On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.
Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen. The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.
The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro. The banks were Barclays, Deutsche Bank, RBS and Société Générale. Utilizing the Commission’s 2006 Leniency Notice, Barclays and UBS received complete immunity from fines. Announcement.
On September 13, Deutsche Bank, acting in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-HE6 (the Trust), filed a lawsuit in the United States District Court for the District of Connecticut against General Electric Capital Corp. and its subsidiary, WMC Mortgage L.L.C. Plaintiff alleges that WMC breached representations and warranties concerning 3,399 mortgage loans securitized into the Trust. Plaintiff also alleges that WMC breached certain repurchase, notification and indemnification obligations. Plaintiff seeks specific performance of the alleged repurchase obligations or damages totaling at least $500 million. Complaint.
In a lawsuit filed in New York State Court on August 5, Royal Park Investments SA/NV (RPI) alleged that several Deutsche Bank affiliates fraudulently induced it to invest in more than US$535 million worth of RMBS in connection with 18 different offerings. RPI alleges that the offering documents for the RMBS contained material misrepresentations and omissions concerning compliance with underwriting guidelines, loan-to-value ratios, owner occupancy rates, credit ratings, and transfer of title of the underlying mortgage loans. RPI further alleges that Deutsche Bank knew its representations were false but concealed that information and even used it to take a short position on different RMBS while still marketing these RMBS certificates to RPI as a good investment. RPI asserts claims for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and rescission based on mutual mistake. Complaint.
On July 23, Judge Robert W. Sweet of the United States District Court for the Southern District of New York dismissed in part a suit asserting putback claims against Deutsche Bank. HSBC, as trustee of the securitization at issue, brought suit for (i) alleged breaches of Deutsche Bank’s representations and warranties regarding underlying mortgage loans and (ii) Deutsche Bank’s failure to repurchase the loans upon request by the trustee. The court held that failure to provide the repurchase remedy is not an “independent” breach of contract. The court also dismissed HSBC’s declaratory judgment claim for reimbursement of its out-of-pocket expenses as duplicative of HSBC’s breach of contract claims. The court held, however, that plaintiff had adequately pled claims for breach of contract, including as to mortgages no longer held by the trust, and could pursue money damages allegedly required to make the plaintiff whole, as well as rescissory damages. Order.
The German central bank, the Bundesbank, has launched an investigation into Deutsche Bank following claims that it lost billions on credit derivatives during the financial crisis. Investigators from the Bundesbank are scheduled to fly to New York next week as part of an inquiry into allegations that misvaluing credit derivatives allowed Deutsche to hide up to $12 billion in losses, which helped it avoid a government bailout. The investigators will interview people, including former employees, who have knowledge of Deutsche’s credit derivatives dealings between 2006 and 2009. It is alleged that had the proper valuations been made on the positions during the relevant period, the losses for the whole portfolio would have exceeded $4 billion and could have risen to $12 billion.
Deutsche Bank has denied the allegations and stated that the allegations were “more than two and a half years old,” and had been the subject of a thorough investigation, which found them “wholly unfounded.”
On April 2, the National Credit Union Administration (NCUA), an independent federal agency that supervises and charters federal credit unions, reached a $165 million settlement with Bank of America, stemming from BofA’s sale of RMBS to failed credit unions. Bank of America did not admit any fault in the agreement. NCUA previously reached similar settlements with Citigroup, Deutsche Bank and HSBC. NCUA did not file a lawsuit against Bank of America, although litigation is pending between NCUA and several other financial institutions. Press Release.
On March 15, Judge Eileen Bransten of the Supreme Court of the State of New York granted in part and denied in part motions to dismiss brought by Merrill Lynch, Deutsche Bank and Morgan Stanley entities (together Defendants) in respective lawsuits brought against them by certain Allstate entities related to Allstate’s purchases of RMBS. The court dismissed Allstate’s negligent misrepresentation claim against all Defendants, concluding that Allstate had not alleged either that Defendants had the required specialized knowledge or that Defendants had a special or privity-like relationship with Allstate. The court also dismissed all claims as to two of the Deutsche Bank certificates and federal securities claims against Merrill Lynch as untimely, but rejected Defendants’ arguments that other claims were untimely. The court denied Defendants’ motions to dismiss as to Allstate’s fraud claims. The court also concluded that Defendants can face liability for distributing statements they allegedly knew to be false, even if the statements were originally made by third parties, such as originators or rating agencies. Deutsche Bank Order;Merrill Order;Morgan Stanley Order.
On March 13, the Massachusetts Securities Division (Division) and Deutsche Bank Securities Inc. (DBSI) entered into a Consent Order following an investigation into the issuance of collateralized debt obligations. DBSI consented to the Division’s characterization of the facts underlying the matter, and did not admit or deny the Division’s legal findings. According to the stipulated facts, DBSI helped design, build, and market a CDO (Carina CDO Ltd.) in 2006 while simultaneously buying protection against losses on similar CDOs. The Division found that DBSI violated Section 204(a)(2)(G) and (J) of the Massachusetts Uniform Securities Act by failing to disclose its conflict of interests in structuring and selling the Carina CDO while purchasing CDS protection referencing other CDOs with similar expected performance. DBSI agreed to cease and desist any violations of Massachusetts securities law, accept formal censure by the Division, and pay a $17.5 million civil penalty. Consent Order.
On January 28, HSBC Bank USA, acting in its capacity as Trustee for a single home equity loan trust, filed a complaint in the Supreme Court for the State of New York against DB Structured Products Inc., an affiliate of Deutsche Bank AG. The Trustee alleges that Deutsche Bank breached representations and warranties regarding originator underwriting standards applied to the loans underlying the RMBS, no misrepresentation or fraud in the origination of the loans, and no material defects in the loans. The Trustee asserts causes of action for breach of contract/specific performance, fundamental breach, and declaratory judgment for reimbursable expenses, and seeks rescissory or compensatory damages of $89 million. Complaint.
On January 4, Judge Jed S. Rakoff of the Southern District of New York issued a memorandum order explaining the bases for his February 6, 2012 decision that RMBS claims brought by several investor plaintiffs against several Deutsche Bank affiliates would be dismissed, with prejudice in part and without prejudice in part. Plaintiffs allege that Deutsche Bank made misrepresentations concerning the quality of the loans underlying 43 RMBS that they purchased. Plaintiffs also allege that Deutsche Bank concealed from plaintiffs that it had taken a short position against its own RMBS, including some of the securities it sold to plaintiffs. Plaintiffs asserted claims for common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation. Judge Rakoff held that plaintiffs failed to plead their claims with particularity, as required by Rule 9(b), in a number of ways. For instance, they failed to state with particularity the alleged misstatements in the offering documents for each of the 43 securities or who made each of those statemens. Plaintiffs also failed to allege the dates on which they purchased the securities and whether they relied on draft or final versions of the offering documents at the time of purchase. Judge Rakoff granted plaintiffs leave to amend their claims involving RMBS sponsored by Deutsche Bank. The claims related to RMBS not sponsored by Deutsche Bank, however, were dismissed with prejudice because Deutsche Bank had only a limited and attenuated role in the offerings. Order.
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