Central District of California Dismisses FDIC’s Federal and State Securities Claims In Connection With RMBS Purchases

On August 26, Judge Mariana R. Pfaelzer of the U.S. District Court for the Central District Court of California dismissed with prejudice a suit brought by the Federal Deposit Insurance Corporation (FDIC) against Countrywide Securities Corporation, Countrywide Financial Corporation, Bank of America Corporation, Deutsche Bank Securities, Inc. and Goldman, Sachs & Co.  In its amended complaint, the FDIC alleged that the offering documents for eight RMBS certificates that Guaranty Bank purchased between July 2005 and April 2006 contained material misstatements in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933 and Article 581-33 of the Texas Securities Act.  It also brought claims under Section 15 of the 33 Act against Countrywide.  The FDIC was appointed as receiver for Guaranty Bank in August 2009 and filed suit on August 17, 2012.  The court followed its earlier decisions in dismissing the FDIC’s claims as time-barred by the three year statute of repose under the ’33 Act.  The court also held that the extender provision of FIRREA does not toll or pre-empt state statutes of repose, and therefore dismissed the FDIC’s claims under the Texas Securities Act as time-barred.  Decision.

Allstate Sues Goldman Sachs in New York State Court

On August 15, 2011, Allstate Insurance Co. filed suit against Goldman Sachs in the Supreme Court of New York, alleging that Goldman committed common law fraud, fraudulent inducement, and negligent misrepresentation in connection with the sale of $123 million in RMBS purchased by Allstate and underwritten by Goldman over the course of five securitizations. Allstate’s complaint relies on the results of several government investigations into the financial crisis, including the U.S. Senate Permanent Subcommittee on Investigation’s April 2011 report entitled “Wall Street and the Financial Crisis” and the Financial Crisis Inquiry Commission’s January 2011 report. Complaint.

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.

Court Declines to Consider U.S. Senate Report on Financial Crisis in Deciding Motion to Dismiss

On May 18, 2011, Judge Jones of the Southern District of New York rejected plaintiff’s request that the Court consider a U.S. Senate report entitled “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” in deciding defendants’ motion to dismiss. The plaintiff’s complaint alleges that Goldman Sachs committed fraud in connection with the sale of a collateralized debt obligation (“CDO”) with collateral consisting of subprime mortgage-backed securities. Plaintiff asserted that the Senate report contains an extensive discussion of the CDO sale at issue as well as citations to internal Goldman emails that, according to plaintiff, call into question defendants’ assertions on the motion to dismiss. The Court held that the Senate report went beyond what the Court could consider on a motion to dismiss and that plaintiff also failed to provide the Court with any basis for taking judicial notice of the report. Decision. Senate Report.

SDNY Rules Rating Agencies Are Not Underwriters

On January 12, 2011, Federal District Judge Harold Baer, Jr. of the Southern District of New York (“SDNY”) dismissed all claims against several rating agencies (Moody’s, Fitch, S&P) in an RMBS securities class action. The putative class consists of all purchasers or acquirers of RMBS registered or traceable to a particular registration statement filed in either 2004 or 2005. Plaintiffs alleged that the rating agencies provided ratings based on insufficient information and faulty assumptions concerning the underlying mortgages and are liable as “underwriters” under Section 11 of the Securities Act. The court rejected this argument, finding that precedent clearly defined an underwriter as a party that serves as a conduit between the issuer and the public, and that the Rating Agencies’ significant role in the ability of Goldman Sachs to market the certificates at issue did not bring them within that definition. The Court also dismissed some, but not all, claims against Goldman Sachs. Decision.