1933

National City Corp. To Pay $168 Million To NY Pension Fund To Settle Claims of Mortgage Loan Fraud

National City Corp., a financial holding company based in Cleveland, agreed to settle a class action brought by the New York State Common Retirement Fund and other purchasers of National City common stock for allegedly misrepresenting the quality of mortgage loans backing its RMBS. The suit, filed in 2008, alleged that National City mischaracterized as prime approximately $10 billion in subprime loans, and misrepresented the loans’ quality and performance. Plaintiff alleged violations of Sections 10(b) and 20(a) of the ’34 Act and Sections 11 and 15 of the ’33 Act. National City will pay $168 million to the class. The settlement, announced on August 8, 2011, must still be approved by U.S. District Judge Solomon Oliver of the Northern District of Ohio. Press Release.

Federal Court In California Finds Countrywide RMBS Suit Time-Barred

Judge Mariana Pfaelzer of the Central District of California ruled on August 10, 2011 that claims asserted by Stichting Pensioenfonds ABP on August 18, 2010 and in an amended complaint on February 14, 2011 were barred by the applicable statutes of limitations and repose. ABP had argued its claims under Sections 11, 12(a)(2) and 15 of the ’33 Act were tolled by a class action in California state court against Countrywide on the same securitizations. Judge Pfaelzer held American Pipe class action tolling only applies where an earlier class plaintiff had standing as to the specific tranche. ABP was given leave to amend its complaint to allege tranche-specific tolling for its Section 11, 12(a)(2), and 15 claims. Judge Pfaelzer further held that plaintiff was on inquiry notice as of early 2008 about the allegations of fraud at Countrywide. She therefore dismissed ABP’s remaining claims, under Sections 10(b) and 20(a) of the ’34 Act, Sections 25400 and 25500 of the California Corporations Code, and state law fraud and aiding and abetting, based on the relevant statutes of limitations and repose, without leave to amend. Order.

National Credit Union Administration Sues Goldman Sachs Over Sale of MBS

On August 9, 2011, the National Credit Union Administration Board (“NCUA”) sued Goldman Sachs in federal court in Los Angeles over Goldman’s sale of mortgage-backed securities to credit unions. NCUA claims that Goldman misrepresented the quality of the loans backing the securities in its offering documents. It also claims that the loans did not satisfy the underwriting guidelines Goldman included in its offering documents. The Complaint cites the Financial Crisis Inquiry Commission Report issued in January 2011 in support of its claims that mortgage loan originators disregarded prudent underwriting practices and securitizers like Goldman did not perform sufficient due diligence, leaving investors without access to critical information about the loans. NCUA alleges claims under Sections 11 and 12(a)(2) of the ’33 Act, Sections 25401 and 25501 of the California Corporate Securities Law of 1968, and Section 17-12a509 of the Kansas Uniform Securities Act. NCUA seeks more than $491 million in damages. NCUA has brought four actions against other RMBS issuers since June 20, 2011. Complaint.

AIG Sues Bank Of America Over Alleged Fraud In RMBS

On August 8, 2011, American International Group sued Bank of America Corp., Countrywide Financial Corp., and Merrill Lynch & Co. in New York state court, claiming that between 2005 and 2007 the defendants fraudulently induced AIG to invest in 350 residential mortgage-backed securities at a cost of $28 billion. AIG claims that the defendants did not engage in prudent underwriting practices, and ignored mischaracterizations made by borrowers about income and employment. The AIG complaint cited a forensic investigation done of the securitizations before the suit was filed, alleging that 40% of loans sampled were improperly evaluated on the risk metrics the defendants included in their offering materials. AIG alleges violations of Sections 11, 12(a)(2), and 15 of the ’33 Act, and state law claims of fraudulent inducement, aiding and abetting fraudulent inducement, negligent misrepresentation, and vicarious and successor liability. AIG seeks $10 billion in compensatory damages, among other remedies. Complaint.