On August 21, a collection of investors including Phoenix Light SF Limited, Blue Heron Funding II Ltd. and Kleros Preferred Funding V PLC (the Investors) brought suit against a number of JP Morgan and Bear Stearns entities in New York State Supreme Court. The Investors allege that JP Morgan and Bear Stearns made misrepresentations in the offering documents for 47 RMBS concerning the underwriting guidelines used to originate the mortgage loans backing the RMBS, loan-to-value ratios, owner occupancy rates, the credit ratings assigned to the RMBS and the transfer of title of the underlying mortgage loans. The Investors allege that the defendants knew their representations were false by virtue of due diligence performed prior to the securitizations and by virtue of their decision to dispose of substantial subprime assets while simultaneously marketing the RMBS to the Investors as sound investments. The Investors assert causes of action for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation and rescission based upon mutual mistake. Complaint.
On November 26, CIFG sued JP Morgan in Supreme Court for the State of New York for alleged losses stemming from its insurance of credit default swaps on two Bear Stearns RMBS-backed CDOs. CIFG alleges that instead of being selected and managed by independent collateral managers, the CDO portfolios were actually selected by Bear Stearns in order to unload its own risk. CIFG alleges it suffered more than $100 million in losses when the two CDOs defaulted. The complaint’s causes of action are for material misrepresentation in the inducement of an insurance contract and fraud. Complaint.
On May 18, 2012, the FDIC, in its capacity as receiver for two failed banks, filed two actions in the Southern District of New York arising out of the banks’ alleged purchase of RMBS. In the first suit, the FDIC asserts claims on behalf of Citizens National Bank and Strategic Capital Bank that arise out of the banks’ investment in ten RMBS certificates worth $140.5 million issued and/or underwritten by the defendants, including Bear Stearns, Citigroup, Credit Suisse, Merrill Lynch, and Deutsche Bank. Complaint. In the second suit, the FDIC asserts claims on behalf of Strategic Capital Bank arising out of the bank’s investment in five RMBS certificates worth $31 million underwritten by JP Morgan, Citigroup, Bank of America, and Deustche Bank. Complaint. In both suits, the FDIC alleged that the defendant banks violated Sections 11 and 15 of the Securities Act of 1933 by making material misstatements and omissions in the certificates’ registration statements regarding, among other things, the loan to value ratios of the mortgages underlying the certificates, the appraisal standards used in connection with the appraisals of the underlying properties, whether the borrowers intended to occupy the properties as their primary residences, and whether the originators complied with their underwriting guidelines when originating the underlying mortgages. The FDIC seeks a combined total of $77 million in damages, plus attorneys’ fees and costs.
On March 30, 2012, Ambac Assurance Corp. brought claims against J.P. Morgan Chase, EMC Mortgage, and Bear Stearns in the Supreme Court of the State of New York, alleging fraudulent marketing of RMBS by Bear Stearns. Ambac alleges that Bear Stearns, which was acquired by J.P. Morgan, misrepresented the quality of the underlying mortgage loans when obtaining insurance from Ambac on the RMBS. Ambac, which alleges losses of $200 million, brings claims for fraudulent inducement, breach of contract, and successor liability. Complaint.
On March 15, 2012, Assured Guaranty Corp. filed a complaint in New York state court against Bear Stearns, its affiliate, EMC Mortgage LLC, and its successor, JPMorgan, alleging that Bear Stearns misrepresented the risk of RMBS and fraudulently induced Plaintiff to guarantee those RMBS. The complaint relies on alleged statements of confidential informants, including former employees of Bear Stearns, GreenPoint Mortgage Funding, Inc., and Watterson Prime LLC. Plaintiff alleges that the securities involved in the transactions at issue have experienced losses of more than $75 million, and that Plaintiff has paid unreimbursed claims of more than $43 million. Plaintiff asserts claims for fraudulent inducement, various breaches of contract, and for indemnification, claims payments, costs, and fees. Complaint.
On March 12, a complaint was filed in the U.S. district court for the District of Columbia by the DOJ and the attorneys general of 49 states and the District of Columbia against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally. The complaint, which was filed as part of the $25 billion mortgage servicing and foreclosure settlement entered into on February 9, contains allegations of: (i) unfair and deceptive loan servicing consumer practices; (ii) unfair and deceptive foreclosure processing consumer practices; (iii) unfair and deceptive loan origination consumer practices; (iv) violations of the False Claims Act; (v) violation of FIRREA; (vi) violation of the Servicemembers Civil Relief Act; and (vii) bankruptcy misconduct. Consent judgments implementing the terms of the February 9 settlement agreement were also filed in the U.S. district court in Washington, D.C. Complaints and Settlements. Orrick Alert on the February 9 Settlement.
On March 1, 2012, Deutsche-Zentral Genossenschaftsbank (“DZ Bank”) filed a summons with notice in New York state court against Bear Stearns, JPMorgan Chase, and related entities. DZ Bank alleges that it purchased $157 million in RMBS from defendants, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions. The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract. DZ Bank is seeking approximately $314 million in damages, including punitive damages, and alternatively seeks rescission. Summons.
On March 1, 2012, Principal Life Insurance Company filed a summons with notice in New York state court against JPMorgan Chase and related entities. Principal alleges that it purchased $114 million in RMBS from JPMorgan, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions. The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract. Principal is seeking approximately $228 million in damages, including punitive damages, and alternatively seeks rescission. Summons.
Bank of America, Citigroup, Wells Fargo, JP Morgan, and Goldman Sachs announced in their respective 2011 Forms 10-K filed with the SEC that they have received requests and subpoenas seeking documents, testimony and other information from government regulators including the SEC, DOJ Civil Division, state attorneys general, and bank regulators. These requests and subpoenas appear to be focused on issues relating to the sale and offering of mortgage-backed securities. Goldman Sachs, JP Morgan, and Wells Fargo also acknowledged that they have received Wells notices advising them of possible SEC civil or administrative action. Bank of America. Citigroup. Wells Fargo. JP Morgan. Goldman Sachs.
On December 13, 2011, Judge Korman of the Eastern District of New York granted in part a motion to dismiss a putative class action accusing JP Morgan affiliates of misrepresentations and omissions in connection with $36.8 billion worth of mortgage-backed securities. Judge Korman ruled that the lead plaintiff lacked Article III standing to assert claims in connection with any certificates other than those in the specific tranches of the specific securitizations in which the lead plaintiff had purchased certificates. As to certain of those offerings, the Court further dismissed plaintiffs’ claims as to those certificates for which the lead plaintiff failed to allege that the certificates had been either bought directly from a defendant or purchased in initial public offerings. As to those certificates for which plaintiffs were permitted to proceed, the Court further dismissed without prejudice plaintiffs’ claims insofar as they related to alleged misstatements concerning credit enhancements and credit ratings. However, the Court allowed plaintiffs’ claims related to alleged misstatements concerning appraisal practices and the underwriting guidelines of certain originators to proceed. As to all issues on which the Court granted defendants’ motion other than Article III standing, the Court granted plaintiffs leave to replead. Order.