In New York, the Appellate Division, First Department, a state appellate court, is allowing Aozara Bank’s (AOZOF) mortgage-backed securities fraud lawsuit against JPMorgan & Chase (JPM) to proceed. The Japanese bank, which had brought MBS claims against a number banks, is alleging aiding and abetting fraud and fraud related to the banks’ creation, marketing, and/or sale of high risk securities.
Aozara had invested close to $560M by 2009 in at least 35 collateralized debt obligations that a number of banks had structured. It sued not just JPMorgan but also Barclays Bank (BARC), Deutsche Bank Securities Inc. (DB), Credit Suisse (CS), UBS AG (UBS), Goldman Sachs Group (GS), Credit Agricole, and Morgan Stanley (MS) in 2013.
In the collateralized debt obligation lawsuit against JPMorgan, the First Department reversed a ruling issued earlier by the Manhattan Supreme Court. The appellate panel has now found that the Japanese bank had properly stated claims for breach of the duty of good faith and fair dealing and also fraud. Aozora contends that JPMorgan, which is Bear Stearns successor, depicted certain CDOs as legitimate investments even as it used them to get rid of risky assets that were toxic. The appellate panel said that JPMorgan has not demonstrated that its claims in offering documents gave Aozora proper notice that JPMorgan defendants had colluded to accept the toxic CDO assets from Bear Stearns’ balance sheets. The ruling said that Aozora’s lawsuit included enough facts to support its reasonable inference that fraud and scienter had occurred.
In other mortgage-backed securities news, the Federal Deposit Insurance Corp. is asking a Second Circuit panel to revive its $140M residential mortgage securities fraud case against RBS Securities Inc. (RBS) and other banks. A US district court judge had dismissed the complaint last year on the grounds that the Financial Institutions Reform, Recovery and Enforcement Act preempts statues of repose that are found in the Securities Act of 1933.
The FDIC had brought the RMBS fraud lawsuit while acting as a receiver for Citizens National Bank and Strategic Capital Bank, whose failures cost about $279M for the agency’s Deposit Insurance Fund. FDIC alleged that the banks were fooled into buying the poor quality securities. The defendants named included RBS Securities, Deutsche Bank Securities Inc., Credit Suisse Securities (USA) LLC, Credit Suisse First Boston Mortgage Securities Corp., UBS Securities LLC, and HSBC Securities (USA) Inc. (HSBC).
Please contact our mortgage-backed securities lawyers if you’d like to explore your legal options and find out whether you have grounds for a securities claim. The SSEK Partners Group works with investors throughout the U.S.
FDIC Appeals Ruling that $140M RMBS Suit is Time-Barred , Law 360, April 7, 2015
Japanese Bank’s MBS Suit Against JPMorgan Revived, New York Law Journal, November 7, 2016