US Supreme Court Turns Down Banks’ Bid that It Examine FDIC Case
The U.S. Supreme Court has decided not to review the 2015 ruling made by the Fifth Circuit Court of Appeals that revived the Federal Deposit Insurance Corporation’s (FDIC) securities case accusing Goldman Sachs (GS), Royal Bank of Scotland (RBS), and Deutsche Bank (DB) of misrepresenting the quality of securities it sold to Guaranty Bank, which later failed. The FDIC took the Texas bank into receivership in 2009 and sued the banks in 2014.
A judge in Austin, Tx. dismissed the case, citing a state law requiring that lawsuits be brought within five years of a mortgage-backed security’s sale. The complaint had been filed at least 9 years after the MBSs were sold.
Last August, the Fifth Circuit cited a 1989 federal law and revived the case. The appeals court said that the FDIC is allowed an extended time period to file complaints for institutions that it insures and have gone into receivership. Circuit Judge Carolyn Dineen King wrote that it was this federal law that made it possible for the FDIC to concentrate on dealing with bank failures rather than worrying about possible statutes and their limitations.
RBS, Goldman, and Deutsche then filed their petitioned with the U.S. Supreme Court. The banks pointed to a past holding by the highest court that barred other courts from preempting state law unless the U.S. Congress has made such a preemption clear.
Credit Suisse Resolves MBS Case for $29M
Credit Suisse (CS) must pay $29M to settle the National Credit Union Administration’s claim that it sold bad mortgage-backed-securities to credit unions. NCUA’s lawsuit revolves around MBSs that UBS (UBS) underwrote and sold to Members United Corporate Federal Credit Union and the Southwest Corporate Federal Credit Union for over $228M from ’06 to ’07. Both credit unions have since failed.
The U.S. regulator claimed that there were false statements in the MBS’ offering documents stating that the loans, upon origination, satisfied underwriting guidelines. NCUA has a similar mortgage-backed securities case pending against Credit Suisse in Kansas.
Former Fannie Mae Chief Loses Motion to Dismiss SEC Fraud Case
Daniel Mudd, the ex-CEO of Fannie Mae, will have to face a Securities and Exchange Commission lawsuit accusing him of hiding the mortgage finance agency’s exposure to high risk loans that spurred the 2008 financial crisis. A district court judge in Manhattan ruled that the regulator could take Mudd to trial over contentions that he hid $441B of high-risk loans before the government seized Fannie Mae that same year. The US then placed it, along with mortgage company Freddie Mac, into conservatorship. The SEC believes Fannie Mae hid its exposure to over $100B of subprime loans and $341B of Alt-A loans.
Judge Paul Crotty said that a jury could determine that the mortgage giant’s disclosures about exposure to Alt-A loans and subprime loans left out millions of dollars of mortgages. The judge said that evidence had been presented by the regulator that could cause a jury to rule that Mudd knew or should have known that his public statements about Fannie Mae’s disclosures and loan risks exposures were misleading and/or false. Mudd, however, maintains that the SEC has failed to demonstrate that he committed fraud against investors.
The SEC also sued two of Mudd’s Fannie Mae colleagues in 2011. It filed a securities case making similar allegations against ex-Freddie Mac CEO Richard Syron and two others. All five of them have arrived at small settlements with the agency.
Credit Suisse to pay $29 million in U.S. regulator’s mortgage case, Yahoo/Reuters, March 24, 2016
Judge: Ex-Fannie Mae boss must face SEC-led civil trial, The Post-Journal, March 2, 2016
Supreme Court Rejects Banks’ Request to Review FDIC Suit, DSNews, March 29, 2016