Ambac and J.P. Morgan Reach $995M RMBS Settlement

On Monday, January 25, 2016, monoline insurer Ambac Assurance Corporation (“Ambac”) reached a $995 million settlement with J.P. Morgan, resolving two RMBS actions pending before Justice Ramos in the Supreme Court of the State of New York and Ambac’s objections to J.P. Morgan’s $4.5 billion global settlement with RMBS trustees.  We previously covered Ambac’s actions against J.P. Morgan here, here and here.  In those actions, Ambac brought claims against J.P. Morgan as the successor to EMC Mortgage and Bear Stearns for alleged misrepresentation of the quality the loans underlying eleven RMBS transactions.  The settlement also resolves Ambac’s objections to J.P. Morgan’s 2014 settlement with RMBS trustees of claims for alleged breaches of representations and warranties and servicing deficiencies. The adequacy of that settlement is currently the subject of an Article 77 proceeding before Justice Friedman of the Supreme Court of the State of New York, which we previously covered herePress Release.  Stipulation of Withdrawal.

JP Morgan Sued by Investors Over $1.7B in Mortgage-Backed Securities

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.

CIFG Sues JP Morgan Over Two Bear Stearns CDO Portfolios

 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.

FDIC Brings Two RMBS Lawsuits Against Several Investment Banks and Related Entities

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.

Ambac Sues JP Morgan Over Insurance of Bear Stearns RMBS

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.

Assured GuarantySues Bear Stearns and JPMorgan

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.

Attorneys General Complaint on Mortgage Practices

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.

JPMorgan Sued for $314 Million by Deutsche Zentral-Genossenschaftsbank

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.

JPMorgan Sued for $228 Million by Principal Life Insurance

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.

Wall Street Firms Disclose Government Investigations Of RMBS Activities

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.