- New York federal courts says HSBC Bank USA NA will face suit from National Credit Union Administration for over $2 billion in mortgage backed securities that HSBC served as trustee for.
- In the US DOJ’s reply in Quicken Loans suit against the government, the DOJ claims it is a preempted False Claims Act challenge.
- The Second Circuit accepted force-placed insurance defense in suit against Balboa Insurance Co., after finding the insurer’s premium rates were state approved.
Tag Archives: Second Circuit
Monday’s Adjudication Roundup
- Two Moody’s Investor Services Inc. entities remain the only defendants in appeal from Illinois Bank following the exit of McGraw-Hill Cos. Inc. and Standard and Poor’s in suit over residential mortgage-backed securities ratings.
- A Second Circuit judge did not revive untimely suit against Bank of America for failing to fully disclose exposure to the secondary mortgage market finding that a “reasonably diligent” plaintiff could have filed suit by 2008 based on the publicly available information.
- BlackRock Inc. and other investors filed a class action in New York state court against U.S. Bank NA for allegedly failing to oversee $743 billion in residential mortgage-backed security trusts. The claims had been dismissed in federal court.
Monday’s Adjudication Roundup
- Quicken Loans Inc. filed a complaint against the Justice Department and the U.S. Department of Housing and Urban Development claiming that they tried to get Quicken to make false admissions during a settlement. The Government in turn sued Quicken under the False Claims Act for improper underwriting of mortgages and benefitting under the Federal Housing Administration insurance payouts.
- The United States Supreme Court denied cert to the U.S. Department of Housing and Urban Development, which argued that using contracts rather than grants to fund Section 8 public housing projects would impair the program.
- The Second Circuit Court of Appeals revived suit against Citigroup. The claims, which alleged that Citigroup tricked a Korean bank into taking $25 million in toxic collateralized debt obligations, were dismissed in the New York District Court in March 2013.
- Federal court requires RBS Securities to hand over which specific loans it is going to re-underwrite to National Credit Union Administration after allegedly causing the failure of at least two credit unions by misleading investors over hundreds of millions of dollars in mortgage-backed securities.
- Bank of America asks Second Circuit to vacate a $1.3 billion fine after jury found BofA had defrauded Fannie Mae and Freddie Mac using its “High-Speed Swim Lane” program.
Monday’s Adjudication Roundup
- Former Freddie Mac executives, who were accused of lying about Freddie’s exposure to subprime mortgages before the financial crisis, settled with the SEC.
- Citibank shareholders slam the Bank’s motion to dismiss a case over mortgage-backed securities worth more than $17 billion as NY federal courts have rejected similar arguments to dismiss similar cases.
- The Second Circuit dismisses a class action against Royal Bank of Scotland PLC finding that the bank did not lie about its exposure to residential mortgage-backed securities.
- DC federal judge certified a class action of evicted homeowners, with a lead representative who lost his home over a $134 unpaid tax bill. The court will decide whether district law creates a property interest in equity, if its tax-sale statutes effect a taking of the property and if class members were properly compensated.
Monday’s Adjudication Roundup
- Shareholders of Deutsche Bank petitioned for cert to the U.S. Supreme Court to clarify the standard for a claim for pleading a fraudulent claim under Section 11 of the Securities Act of 1933 following the Second Circuit tossing their suit in July 2014.
- 10th Circuit revives National Credit Union Administration’s $550 million suit against Barclays for misrepresentation of the quality of over $555 million in RMBS.
- First wave of Hurricane Sandy cases settle with FEMA and insurers over the improper cutting of the homeowners’ payouts following the storm.
Monday’s Adjudication Roundup
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A New York bankruptcy judge denied several mortgage originators’ motions to dismiss for Residential Capital LLC’s claims that they sold billions of dollars in defective loans.
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A few weeks after settling with the SEC for $58 million for fraudulent ratings on commercial mortgage-backed securities, Standards & Poor settles with the U.S. Department of Justice for $1.38 billion for the same fraudulent ratings.
- After dismissing a suit against Royal Bank of Scotland, Deutsche Bank and others in 2011 over mortgage-backed securities and the Second Circuit Court of Appeals nixed her dismissal, U.S. District Court Judge Deborah A. Batts has permitted New Jersey Carpenters Health Fund to file a third amended complaint to revive the suit. This could end up costing the banks $7.7 billion if the suit is successful.
- Bank of America has defeated Prudential’s claims that it sold $2 billion of fraudulent residential mortgage-backed securities.
Reiss on FIRREA Penalties
Bloomberg quoted me in S&P Faces Squeeze After $1.3 Billion Countrywide Fine. It opens,
Standard & Poor’s (MHFI)’ chances of settling the government’s lawsuit over mortgage-bond ratings for less than $1 billion may have slipped away after Bank of America Corp.’s Countrywide unit was socked with a $1.3 billion fine.
The Countrywide ruling was the first to lay out what penalties financial institutions could face under a 1989 bank-fraud law the Obama administration is using against alleged culprits of the subprime mortgage crisis. It has boosted the government’s hand against McGraw Hill Financial Inc.’s S&P, said Peter Henning, a law professor at Wayne State University.
“If the starting negotiation point for the Justice Department to settle was $1 billion before, that number has just gone up,” Henning said in a phone interview.
The U.S. sued S&P and Countrywide under the Financial Institutions Reform, Recovery and Enforcement Act, a law passed by Congress in the wake of the savings and loan crisis of the 1980s. The administration, which seeks as much as $5 billion from S&P, is using the law to punish alleged misconduct in the creation and sale of residential mortgage-backed securities blamed for the financial crisis two decades later.
For the Justice Department, the case against S&P goes to the heart of the financial crisis, attacking the company’s claims that its ratings — relied on by investors worldwide — were honest and neutral. S&P has countered that the case is really retribution for it downgrading the U.S. government’s own debt and it has subpoenaed officials including former Treasury Secretary Timothy Geithner in an effort to prove that.
Hearing Today
A hearing on the company’s request to force Geithner and the government to turn over records is scheduled for today in federal court in Santa Ana, California.
Countrywide was found liable by a federal jury in Manhattan for lying about the quality of the almost $3 billion in mortgages it sold to Fannie Mae (FNMA) and Freddie Mac (FMCC) in 2007 and 2008. U.S. District Judge Jed Rakoff in Manhattan agreed with the Justice Department that the penalty should be based on how much money the mortgage lender fraudulently induced the companies to pay for the loans.
“The civil penalty provisions of FIRREA are designed to serve punitive and deterrent purposes and should be construed in accordance with those purposes,” the judge said in his July 30 ruling.
S&P is accused of defrauding institutions that relied on its credit ratings for residential mortgage-based securities and collateralized debt obligations that included those securities. The government claims S&P lied to investors about its ratings on trillions of dollars in securities being objective and free of conflicts of interest.
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Appeal Probable
The judge’s analysis, using the nominal value of the transactions as a starting point to determine the penalty, was “out of whack” and will probably be appealed by Bank of America to the U.S. Court of Appeals for the Second Circuit in New York, said David Reiss, a professor at the Brooklyn Law School.
“The Second Circuit has no problem reversing Rakoff,” Reiss said in in a phone interview. “The ruling pushes the balance of power in favor of the government by expanding the definition of a civil penalty.”
While other judges aren’t obliged to follow Rakoff’s reasoning, they will pay close attention to the decision because the federal court in Manhattan is the leading business law jurisdiction in the country and the ruling was clearly explained, Reiss said.