Inc.

Settlements of SEC Registration Charges with Two ICO Issuers Serve as Warning and Compliance Models

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On November 16, the Securities Exchange Commission (“SEC“) announced settled charges against two companies that sold digital tokens in initial coin offerings (“ICOs“). According to the Press Release announcing these settlements, these are the Commission’s first cases imposing civil penalties solely for ICO securities offering registration violations. The remedies agreed to include the return of funds to harmed investors, the registration of the tokens as securities under the Securities Exchange Act of 1934, the filing of periodic reports with the Commission, and the payment of $ 250,000 as a monetary penalty. READ MORE →

SEC Overrules Proposed Rule Change by BZX to List and Trade Shares of the Winklevoss Bitcoin Trust

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On July 26, 2018, the Securities and Exchange Commission (“SEC“), over the objection of Commissioner Peirce, disapproved a proposed rule change application by the Bats BZX Exchange, Inc. (“BZX“) that would have permitted it to list and trade shares of the Winklevoss Bitcoin Trust. This Order, effectively, reaffirmed and superseded the action taken by the SEC on March 10, 2017, acting through authority delegated to the Division of Trading and Markets, that denied a similar application. In issuing its July 26 Order, the SEC determined that BZX had “not met its burden under the [Securities Exchange of 1934] and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.”

New Jersey Federal Judge Partially Dismisses Claims Against RMBS Trustee

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On April 23, Judge William J. Martini of the U.S. District Court for the District of New Jersey granted in part U.S. Bank’s motion to dismiss investor VNB Realty, Inc.’s claims against the bank as trustee of two RMBS trusts.  VNB alleges that U.S. Bank knew of wrongdoing in the trusts, including robo-signing and flawed underwriting practices by loan originators, but did not notify investors due to a conflict of interest.  The court dismissed claims alleging breach of the duty of loyalty and breach of fiduciary duty as intrinsically part of VNB’s negligence claim.  The court also dismissed plaintiff’s breach of contract claim and its related claim for breach of the implied covenant of good faith and fair dealing for failure to identify any specific duty that was allegedly breached.  The court denied, however, the Trustee’s motion to dismiss the entire complaint based on the “no-action” clauses in the applicable Pooling and Servicing Agreements, based on its conclusion that demand would be futile because the plaintiff effectively would have been asking the Trustee to sue itself.  The court also permitted claims alleging negligence and violations of the Trust Indenture Act to proceed.  Decision.

Repurchase Suits to Proceed Against DB Structured Products

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On March 20, Judge Alison J. Nathan of the United States District Court for the Southern District of New York granted in part and denied in part DB Structured Products, Inc.’s, (DBSP) motions to dismiss four lawsuits brought by HSBC Bank as trustee of four different residential mortgage securitization trusts.  The court dismissed the trustee’s claims for a declaration that DBSP is required to reimburse the trustee for expenses incurred in enforcing its remedies under the relevant contracts, including costs and attorney’s fees, on the basis that the trustee could seek such reimbursement without the need for declaratory relief.  The court denied DBSP’s motion to dismiss the trustee’s breach of contract claims for failure to comply with the contractual requirements for a demand to repurchase allegedly breaching loans, holding that DBSP’s discovery of breaches of representations and warranties was adequately pleaded and provided a sufficient basis for the claims to proceed without evaluating the sufficiency of such demand.  The court also allowed claims for damages to proceed.  Order.

Deutsche Bank Settles Nevada AG’s RMBS Probe for $11.5 Million

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On October 17, the Nevada Attorney General filed court documents disclosing a $11.5 million settlement with DB Structured Products, Inc., a unit of Deutsche Bank AG.  The Nevada AG had investigated DB Structured Products’ practices related to the packaging and sale of subprime and adjustable rate mortgages in RMBS.  According to the Nevada AG, the settlement proceeds will go to Nevada homeowners.  Assurance of Discontinuance.

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

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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.

New York Appellate Court Reinstates Fraudulent Inducement Claim Against Goldman and M&T Bank

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On May 7, New York’s First Department appellate court reinstated CIFG Assurance North America, Inc.’s fraud claim against Goldman Sachs & Co. and M&T Bank.  Last May, a New York trial court dismissed CIFG’s claim for fraudulent inducement relating to its insurance of RMBS, holding that CIFG was unable to establish reasonable reliance as a matter of law because it had not reviewed a sample of the mortgage loans in its pre-investment due diligence, and dismissed certain breach of contract claims for lack of standing.  The First Department held that CIFG had adequately pleaded that it was unaware that defendants’ warranties were false despite having conducted its own limited diligence, and found that questions of fact existed as to whether CIFG’s reliance was reasonable.  The court upheld the other aspects of the lower court’s decision, including that CIFG did not have standing to sue for breach of certain transaction documents.  Decision.

RMBS Investors File $250 Million Derivative Suit Against HSBC

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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. 

Fed Mortgage Consent Order Against Morgan Stanley

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On April 3, the Fed announced a Consent Order against Morgan Stanley regarding an alleged pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc.  The Consent Order requires Morgan Stanley to retain an independent consultant to review foreclosure proceedings by Saxon in 2009 and 2010.  If Morgan Stanley re-enters the mortgage servicing business while the Consent Order is in effect, it will be required to implement servicing and foreclosure practices comparable to what the mortgage servicers subject to the 2011 enforcement actions were required to implement.  Fed Release.

Allstate Suit Against Citigroup Remanded to State Court

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On March 13, 2012, Judge Richard J. Sullivan of the Southern District of New York remanded a $200 million RMBS suit against Citigroup to state court.  Citigroup asserted federal jurisdiction under the Edge Act, and under the doctrine of “related to” bankruptcy.  Judge Sullivan rejected both arguments.  With respect to the Edge Act, Judge Sullivan concluded that no jurisdiction existed because the one federally-chartered entity defendant was not a party to the one securitization that contained mortgage loans secured by overseas properties.  With respect to the issue of related to bankruptcy jurisdiction, the Court found that defendants could not establish any impact that the outcome of this case could have on the bankruptcy proceedings concerning American Home Mortgage Holdings, Inc. (“AHM”), which had originated some of the loans backing the RMBS, particularly because AHM’s reorganization plan already had been approved and defendants failed to establish that their claim in the AHM bankruptcy is not already fully liquidated.  Order.