Bank Hapoalim Brings $361M RMBS Lawsuit Against JPMorgan

On August 10, Bank Hapoalim BM, an Israeli bank, filed a summons with notice against JPMorgan Chase & Co. in New York state court in connection with its purchase of $361 million in residential mortgage-backed securitites.  Bank Hapoalim alleges that the purchase offerings were based on fraudulent misrepresentations and omissions regarding the characteristics of the mortgage loans underlying the securities.  Bank Hapoalim asserts that Goldman Sachs either knew the information in the offerings was wrong or was negligent in not knowing.  Bank Hapoalim asserts causes of action for common law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and contract claims, including rescissory damages.  Summons with Notice.

Bank of America Settles Syncora RMBS Action for $375 Million

On July 17, Bank of America agreed to settle a case brought in New York state court by insurer Syncora Guarantee for $375 million. The settlement also includes a transfer of assets from Syncora to Bank of America subsidiaries and a corresponding transfer of preferred shares, surplus notes, and other securities from Bank of America subsidiaries to Syncora. Syncora filed suit against Bank of America in 2009, alleging that Countrywide Financial misrepresented the quality of mortgages underlying securities that Syncora insured. Press Release.

Foreign Investors Bring $1.8 Billion RMBS Lawsuit Against Six Investment Banks

On May 22, 2012, Blue Heron Funding Ltd., Phoenix Light SF Limited, Silver Elms CDO PLC, and Kleros Preferred Funding V PLC filed a summons with notice in the New York State Court against six investment banks and their related entities over $1.8 billion in RMBS certificates originally issued between 2005 and 2007. The plaintiffs, which are incorporated in either the Cayman Islands or Ireland, alleged that the offering materials issued by the defendant banks in connection with their respective RMBS offerings contained material misstatements and omissions regarding the underwriting and appraisal standards used in connection with the underlying mortgage loans, the statistical characteristics of those loans, and the credit ratings of the securities. The plaintiffs assert claims under Sections 11, 12 and 15 of the Securities Act of 1933 and seek to recover a combined total of $1.8 billion, plus legal fees, interest, and punitive damages. Summons.

MetLife Sues Morgan Stanley Over $757 Million in RMBS

On April 25, 2012, Metropolitan Life Insurance Co. (“MetLife”) filed suit in New York State Court against Morgan Stanley. MetLife alleges that Morgan Stanley misrepresented the quality of the mortgage loans underlying RMBS certificates that MetLife bought in nine offerings. Specifically MetLife alleges that Morgan Stanley misrepresented that the loans were originated according to underwriting standards described in the offering documents and that the appraisals of the properties underlying the loans had been overstated. MetLife further alleges that Morgan Stanley knew of these misstatements as a result of due diligence it conducted in connection with the offerings. MetLife asserts claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.  Complaint.

Court Denies Goldman Sachs’s Motion to Dismiss in Case Arising out of Abacus CDO

On April 24, 2012, New York State Court Judge Barbara Kapnick denied a motion brought by Goldman Sachs Group Inc. (“Goldman Sachs”) to dismiss an action brought by ACA Financial Guaranty Corp. (“ACA”) arising out of ACA’s provision of financial guaranty insurance wrapping the Abacus 2007-ACI CDO issued by Goldman Sachs. ACA alleged that Goldman Sachs misrepresented material facts about the economic interest of the hedge fund Paulson & Co. Inc. (“Paulson”), an investor in the CDO. According to ACA, Paulson, which participated in the selection of the portfolio of mortgage loans backing the CDO, was represented to be a long investor but in fact took a short position against the deal. Judge Kapnick found ACA’s allegations sufficient to state a claim that Goldman Sachs fraudulently concealed the information about Paulson’s position and thus fraudulently induced ACA to insure the CDO.  Order.

German Bank Sues JP Morgan Over $2.1 Billion in RMBS

On November 21, 2011, German bank Bayerische Landesbank (“BayernLB”) filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities, including several former Washington Mutual and Bear Stearns entities, seeking approximately $2.1 billion in damages in connection with its purchase of certificates in 57 RMBS offerings. BayernLB asserts causes of action for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and successor and vicarious liability, based on allegations that JPMorgan concealed the poor quality of loans underlying those securities and provided misinformation to credit rating agencies. Complaint.

Insurer Seeks Rescission and Damages in Connection with Coverage for $3.8 Billion in RMBS

On November 29, 2011, the Financial Guaranty Insurance Co. (“FGIC”) filed three lawsuits in New York state court against the mortgage divisions of Ally Financial. FGIC alleged that GMAC and the Residential Funding Company misrepresented to FGIC the quality of loans underlying RMBS valued at $3.8 billion in order to obtain insurance policies from FGIC that were purportedly necessary for the RMBS to be given a AAA credit rating. FGIC’s insurance policies guaranteed principal and interest payment on the securities at issue. FGIC asserts a number of causes of action in each case, including claims for various contractual breaches, fraudulent inducement, and tortious interference. Complaint A. Complaint B. Complaint C.

German Banks Sue Bank of America, JP Morgan and Others for Over $4.5 Billion

On September 29, 2011 two German banks, Landesbank Sachsen AG and Landesbank Baden-Wurttemberg, and the banks’ Irish asset manager, Sealink, filed three suits in New York state court. Plaintiffs name Bank of America Corp., JP Morgan, Countrywide Financial Corp., Bear Stearns, Washington Mutual, and certain Countrywide executives in claims for fraudulent and negligent misrepresentation, aiding and abetting, and vicarious and successor liability. Plaintiffs allege that the defendants concealed the risks of the underlying mortgages through alleged misstatements as to originator underwriting practices and allegedly overstated appraisals. Plaintiffs seek compensatory, rescissory, and punitive damages. Index No. 652680/2011. Index No. 652681/2011. Index No. 652679/2011.

Foreign Pension Fund Sues Deutsche Bank Over Mortgage-Backed Securities

On September 7, 2011, Stichting Pensioenfonds ABP, a pension fund based in the Netherlands, sued Deutsche Bank and certain of its officers in New York state court, alleging the bank committed fraud by misrepresenting the quality of the loans underlying its mortgage-backed securities. In support of its claims that Deutsche Bank knew about the poor quality of the loans and the loan originators’ noncompliance with underwriting guidelines, the fund cites the Financial Crisis Inquiry Commission and the Levin Report for the proposition that Deutsche Bank entered into credit default swaps to short the securities. The complaint seeks monetary damages and rescission based on claims for common law fraud, aiding and abetting, and negligent misrepresentation. Complaint.

Walnut Place Investors Remove Proceeding Concerning Bank of America’s Proposed $8.5 Billion Settlement to Federal Court

On August 26, 2011, Walnut Place Investors removed Bank of America’s proposed $8.5 billion settlement with holders of Countrywide Financial Corporation’s RMBS from New York State Court to the United States District Court for the Southern District of New York. The attorneys for Walnut Place Investors, Grais & Ellsworth, noted that the case is subject to federal jurisdiction as a mass action under the Class Action Fairness Act (“CAFA”). In a letter addressed to counsel for Bank of New York Mellon, Grais & Ellsworth argued that removal should not create any additional delay in ultimately settling the action. Grais & Ellsworth also represents several other parties that intervened in the proposed settlement including several Federal Home Loan Banks, pension funds, and private equity firms. Letter and Notice of Removal.