Goldman Sachs & Co.

Texas District Court Rules on Damages Calculations in FDIC’s RMBS Suit Against Goldman Sachs and Deutsche Bank

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On September 14, 2017, Judge Sam Sparks of the U.S. District Court for the Western District of Texas granted summary judgment in favor of defendants Goldman Sachs & Co. and Deutsche Bank Securities Inc. on certain aspects of the method and rate that will be used to calculate damages in an RMBS suit brought by the Federal Deposit Insurance Corporation. The FDIC alleges that the Defendants violated the Securities Act of 1933 and the Texas Securities Act (“TSA”) by making material misstatements and omissions concerning the mortgages underlying $2.1 billion worth of residential mortgage-back securities.

The Defendants had moved for summary judgment on the method and rate for calculating damages under the TSA’s Article 581-33(D)(3). First, they argued that damages should be calculated using the “declining principal balance method” to account for payments made on the outstanding balance in the interest calculation. The Court agreed, comparing the language of the TSA with that of the Securities Act of 1933, and holding that this method appropriately “compensate[s] a defrauded buyer based on out-of-pocket consideration at any given time,” which aligns with the TSA’s purpose to “return defrauded buyers to the status quo.”

Defendants also requested that the damages interest rate, which was described as the “legal rate” in the contractual provision, should be the “Coupon Rate” specified in the underlying security certificates. Judge Sparks rejected this argument because “legal rate” was not defined in the contract, and held instead that the interest rate should be six percent per year under general provisions of interest in Chapter 302 of the Texas Finance Code, based on how Texas statues and courts had interpreted “legal rate” in other contexts. Summary Judgment Order

FDIC Settles RMBS Litigation for $190 Million with U.S. Financial Institutions

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On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents.  The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships.  FDIC Settlement Agreement.

New York Appellate Court Reinstates Fraudulent Inducement Claim Against Goldman and M&T Bank

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On May 7, New York’s First Department appellate court reinstated CIFG Assurance North America, Inc.’s fraud claim against Goldman Sachs & Co. and M&T Bank.  Last May, a New York trial court dismissed CIFG’s claim for fraudulent inducement relating to its insurance of RMBS, holding that CIFG was unable to establish reasonable reliance as a matter of law because it had not reviewed a sample of the mortgage loans in its pre-investment due diligence, and dismissed certain breach of contract claims for lack of standing.  The First Department held that CIFG had adequately pleaded that it was unaware that defendants’ warranties were false despite having conducted its own limited diligence, and found that questions of fact existed as to whether CIFG’s reliance was reasonable.  The court upheld the other aspects of the lower court’s decision, including that CIFG did not have standing to sue for breach of certain transaction documents.  Decision.