On April 9, Judge Susan Wigenton of the U.S. District Court for the District of New Jersey denied Goldman Sachs’s motion to dismiss Prudential’s complaint alleging fraud in connection with the sale of $375 million in RMBS. Goldman argued that Prudential cannot bring claims under New Jersey state laws because Goldman is based in New York and the alleged misrepresentation and omissions at issue were contained in offering materials drafted and disseminated from New York. Judge Wigenton concluded it was premature to make a choice of law determination and held that Prudential had adequately pleaded its fraud, negligent misrepresentation, civil RICO and RICO conspiracy claims under New Jersey law. Decision.
On January 29, Bank Hapoalim B.M., Israel’s largest bank, filed summonses with notice against UBS AG, Goldman Sachs & Co., and their affiliates, in the Supreme Court for the State of New York. In both actions, Bank Hapoalim alleges that the offering documents for RMBS it purchased contained material misrepresentations and omissions concerning the underwriting standards for the mortgages underlying the securities, the transfer of mortgage loans, the legal validity of the trusts, and the statistical information about the mortgage loans underlying the securities. Bank Hapoalim asserts causes of action for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and rescission against both UBS and Goldman Sachs, and additional claims for violations of the Securities Act of 1933 against Goldman Sachs. Bank Hapoalim seeks approximately $116 million in damages from UBS and $106 million in damages from Goldman Sachs, inclusive of punitive damages. UBS Summons with Notice. Goldman Sachs Summons with Notice.
CIFG Assurance North America, Inc. (CIFG) filed a summons with notice against Goldman, Sachs & Co. (Goldman) in New York State Supreme Court on December 4, 2012. CIFG alleges that Goldman fraudulently induced CIFG to provide a financial guaranty insurance policy on a credit default swap in connection with the Fortius II CDO. CIFG alleges that Goldman did not disclose that the CDO manager, Aladdin Capital Management, was acting at Goldman’s behest to include in the CDO particular collateral, including RMBS that Goldman wanted to sell. CIFG asserts claims for fraud and for material misrepresentation in the inducement of an insurance contract. It is seeking reimbursement of the nearly $34 million dollars it allegedly paid under the policy it issued when the Fortius II CDO failed. Summons.
In two separate orders issued on November 12, Judge Cote of the Southern District of New York granted in part and denied in part motions to dismiss claims brought by the FHFA against Goldman Sachs & Co. and Deutsche Bank AG. FHFA’s claims are based on alleged purchases by Fannie Mae and Freddie Mac of residential mortgage-backed securities from these banks. The court dismissed FHFA’s common-law fraud claims against both banks based on owner-occupancy and LTV ratio allegations for failure to sufficiently allege scienter. The court rejected the remaining arguments to dismiss other aspects of the claims. Judge Cote denied Deutsche Bank’s motion as to the FHFA’s pleading of reasonable reliance and held that New York’s Martin Act did not preclude FHFA from raising claims based on other states’ securities laws. The court also rejected Goldman’s argument that as an underwriter it lacked “ultimate authority” over the contents of certain offering documents. In both actions, FHFA asserts claims for violations of Sections 11, 12, and 15 of the Securities Act of 1933, for violations of the Virginia and District of Columbia securities laws, and for fraud.
Goldman Sachs Decision. Deutsche Bank Decision.
On October 29, 2012, Goldman Sachs filed a petition for a writ of certiorari to the United States Supreme Court to review the recent Second Circuit Court of Appeals decision on RMBS class standing. The Second Circuit held that plaintiffs have standing to represent classes of investors who purchased mortgage-backed securities from the same shelf offering but from different tranches than those purchased by the named plaintiff, or even under different prospectus supplements, as long as the securities were backed by mortgages originated by the same lenders and the claims are based on “similar or identical misrepresentations in the Offering Documents.” The case was filed in 2007 by NECA-IBEW Health & Welfare Fund alleging misrepresentations of the risks of RMBS sold by Goldman. Petition.
