On August 17, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York certified a class of investors in an action brought by lead plaintiffs Wyoming State Treasurer and Wyoming Retirement System against several financial institutions in connection with RMBS issued by IndyMac. Judge Kaplan found that while the prospective class members’ claims differ in some respects, the central issue for all class members is whether IndyMac made material misrepresentations in its offering documents. Judge Kaplan rejected the defendants’ argument that individual issues regarding investor knowledge, reliance, and notice warranted the denial of class certification. However, the court dismissed claims in connection with one RMBS certificate because Wyoming Retirement System did not acquire the certificate in an initial offering. The class claims are alleged to arise under Sections 11, 12(a)(2), and 15 of the Securities Act. Decision.
IndyMac
Assured Sues OneWest Bank in Connection with RMBS Insurance
On August 9, Assured Guaranty filed suit in California state court against OneWest Bank FSB, claiming that the company’s loan servicing was to blame for $335 million it has paid in insurance claims related to residential mortgage-backed securities. Assured alleges that when OneWest acquired IndyMac Bank FSB’s role as servicer in 2009 of the mortgage loans, the loans began to experience significant delinquencies and defaults. Assured alleges that PricewaterhouseCoopers conducted an independent audit and found that OneWest was materially noncompliant with several loan servicing requirements. Assured also alleges that the Office of Thrift Supervisions has brought an enforcement action against OneWest for unsafe and unsound practices regarding its handling of servicing and foreclosure proceedings. Assured asserts claims for breach of contract and for specific performance and declaratory relief seeking to terminate OneWest as servicer. Complaint.
IndyMac Reaches Partial Settlement of RMBS Claims
Five former IndyMac executives have reached settlements with the plaintiffs in two RMBS class actions. On July 31 the lead plaintiff in the consolidated class actions filed a motion for approval of a US$6 million settlement of outstanding claims brought under 1933 Act Sections 11, 12(a)(2) and 15. In their motion for approval, Plaintiffs argue that the settlement is reasonable, among other reasons, because of concerns that the insurance policies covering the individual defendants will soon be exhausted. Even if the settlement is approved, the case will continue against various non-settling defendants, including the underwriters for the RMBS transactions at issue. Motion.
Class Certification Granted In $642M RMBS Suit Against Credit Suisse
On June 29, Judge Lewis A. Kaplan of the Southern District of New York certified a class of investors, led by Vaszurele Ltd., in their action against Credit Suisse Securities (USA) LLC (“Credit Suisse”). The investors allege that Credit Suisse misrepresented the underwriting quality of loans originated by IndyMac Bank FSB in a $642 million RMBS offering. The court found plaintiffs met each element for class certification, rejecting Credit Suisse’s argument that the varying sophistication of the investors should bar certification of the class. Decision.
Federal Judge Dismisses MBIA Lawsuit Against the FDIC
On October 6, 2011, Judge Amy Jackson of the Federal District Court in the District of Columbia dismissed an action brought by MBIA Insurance Corporation (“MBIA”) against the FDIC, both in its capacity as receiver for IndyMac Bank and in its corporate capacity, arising out of losses MBIA incurred in connection with its agreements to insure investors in certain IndyMac RMBS. MBIA attempted to distinguish itself from other general creditors of IndyMac by arguing that its losses were actually “administrative expenses” of the FDIC, which are entitled to priority distribution. The court granted the FDIC’s motion to dismiss based on lack of subject matter jurisdiction and failure to state a claim, finding that the FDIC had not expressly approved the insuring agreements between MBIA and IndyMac as necessary administrative expenses. It rejected MBIA’s theory that the FDIC had approved the expenses by not specifically repudiating the agreements because “approval by omission” was inconsistent with the applicable statutes and regulations, and potentially could transform all general creditor claims based on unrepudiated obligations of the failed bank into administrative expenses entitled to priority. Opinion.
S.D.N.Y. Judge Finds Potential RMBS Plaintiffs’ Claims Against Indymac Time-Barred Under The Securities Act of 1933
On June 21, 2011, Judge Kaplan in the Southern District of New York denied several potential plaintiffs’ motions to intervene in this action against Indymac on the basis that the intervenors’ claims were time-barred. In this putative class action alleging misrepresentations and omissions in RMBS offering documents, the court had previously dismissed claims based on certain offerings, holding that the lead plaintiff lacked standing to assert claims based on certificates it had never purchased. In an effort to cure these standing issues, several new potential plaintiffs moved to intervene. The intervenors had argued that the ’33 Act statute of repose was tolled by the present lawsuit under the U.S. Supreme Court’s holding in American Pipe Construction Co. v. Utah. Judge Kaplan noted that although some cases had reached a different result, he agreed with Judge Castel’s recent ruling in Footbridge v. Countrywide that neither American Pipe tolling nor any other theory would suffice to toll the three-year statute of repose set forth in Section 13 of the ’33 Act. Decision.
SEC Files Complaint for Securities Fraud Against Former IndyMac Bank CFO
On February 11, 2011, the SEC filed a complaint in the Central District of California against IndyMac’s former Chief Financial Officer, S. Blair Abernathy, alleging violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act in connection with six IndyMac RMBS offerings in 2007 and several other public securities filings in 2008 on behalf of IndyMac Bancorp, Inc. The complaint alleges that, in 2007, Abernathy received monthly reports indicating that 12%-18% of IndyMac Bank’s loans contained misrepresentations, but that he failed to take reasonable steps to ensure that IndyMac’s RMBS offering documents included adequate disclosures in light of that information. It also alleges that Abernathy was negligent in failing to adequately disclose to investors the deteriorating financial condition of IndyMac Bancorp once he became its CFO in 2008. Complaint.
IndyMac Sale
On December 31, 2008, the FDIC signed a letter of intent to sell, for approximately $13.9 billion, the banking operations of IndyMac to a thrift holding company owned by a consortium of private equity investors led by Steven T. Mnuchin of Dune Capital Management LP. The investor group includes Dune Capital, J.C. Flowers & Co., Stone Point Capital, Silar MCF-I LLC (an affiliate of Silar Advisors, LP) and investment groups controlled by George Soros, John Paulson and Michael Dell. The thrift holding company will capitalize IndyMac with approximately $1.3 billion in cash. IndyMac has a loan and securities portfolio with a face value of approximately $23 billion. Under the agreement, IndyMac will assume the first 20% of losses on a portfolio of qualifying loans after which the FDIC and IndyMac will share losses. The estimated cost to the FDIC’s Deposit Insurance Fund will be between $8.5 billion and $9.4 billion. FDIC Release.
IndyMac Sale
On December 31, 2008, the FDIC signed a letter of intent to sell, for approximately $13.9 billion, the banking operations of IndyMac to a thrift holding company owned by a consortium of private equity investors led by Steven T. Mnuchin of Dune Capital Management LP. The investor group includes Dune Capital, J.C. Flowers & Co., Stone Point Capital, Silar MCF-I LLC (an affiliate of Silar Advisors, LP) and investment groups controlled by George Soros, John Paulson and Michael Dell. The thrift holding company will capitalize IndyMac with approximately $1.3 billion in cash. IndyMac has a loan and securities portfolio with a face value of approximately $23 billion. Under the agreement, IndyMac will assume the first 20% of losses on a portfolio of qualifying loans after which the FDIC and IndyMac will share losses. The estimated cost to the FDIC’s Deposit Insurance Fund will be between $8.5 billion and $9.4 billion. FDIC Release.