities cases in court. In addition to foreign banks, plaintiffs include pension funds, bond insurers and securitization trustees.
IKB International S.A. filed a complaint in New York’s supreme court in New York County on Sept. 5 against Citigroup alleging that Citi misled it in the acquisition of $137,378,000 in MBS.
IKB additionally filed a lawsuit in the same court on Sept. 28 against JPMorgan Chase & Co. seeks at least $11 million in damages.
A final hearing in Bank of America Corp.’s $8.5 billion settlement with MBS investors was scheduled for May 2, 2013, according to an order from New York Supreme Court Judge Barbara R. Kapnick filed on Aug. 10.
In another MBS investor lawsuit that was filed in U.S. District Court for the Southern District of New York, U.S. District Judge William Pauley denied in July BofA’s request to dismiss the lawsuit, though some executives were dismissed as defendant. A Pennsylvania school pension fund is the lead plaintiff.
A state court in the city of New York is the venue for a lawsuit against DB Structured Products Inc. filed on Aug. 24 by investors in a 2006 MBS issued by Home Equity Loan Trust. The proposed default judgment amount, $392,564,662, represents the purchase price of 1,807 mortgages that allegedly breach representations and warranties. Investors also hope to collect at least $174 million for the “repurchase amount and damages with respect to other comparable mortgage loans applicable loan group.”
A $720 million lawsuit was filed on Aug. 31 in a New York Supreme Court against DLJ Mortgage Capital Inc. and Select Portfolio Servicing Inc. by U.S. Bancorp on behalf of investors of three 2006 issuances by Home Equity Mortgage Trust. DLJ didn’t meet its representations and warranties based on a review of 2,454 loans sold to the trust which found 1.965 of the loans had at least one breach.
A class action against UBS AG was dismissed on Sept. 28 by U.S. District Judge Richard Sullivan in Manhattan. UBS was accused of concealing its exposure to mortgage-related securities and auction-rate securities by acquiring high concentrations of highly illiquid subprime and Alt-A mortgage-backed assets.
CIFG Assurance North America Inc. sued GreenPoint Mortgage Funding Inc. in New York’s Supreme Court on Oct. 1. At issue is a 2007 securitization for $277,251,000 of which GreenPoint originated $58 million as governed by an Oct. 1, 2006, sale agreement with Goldman Sachs Mortgage Co. and an Assignment and Recognition Agreement with GS Mortgage Securities Corp. GreenPoint, which is a subsidiary of Capital one Financial Corp., is accused of providing false information and making material omissions about loan quality on its originations. GreenPoint has rejected repurchase demands.
A $42 million settlement was reached between RBS Financial Products and Nevada Attorney General Catherine Cortez Masto, an Oct. 24 announcement indicated. The agreement followed a nearly two-year investigation into misrepresentations by lenders including Countrywide and Option One on subprime mortgages securitized between 2004 and 2007. An assurance of discontinuance filed in the Eighth Judicial District Court requires the company to changes its securitization practices. RBS didn’t admit to, or deny, any wrongdoing.
Three causes of action in Assured Guaranty Municipal Corp.’s lawsuit against DLJ Mortgage Capital Inc. and Credit Suisse Securities (USA) LLC were dismissed by the Supreme Court of the State of New York on Oct. 11. The original complaint was filed a year earlier. Among transactions that were closed in 2006 and 2007, delinquency was “staggering,” court documents indicate. “Forensic re-underwriting” by the plaintiffs on the defaulted loans allegedly found “severe and pervasive breaches of he representations in the PSAs that materially affected the insurers.” Law360 wrote that the barring of Assured from recovering rescissory damages is a powerful tool in lenders’ fight to block financial guaranty insurers from rescinding similar policies.
An Oct. 4 joint proposed pre-trial order in an April 2011 federal lawsuit filed by Assured against Flagstar Bank FSB indicates that the trial is expected to take between five and eight days. Assured, which insured bonds backed by Flagstar mortgages, alleges that Flagstar misrepresented the quality of the loans. Published reports indicate that the case against Flagstar is one of the first to go to trial.
A motion to dismiss filed by UBS Real Estate Securities in a federal lawsuit by Assured was granted in part by the U.S. District Court for the Southern District of New York on Aug. 15. The second, fourth and fifth claims were dismissed, while the dismissal was denied in all other respects.
General Electric Co. subsidiary WMC Mortgage LLC was named as defendant in a lawsuit filed in August on behalf of investors of GE-WMC Mortgage Securities Trust 2006-1 in a New York state court. The default judgment amount is $260.2 million. The case was removed to U.S. District Court for the Southern District of New York.
WMC was also sued in U.S. District Court by the trustee of Securitized Asset Backed Receivables LLC Trust 2006-WM2, Law360 reported. WMC’s role as the responsible party to the pooling-and-servicing agreement required it to repurchase any underlying loans with fraudulent misrepresentations or defaults.
Class certification was granted on Aug. 17 by a federal judge in the Southern District of New York in a lawsuit filed on behalf of investors in IndyMac MBS. Wyoming State Treasurer, which manages $10 billion in assets, is the lead plaintiff. Three groups of defendants include IndyMac MBS, former officers and directors and six financial institutions that underwrote the offerings. Certification excludes offering INDX 2006-AR11, and claims as to offering of the INDX 2006-AR11 Certificates were dismissed.
A lawsuit filed in 2008 by the Ann Arbor Employees’ Retirement System and Greater Kansas City Laborers Pension Fund on behalf of investors of two securitizations from Citigroup Mortgage Loan Trust Inc in 2007 was settled for $25 million by Citigroup Inc., Reuters reported. Citi is accused of lying about deteriorating mortgage underwriting and appraisal standards and understating the risk of default.
A motion by defendant Aladdin Capital Management LLC to dismiss Bayerische Landesbank’s lawsuit was granted by a judge in U.S. District Court for the Southern District of New York. But the dismissal was reversed on Aug. 6 by the U.S. Court of Appeals, Second Circuit. The court determined that an investor in a special investment vehicle — a synthetic collateralized debt obligation that sold interests in a credit default swap — can bring an action against the manager of the investment portfolio for the loss of its investment where the investor was not a party to the contract that defined the manager’s role and duties.
Judge Marsha J. Pechman of the U.S. District Court for the Western District of Washington, denied a motion for summary judgment on July 23 in a class action lawsuit filed on behalf of MBS investors against two former subsidiaries of Washington Mutual Bank, an announcement from Scott + Scott LLP. Plaintiffs in the case include Boilermakers National Annuity Trust, Doral Bank Puerto Rico and the Policemen’s Annuity and Benefit Fund of Chicago. The decision reportedly paved the way for a Sept. 17 trial date.
