On June 22, 2012, Sealink Funding Limited filed suit in New York State Court in Manhattan against Deutsche Bank and several of its units related to its alleged purchase of $960 million face amount of RMBS in 19 offerings in 2006 and 2007. Sealink alleges that Deutsche Bank misrepresented the originators’ compliance with underwriting guidelines, the validity of appraised values of the underlying mortgage loans and the LTV ratios based on those values, that all necessary steps had been taken to convey good title to the underlying mortgage loans into the securitization trust, and that the credit ratings assigned to the certificates accurately reflected their credit risk, among other things. Sealink’s causes of action include fraud, fraudulent inducement, and aiding and abetting fraud. Sealink seeks compensatory, rescissory, and punitive damages, in addition to costs and fees. Complaint.
Deutsche Bank
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.
Assured Guaranty and Deutsche Bank Settle RMBS Claims for $165.6 Million
On May 10, 2012, Assured Guaranty announced that it had reached a $165.6 million settlement with Deutsche Bank resolving claims related to RMBS transactions issued, underwritten or sponsored by Deutsche Bank that were insured by Assured Guaranty under financial guaranty insurance policies. The settlement also resolved claims related to RMBS exposures in re-securitization transactions on which Assured Guaranty provided credit protection through credit default swaps. The claims resolved by this settlement were not yet in litigation. Press Release.
Bayernische Landesbank Files $810 Million RMBS Suit Against Deutsche Bank
On April 19, 2012, Bayerische Landesbank (“Bayern”), a German bank, filed an $810 million suit against Deutsche Bank and certain of its affiliates in New York County Supreme Court. Bayern alleges Deutsche Bank fraudulently obtained, securitized, marketed, and sold Bayern RMBS while internally disparaging the quality of the loans underlying the RMBS. Bayern allegedly purchase 22 securitizations and claims that Deutsche Bank and the originators violated the represented originator underwriting guidelines, made material misrepresentations in the offering documents as to the quality of the underlying loans, and knew, as a result of their due diligence, that the underlying loans were destined to fail. The complaint includes claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation, and seeks compensatory and/or rescissory damages. Complaint.
California Federal Court Partially Dismisses RMBS Claims In Countrywide MDL Action
On April 16, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed in part an RMBS action brought by Massachusetts Mutual Life Insurance Co. (“MassMutual”) against Countrywide, JPMorgan, Deutsche Bank, UBS, and various individual defendants. This case, which asserts claims under the Massachusetts Uniform Securities Act (“MUSA”), was transferred to the Countrywide MDL for pre-trial proceedings. In addressing defendants’ initial motions to dismiss on the issues of timeliness, standing and jurisdiction, Judge Pfaelzer found that the court lacked personal jurisdiction over the individual defendants who moved on this ground and dismissed all claims against them with prejudice. Judge Pfaelzer also found that only the Underwriter Defendants could be held liable as a seller under the MUSA, and dismissed the MUSA claims against the other defendants with prejudice. Judge Pfaelzer declined to dismiss the remaining claims based on the statute of limitations. Decision.
RMBS Investors File $250 Million Derivative Suit Against HSBC
On March 28, 2012, investors in Ace Securities Corp. Home Equity Loan Trust, Series 2006-SL2 commenced a derivative lawsuit, purportedly on behalf of the Trust, against HSBC Bank, as trustee, and DB Structured Products, Inc., an affiliate of Deutsche Bank, the loan originator. In a summons with notice filed in the Supreme Court of the State of New York, plaintiffs state that they seek $250 million in damages for breach of repurchase obligations, based on alleged misrepresentations about the quality of the loans in the Trust’s collateral pool and borrowers’ ability to pay. The causes of action are for breach of contract and specific performance. Complaint.
Deutsche Bank Settles RMBS Claims for $32.5 Million
On March 26, 2012, lead plaintiffs in a putative RMBS class-action lawsuit against affiliates of Deutsche Bank AG sought approval of a $32.5 million settlement. The action arose out of alleged misrepresentations Deutsche Bank made concerning the quality of RMBS it sold. The settlement amount equates to an estimated average recovery of $12.80 per $1,000 in original face value of the RMBS certificates at issue. The settlement will not become final until it is approved by the Eastern District of New York. Approval Motion.
NCUA Settles with Citigroup and Deutsche Bank in RMBS Dispute
The National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, reached a $145 million settlement with Deutsche Bank and a separate $20.5 million settlement with Citigroup, stemming from the banks’ sales of RMBS to five failed credit unions. The NCUA did not file a lawsuit against either Citigroup or Deutsche Bank, although the NCUA currently has RMBS suits pending against three other financial institutions. Press Release 1. Press Release 2.
Loreley Financing Initiates CDO Actions Against Deutsche Bank, Bank of America, Countrywide and Merrill Lynch
On October 5, 2011, Loreley Financing (“Loreley”), a group of special purpose entities based in the Channel Islands, commenced two actions in New York State Supreme Court concerning the sale of CDO’s. In the first action, Loreley filed a complaint against Deutsche Bank in connection with a $440 million investment in six CDOs between 2005 and 2007. Loreley accuses Deutsche Bank of concealing inside knowledge, gathered through its work originating subprime loans and securitizing RMBS, that the loans underlying the CDOs were highly risky and very likely to default. Loreley alleges that Deutsche Bank marketed the CDOs to Loreley while offloading the riskiest RMBS off its own books into the CDOs and contemporaneously advising favored clients to place short bets against the same assets. The complaint alleges common-law claims for fraud, rescission, conspiracy to defraud, aiding and abetting fraud, fraudulent conveyance, and unjust enrichment. Complaint.
The second action, in which Loreley has to date filed only a summons with notice, involves preliminary allegations against Bank of America, Countrywide and Merrill Lynch based on a $92 million investment in two CDOs. Without making any factual allegations, Loreley asserts common-law claims for rescission, fraud, fraudulent inducement, conspiracy to defraud, fraudulent conveyance, aiding and abetting fraud, breach of fiduciary duty, and unjust enrichment. Summons.
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.