- Following SCOTUS’s March Omnicare decision, a pension fund is claiming that the Second Circuit failed to take into account said decision in failing to revive Bank of America mortgage suit. The plaintiff requests SCOTUS’s review.
- U.S. District Court judge dismisses whistleblower suit against CitiMortgage where ex-VP claimed the bank engaged in reckless lending practice and made false claims.
- NY appellate court will not revive suit against Morgan Stanley and UBS for misrepresentation of $665 million in residential mortgage-backed securities.
- Ocwen and Assurant settle with homeowners for $140 million in class action suit, in which the homeowners alleged that Ocwen received kickbacks by inflating premium costs for forced-placed insurance.
- New York’s Appellate Division, First Department, affirmed dismissal of suit against UBS AG for $30 million, brought by Hanwha Life Insurance Co. (a Korean corporation) claiming that NY courts do not have an interest in adjudicating the suit. Hanwha purchased $30 million in credit-linked notes from UBS that turned out to be worthless. It was trying to recover its losses because it relied on UBS’s advice in purchasing the notes.
- CFPB and the Maryland Attorney General filed suit and settlement consent orders against a title company and participants in an alleged illegal mortgage-kickback scheme.
- After the National Credit Union Administration Board (NCUA) filed a complaint against HSBC for failing as trustee of $2 billion in residential mortgage-backed securities trusts, HSBC claims that the regulator lacks standing to represent the trusts and is barred by Delaware’s three-year statute of limitations.
- Wells Fargo and Deutsche Bank moved to dismiss fives suits from BlackRock Inc., Pacific Investment Management Co. and NCUA for allegedly failing to watch over 850 RMBS trusts as the trustees.
- Consumer Financial Protection Bureau has sued and settled with Flagship Financial Group for $225,000 for advertising their mortgages as government approved.
- Citigroup, UBS and Goldman Sachs settle for $235 million over Residential Mortgage-Backed Securities that Residential Capital, LLC issued without informing consumers of the risks associated with such securities. New Jersey Carpenters Health Fund et al v. Residential Capital LLC et al, U.S. District Court, Southern District of New York, No. 08-08781.
In Capital Ventures International v. UBS Securities LLC et al., No. 11-11937 (D. Mass. July 22, 2013), Judge Casper held that the inclusion of credit ratings based upon “false data” in offering materials for mortgage-backed securities “constitutes an actionable misrepresentation and omission” under the Massachusetts Uniform Securities Act (the relevant provisions of which are substantively similar to those of the Securities Act of 1933). (11) The Court also held that UBS’ “representation that a certain [ratings] process will be used is an actionable statement of fact.” (12)
Capital Ventures had purchased over $100 million of certificates of RMBS that were underwritten by UBS. The investors in those RMBS “were not given access to the loan files and had to rely upon the representations in the Offering Materials about the quality and nature of the loans that formed the security for their Certificates.” (2) The offering materials stated that the “rating process addresses structural and legal aspects associated with the Offered Certificates, including the nature of the underlying mortgage loans.” (3, emphasis in the original)
Capital Ventures alleged that “UBS knew the ratings were based on false and misleading data such as owner-occupancy and LTV statistics and underwriting quality and thus knew that the ratings were not the product of a process designed to judge the risk presented by the Certificates (as represented in the Offering Materials), but rather reflect the Rating Agencies’ judgment as to the risk presented by a ‘hypothetical security Capital Ventures was promised, but did not receive.'” (3, quoting amended complaint)
The holding in itself is important, but I am curious as to what effect it will have on representations in deals going forward. Underwriters may very well give investors the opportunity to review the underlying mortgage loans in order to ensure that they are not exposed to this type of liability. Or perhaps the risk is remote enough that they will chance it again. Time will tell.