Investors continue to battle issuers and underwriters of mortgage-backed securities over claims of misrepresentation in the sale of billions of dollars in MBS investments. Many of the cases are being fought in New York courtrooms, and units of JPMorgan Chase & Co. and Bank of America Corp. are frequently named as defendants.
Goldman Sachs & Co., JPMorgan Chase & Co. and Merrill Lynch, Pierce, Fenner & Smith Inc. were among several defendants named in a lawsuit filed on May 22 in New York’s supreme court by several plaintiffs including Dublin, Ireland-based Phoenix Light SF Limited. The defendants are accused of misrepresenting characteristics of residential MBS including loan-to-value ratios and owner-occupancy share.
The dismissal by a federal court in Louisville, Ky., of at lawsuit filed by Republic Bank & Trust Co. against Bear Stearns & Company Inc. was upheld on June 20 by the U.S. Court of Appeals for the Sixth Circuit. Republic claimed that it was misled by Bear Stearns on more than $50 million in RMBS investments that eventually “crumbled.” Problem was that the plaintiff didn’t read relevant offering documents.
A summons with notice was filed by SACO I Trust 2006-5 for $293 million against EMC Mortgage LLC and parent JPMorgan in New York’s supreme court on May 25. The trust included more than 13,000 loans for $667 million as of April 2006, and losses so far exceed $355 million. The plaintiffs allege that EMC breached numerous representations and warranties made about the credit quality and loan characteristics in the mortgage loan purchase agreement. So far, breaches have allegedly been identified on 1,917 loans.
On June 7, New York Attorney General Eric T. Schneiderman was approved by a New York Judge to intervene in litigation over BofA’s proposed $8.5 billion settlement with mortgage-bond investors over opposition by trustee Bank of New York Mellon, a news release from the state said.
While a $6 billion federal securities claim by American International Group Inc. was stricken down by U.S. District Judge Mariana Pfaelzer in May because the claim was not made within three years, AIG and other MBS investors have up to six years to file through fraud and negligent misrepresentation claims under New York state law, Thompson-Reuters reported. Against the arguments of Countrywide’s lawyers, Pfaelzer agreed with AIG holding that it is resident in New York for the purposes of the statute of limitations.
BofA was sued for $200,319,000 in New York Supreme Court by IKB International over alleged damages from $200 million in RMBS. Material misrepresentations and omissions are alleged on credit rating and underwriting standards used on the securitized loans as outlined in offering materials.
Merrill Lynch was sued in a New York state court by Bayerische Landesbank on May 2 over alleged misrepresentations about underwriting standards, due diligence and appraisals on more than $324 million in 13 RMBS offerings between 2006 and 2007. The complaint cited testimony by Clayton Holdings Inc.’s president indicating that a quarter of loans evaluated by Merrill Lynch for purchase and securitization in 2006 and 2007 failed to meet its own originator guidelines.
U.S. District Judge Jed Rakoff approved a $315 million settlement between BofA and investors led by the Public Employees’ Retirement System of Mississippi pension fund over alleged misrepresentations about the risks of $16.5 billion in 18 MBS offerings made by Merrill Lynch between 2006 and 2007, Reuters reported.
A motion by UBS Americas Inc. to dismiss a lawsuit filed in July 2011 by the Federal Housing Finance Agency was denied as to FHFA’s securities law claims and granted as to the negligent misrepresentation claims, a May 4 order from the U.S. District Court for the Southern District of New York said. The lawsuit — one of 18 filed by the regulator on behalf of Fannie Mae and Freddie Mac — alleges that UBS Americas made numerous material misstatements and omissions about the mortgage loans underlying $4.5 billion in private-label MBS sold to the secondary lenders.
A motion to certify the class in a lawsuit against Credit Suisse was granted on June 29 by a federal judge in Manhattan. The putative class action, which involves senior mortgage pass-through certificates issued in 2006, was filed on behalf of lead plaintiff Vaszurele Ltd.
The May 2010 dismissal by New York Supreme Court Justice Barbara Kapnick of a lawsuit filed in 2008 by Oddo Asset Management against Barclays Bank PLC and Standard & Poor’s parent The McGraw-Hill Companies Inc. was upheld on June 27 by the Court of Appeals, State of New York. The court concluded that the collateral managers appointed to oversee the assets of the structured investment vehicles didn’t owe a fiduciary duty to plaintiff. The French asset management company had invested $50 million in 2005 and 2006 in the SIVs, which consisted primarily of RMBS and CMBS.
A $40 million settlement between individuals previously affiliated with bankrupt Lehman Brothers Holding Inc. and plaintiffs led by Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Trust Fund, New Jersey Carpenters Health Fund, and Boilermakers-Blacksmith National Pension Trust was approved by U.S. District Judge Lewis A. Kaplan on June 21, Cohen Milstein Sellers & Toll PLLC announced. The defendants are accused of filing misleading offering documents regarding the credit quality of billions of dollars worth of mortgage pass-through certificates issued in 2006 and 2007.
Brookstone Securities, its owner and chief executive officer Antony Turbeville and a broker for the firm Christopher Kline were fined $1 million and ordered to pay $1.6 million in restitution for alleged fraudulent sales of collateralized-mortgage obligations, a June 4 news release from the Financial Industry Regulatory Authority said. Turbeville and Kline were additionally barred from the securities industry. FINRA said that the pair deceived elderly and unsophisticated customers about the CMOs’ risks from July 2005 through July 2007.
The U.S. District Court for the Southern District of New York granted a motion to dismiss with regard to Goldman Sachs’s failure to disclose Wells Notices from the Securities and Exchange Commission — though the motion was otherwise denied. The class action was filed by purchasers of Goldman’s common stock in connection to Goldman’s role in the synthetic collateralized-debt obligation ABACUS 2007 AC-1, the Abacus, Hudson Mezzanine Funding 2006-1, The Anderson Mezzanine Funding 2007-1, and Timberwolf I CDO transactions. Goldman allegedly set up the securities to fail by allowing hedge fund Paulson & Co. to pick the securities even though Paulson was betting against the securities.
Two federal lawsuits filed in May by the Federal Deposit Insurance Corp. seek $77 million over alleged misrepresentations on MBS sold to two failed banks, Strategic Capital Bank and Citizens National Bank, according to a story by Bloomberg. Both financial institutions failed in May 2009. Among the defendants in the FDIC’s lawsuit are JPMorgan, Citigroup Inc., Bank of America Securities and Deutsche Bank AG.
A lawsuit was filed against Morgan Stanley in the Superior Court of New Jersey on April 25 by The Prudential Insurance Companies of America, according to court records. Bloomberg reported that the complaint alleges Morgan Stanley made untrue statements and omitted material facts before Prudential bought RMBS certificates issued with 41 mortgage-loan securitizations from July 2004 to August 2007.