On July 25, 2016, Justice Marcy Friedman of the New York Supreme Court dismissed a $619 million suit brought by U.S. Bank in its capacity as Trustee of an RMBS trust against the originator of the loans, Equifirst, Barclays’ now-defunct mortgage originator. The Federal Housing Finance Agency (“FHFA”), as conservator of an RMBS certificateholder, initially filed the summons with notice on February 28, 2013, the six-year anniversary of the securitization’s closing date. U.S. Bank waited another six months before filing the complaint on October 28, 2013. U.S. Bank brought claims for breach of contract for Equifirst’s alleged misrepresentations regarding the quality of the underlying mortgage loans, and breach of the implied covenant of good faith and fair dealing arising from an alleged failure to notify contractual counterparties of Equifirst’s alleged breaches. Relying on a recent intermediate appellate decision and her orders in similar cases, Justice Friedman dismissed those claims holding that FHFA, as a certificateholder, lacked standing to commence the action, and that the Trustee’s complaint, which was filed after the passage of the statute of limitations, did not relate back to FHFA’s summons with notice. The court granted U.S. Bank leave to replead its failure to notify claims. Order.
Barclays
Agencies Extend Deadline for Certain Foreign Banking Organizations’ Resolution Plan Submissions
On June 8, 2016, the Federal Reserve Board and the Federal Deposit Insurance Corporation extended the deadline for Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS to present their upcoming resolution plans to July 1, 2017, as a result of these entities engaging in restructuring in order to be in “compliance with the Federal Reserve Board’s Intermediate Holding Company (IHC) requirement[.]” Press release. Press release.
Barclays and MassMutual Settle RMBS Litigation
On March 29, Barclays Capital Inc. and Massachusetts Mutual Life Insurance Co. jointly moved pursuant to a confidential settlement agreement for dismissal of an action brought by MassMutual. MassMutual brought claims under the Massachusetts Uniform Securities Act concerning $175 million in RMBS. MassMutual alleged that Barclays had made false representations about the quality and risk of default of the underlying loans. Motion for Dismissal. Complaint.
Eleven Banks Reach Settlement with Commonwealth of Virginia on RMBS Claims
On Friday, January 22, 2016, eleven banks, including Merrill Lynch, RBS, and Barclays, agreed to settle claims brought by the Commonwealth of Virginia in a 2014 action alleging misrepresentations as to the nature, quality, characteristics, and risk profile of RMBS certificates. The certificates were purchased by the Virginia Retirement System, an agency of the Virginia Commonwealth. In its complaint, the Commonwealth alleged injury of $383.91 million and demanded treble damages of $1.15 billion, plus a civil penalty of $5,000-$11,000 per violation. The settlement announced on January 22 is for $63 million. Press Release. Complaint.
Barclays and Wachovia Settle with NCUA
On October 19, 2015, Barclays PLC and Wachovia Capital Markets LLC agreed to pay $325 million and $53 million, respectively, to settle claims brought by the National Credit Union Administration Board (NCUA), as liquidating agent of five credit unions, regarding residential mortgage backed securities purchased by those credit unions. NCUA alleged in the actions (filed in New York, California, and Kansas federal courts) that the characteristics of the RMBS and the underlying loans were misrepresented in the offering documents. NCUA Press Release on Barclays. NCUA Press Release on Wachovia. We previously covered two of NCUA’s actions against Wachovia here and here.
European Commission Imposes EUR 1.71 Billion Fine for Participating in Illegal Cartels
On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.
Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen. The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.
The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro. The banks were Barclays, Deutsche Bank, RBS and Société Générale. Utilizing the Commission’s 2006 Leniency Notice, Barclays and UBS received complete immunity from fines. Announcement.
Treasury Committee Publishes LIBOR Report
On August 18, the Treasury Select Committee (TSC) published its report “Fixing LIBOR: some preliminary findings“. Volume I (Report). Volume II (Oral and Written Evidence).
As well as conclusions relating to the conduct of Barclays and the FSA’s LIBOR investigation, the report also includes a number of points of general regulatory interest including:
- Firms must be encouraged also to self-report.
- The committee requires the FSA to report to it on how it will alter its supervisory efforts to counter weak compliance by firms in future.
- Wheatley (FSA) review should consider the case for amending the present law by widening the meaning of market abuse to include the manipulation, or attempted manipulation of LIBOR and other benchmark rates.
- A formal and comprehensive framework needs to be put in place by the Serious Fraud Office (SFO) to ensure effective relations in the investigation of serious fraud in the financial markets.
The BoE submitted a response to the report on August 18. Response.
Tracey McDermott Appointed as FSA’s Permanent Director of Enforcement
The FSA has confirmed that Tracey McDermott, the FSA’s acting head of enforcement, will become the permanent director of enforcement and financial crime.
McDermott joined the FSA as an associate in enforcement 2001, and has been acting as director since April 2011. During her time as acting head of enforcement, she has secured 10 convictions for insider dealing and imposed the largest FSA fine to date of £59.5 million on Barclays Bank plc for attempting to manipulate the LIBOR rate.
The FSA will divide into the Prudential Regulation Authority and the Financial Conduct Authority in 2013. McDermott’s role will transfer over to the Financial Conduct Authority.
FSA Fines Barclays £59.5 Million for Manipulation of LIBOR
On 27 June 2012, the FSA published the final notice issued to Barclays Bank plc, detailing a £59.5 million fine for misconduct relating to its submission of rates that formed part of the London Interbank Offered Rate (“LIBOR”) and the Euro Interbank Offered Rate (“EURIBOR”). This is the largest ever fine that the FSA has imposed. Final Notice.
In particular, Barclays breached the following Principles:
- Principle 5 (market conduct) – Barclays was found to have breach Principle 5 by making US dollar LIBOR and EURIBOR submissions that took into account requests made by interest rate derivatives traders.
- Principle 3 (management and control) – Barclays did not have adequate risk management systems or effective controls in place relating to its LIBOR and EURIBOR submission process.
- Principle 2 (skill, care and diligence) – Barclays failed to conduct its business with due skill, care and diligence when considering issues raised internally relating to its LIBOR submissions.
In addition to the fine by the FSA, the U.S. Commodity Futures Trading Commission fined Barclays $200 million, and Barclays agreed to pay a penalty of $160 million as part of an agreement with the U.S. Department of Justice.
The Barclays settlement is the first settlement announced in connection with the LIBOR probe, with regulators investigating more than 20 banks.
Maryland District Court Partially Dismisses Claims by Thornburg Mortgage that Barclays Made Improper Margin Calls and RMBS Seizures
On September 7, 2011, District Court of Maryland Judge Ellen Lipton Hollander granted in part and denied in part Barclays Capital, Inc.’s motion to dismiss Thornburg Mortgage, Inc.’s Chapter 11 trustee’s claims for breach of contract and the covenants of good faith and fair dealing. The Trustee alleged that in August 2007 Barclays made improper margin calls and seizures of MBS that Thornburg financed through a repurchase agreement with Barclays. According to the Trustee, Barclays based its margin calls on inappropriately low valuations and liquidated Thornburg’s MBS at low prices, thereby causing Thornburg economic losses. While Judge Hollander upheld the Trustee’s allegations on the breach of contract claim as sufficient, she granted Barclays’ motion to dismiss the bad faith claim, finding it was redundant with the breach of contract claim. Decision.