On August 21, 2012, several Prudential entities sued several RBS entities in New Jersey State court seeking to recover damages allegedly suffered in connection with over $343 million in RMBS. Prudential also sued several Goldman Sachs entities in New Jersey State court on August 24, 2012, seeking to recover damages allegedly suffered in connection with over $270 million in RMBS. In both cases, Prudential alleges that the offering documents for the RMBS at issue contain untrue statements of material fact and omissions concerning the underwriting standards used to originate the underlying loans, the result of the defendants’ pre-closing due diligence, owner-occupancy rates, the process by which appraisals in connection with the underlying loans were performed, the assignment of the loans to the RMBS trusts, and the credit ratings assigned to the RMBS. In the case against RBS, Prudential also alleges that the offering documents contain untrue statements of material fact and omissions concerning the loans’ LTV and CLTV ratios; in the case against Goldman Sachs, Prudential also alleges that the offering documents contain untrue statements of material fact and omissions concerning exceptions made during the loan underwriting process. Prudential asserts causes of action for common-law fraud / fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and violation of New Jersey’s civil RICO statute. Prudential seeks compensatory damages, treble damages in connection with its RICO claim, rescission, attorneys’ fees and costs, and prejudgment interest. RBS Complaint. Goldman Sachs Complaint.
Deutsche Zentral-Genossenschaftsbank AG (DZ Bank) filed a summons with notice in New York State court on September 7, 2012, against several Goldman Sachs entities asserting claims in connection with DZ Bank’s alleged purchase of 9 RMBS for over $189 million. DZ Bank alleges that Goldman Sachs provided offering materials that misrepresented or omitted material information about, among other things, the underwriting standards used to originate the underlying loans, the statistical characteristics of the loans, and the transfer of the loans to the RMBS trusts. DZ Bank asserts causes of action for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and contract claims, including rescission, restitution, and mutual mistake. DZ Bank seeks compensatory damages, punitive damages, and rescission. Summons.
On September 5, 2012, German bank IKB Deutsche Industriebank AG filed summonses with notice against Goldman Sachs and Citigroup in the Supreme Court of the State of New York, New York County claiming $210 million in losses. In two separate actions, the bank alleges that Goldman Sachs and Citigroup provided offering materials that misrepresented or omitted material information about the originators’ underwriting practices, the transfer of loans to the relevant trusts, and the ability of the trusts to recoup interest and principal on the loans. IKB asserted claims for fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, rescission, restitution, and mutual mistake. Goldman Sachs Complaint. Citigroup Complaint.
On September 6, 2012, the United States Court of Appeals for the Second Circuit reversed the dismissal of RMBS claims against Goldman Sachs and related entities based on lack of standing and failure to state a claim. The court addressed a named plaintiff’s standing to assert class claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 based on mortgage-backed securities from offerings or tranches it did not purchase. Reversing the district court’s decision, the Second Circuit held that plaintiffs have standing to represent classes of investors who purchased mortgage-backed securities from different tranches than those purchased by the named plaintiff, or even under different prospectus supplements, as long as the securities were backed by mortgages originated by the same lenders and the claims are based on “similar or identical misrepresentations in the Offering Documents.” The court also held that the plaintiff had adequately pled a decline in the value of the securities, despite the absence of any allegation that the relevant trusts had defaulted on any distribution of principal or interest. Decision.
Several HSH Nordbank AG affiliates filed two summonses with notice in New York state court on August 24, seeking damages, rescission and/or a declaratory judgment arising out of their purchase of roughly $524 million and $110 million in RMBS certificates from Morgan Stanley and Goldman Sachs, respectively. Other than the details relating to the particular defendants, the two summonses with notice are identical. In particular, in both cases HSH Nordbank alleges that offering materials provided by the Defendants contained material misrepresentations concerning the underwriting standards for the loans underlying the RMBS, the legal validity of the trusts and their entitlement to receive payments on the loans, the loans’ loan-to-value ratios, the percentage of owner-occupied properties, and the credit ratings assigned to the RMBS. Goldman Sachs Summons. Morgan Stanley Summons.