On September 27, Judge Louis L. Stanton of the Southern District of New York denied a motion by JPMorgan, Citigroup and several other banks to dismiss a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving $388 million in RMBS. Judge Stanton rejected the defendants’ arguments that the claims were barred by the statute of limitations, finding that publicly available information about troubles in the mortgage industry in 2007 did not put the plaintiff on notice of facts constituting an alleged violation of federal securities laws in connection with the specific transactions at issue. Judge Stanton also held that the FDIC’s allegations of misstatements in the offering documents were sufficiently detailed to survive the pleading stage. The court concluded that it was premature to rule on whether a defendant may be liable under Section 11 of the Securities Act of 1933 when it did not underwrite the particular tranche of a securitization that the plaintiff purchased. Opinion.
Colonial Bank
Federal Judge Dismisses FDIC’s Securities Fraud Claims Against Countrywide
On April 8, U.S. District Judge Mariana R. Pfaelzer of the Central District of California dismissed the FDIC’s suit against Countrywide. FDIC, as the receiver for Colonial Bank, filed suit against Countrywide and Bank of America as its successor for violations of the 1933 Securities Act. FDIC alleged Countrywide made false statements in offering documents in connection with the issuance of residential mortgage-backed securities in violation of Sections 11 and 15 of the Act. Judge Pfaelzer held that each claim was barred by the statute of limitations of one year from when the plaintiff discovered, or a reasonably diligently investor would have discovered, the alleged misstatement. Judge Pfalezer held that a reasonably diligent plaintiff would have had adequate information to make such a discovery before August 14, 2008, and consequently the bank’s claims had expired by the time the FDIC was appointed receiver, one year later. Decision.
FDIC Files Five Lawsuits Against Bank Entities Over RMBS
On August 10, the FDIC in its capacity as receiver for Colonial Bank filed five lawsuits – three in Alabama state court, one in New York federal court, and one in California federal court – seeking $741 million in damages from a number of investment banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup, Inc., and others, for making allegedly false and misleading statements that induced Colonial Bank into buying mortgage-backed securities. The FDIC alleges that the banks made numerous false and misleading statements in the offering documents for the RMBS regarding the credit quality of the mortgage loans underlying the securities. The three Alabama cases each assert two causes of action under the Alabama Securities Act, as well as causes of action under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Securities Act). The New York and California cases each assert causes of action under Sections 11 and 15 of the Securities Act.
Complaint: Alabama – FDIC v Bank of America, et al.
Complaint: Alabama – FDIC v Citigroup Mortgage Loan Trust, et al.
Complaint: Alabama – FDIC v Countrywide Securities Corp, et al.
Complaint: New York – FDIC v Chase Mortgage Finance Corp., et al.
Complaint: California – FDIC v Countrywide Securities Corp, et al.