On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents. The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships. FDIC Settlement Agreement.
misrepresentations
Government Sues Allied Home Mortgage For Fraud Under the False Claims Act
On November 1, 2011, the United States filed suit in the Southern District of New York against Allied Home Mortgage, a mortgage lending company, for allegedly defrauding the government into insuring its now-defaulted loans. The complaint alleges that Allied and CEO Jim Hodge violated the False Claims Act (“FCA”) by making misrepresentations to the Department of Housing and Urban Development to ensure the company could continue originating mortgages insured by the Federal Housing Administration (“FHA”). The complaint alleges that Allied submitted loans to the FHA originated out of “shadow branches” it did not disclose to the government and then illegally routed those mortgages through HUD-certified mortgage branches to avoid detection by the government. The government also contends that Allied failed to implement sufficient quality control measures to ensure underwriting standards were being met. The government seeks a permanent injunction and treble damages. Complaint.
Federal Court Remands Charles Schwab RMBS Action to State Court
On February 23, 2011, the United States District Court for the Northern District of California remanded to state court an action by Charles Schwab Corporation against 27 defendants concerning alleged misrepresentations in connection with 37 different RMBS purchases across 36 different securitizations. Two defendants had argued that the federal court had jurisdiction over the case because the action “relates to bankruptcy” due to the fact that 262 of the underlying loans were originated by a bankrupt entity who would owe the defendants an indemnity for any misrepresentations on those loans. Without answering whether the indemnity claims at issue were enough to trigger “related to” jurisdiction, the court relied on its equitable power to return the case to state court because any connection to the bankruptcy case was “very, very remote.” Among other things, the court noted that the 262 loans constituted only 5.5% in one of the 36 securitizations at issue, and that the plaintiffs were not asserting any misrepresentations in connection with those particular loans. Order.