On September 27, 2016, the Royal Bank of Scotland (“RBS”) announced a $1.1 billion settlement with the National Credit Union Administration (“NCUA”) in connection with two federal securities litigations concerning RBS’s underwriting and sale of RMBS. The NCUA, as liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, brought these actions against RBS and other defendants, claiming that the defendants had misled the credit unions about the risks of RMBS and made various misrepresentations in the offering documents. Further details of the settlement are not publicly available.
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Court Denies Summary Judgment on Issues of Timeliness in NCUA RMBS Suit
On September 1, 2016, Judge John W. Lungstrum of the U.S. District of Kansas denied cross-motions for summary judgment on the issue of timeliness brought by RBS, Nomura and the NCUA in NCUA v. RBS Securities, et al. NCUA alleges in its 2011 complaint that it suffered losses of $800 million on 2006-2007 vintage RMBS certificates based on misstatements by the defendants. Defendants RBS and Nomura argued on summary judgment that NCUA’s claims must be dismissed because they were not brought within one year after discovering the allegedly untrue statement or omission, or after such discovery should have been reasonably made. NCUA argued in opposition that it did not have constructive notice of the facts underlying its claims by the relevant dates and that its claims were timely. The Court found that “a jury could reasonably find in favor” of either party as to what a “reasonably diligent investor would have known and done in 2007 and 2008 on the timeliness issue” and that as a result fact questions remained precluding summary judgment for either side. Memorandum and Court Order.
MassMutual and RBS Settle RMBS Litigation
On August 12, 2016, Massachusetts Mutual Life Insurance Co. (“MassMutual”) and RBS jointly moved to dismiss MassMutual’s $235 million RMBS claim, stating that the parties had reached a confidential settlement agreement. MassMutual filed the lawsuit in 2011, alleging violations of the Massachusetts Uniform Securities Act. MassMutual claimed that the defendants made material misrepresentations about the characteristics of mortgage loans that RBS securitized in transactions in which MassMutual invested between 2005 and 2007. The court entered a final dismissal order on August 15, 2016. Joint Motion of Dismissal. Order of Dismissal. MassMutual settled similar claims against Barclays Capital Inc. on March 29, 2016 (covered here).
Eleven Banks Reach Settlement with Commonwealth of Virginia on RMBS Claims
On Friday, January 22, 2016, eleven banks, including Merrill Lynch, RBS, and Barclays, agreed to settle claims brought by the Commonwealth of Virginia in a 2014 action alleging misrepresentations as to the nature, quality, characteristics, and risk profile of RMBS certificates. The certificates were purchased by the Virginia Retirement System, an agency of the Virginia Commonwealth. In its complaint, the Commonwealth alleged injury of $383.91 million and demanded treble damages of $1.15 billion, plus a civil penalty of $5,000-$11,000 per violation. The settlement announced on January 22 is for $63 million. Press Release. Complaint.
Court Enters $806 Million Judgment in FHFA v. Nomura
On May 16, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York entered a judgment requiring Nomura and RBS to buy back, at a total cost of $806 million, seven RMBS certificates sold to Fannie Mae and Freddie Mac from 2005 to 2007. The judgment stemmed from Judge Cote’s May 11, 2015 Opinion finding Nomura and RBS liable for violations of the Securities Act of 1933, the D.C. Securities Act, and the Virginia Securities Act. For those certificates for which FHFA prevailed under multiple statutes, FHFA was permitted to, and did, elect the maximum available remedies. Judge Cote also ordered that FHFA is entitled to post-judgment interest, reasonable attorneys’ fees, and costs. Judgment.
Bank of America and Merrill Lynch Settle RMBS Lawsuit with FDIC
On November 17, Bank of America and Merrill Lynch settled securities claims brought by the FDIC related to RMBS sold to United Western Bank. The FDIC, as the receiver for United Western Bank, alleged claims under the Securities Act of 1933 and the Colorado Securities Act against Bank of America, Merrill Lynch, Morgan Stanley, and RBS Securities related to $110 million in RMBS. The case against Morgan Stanley and RBS remains pending. Stipulation.
RBS Settles MBS Claims with Assured
On August 14, RBS Securities reached a deal with Assured Guaranty Municipal Corp. to settle a lawsuit alleging misrepresentations concerning the collateral underlying a US$291 million securitization. The complaint alleged that Assured anticipated paying US$100 million in claims pursuant to the monoline insurance policy it issued in connection with the securitization. In light of the settlement, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed Assured’s suit with prejudice, with the stipulation that Assured may restore the suit within 30 days if the settlement is not finalized. The amount and terms of the settlement were not disclosed. Order.
Court Grants in Part RBS Motion for Summary Judgment in Repurchase Action
On July 23, Judge William Conley of the Western District of Wisconsin granted in part and denied in part RBS Securities Inc.’s motion for summary judgment in a suit brought by CUNA Mutual Group seeking to rescind the purchase of fifteen RMBS certificates. Judge Conley granted RBS’s motion for summary judgment as to nine of the fifteen RMBS certificates on the ground that CUNA Mutual’s claims were time-barred by Wisconsin’s six-year statute of limitations. He also granted summary judgment to RBS in connection with CUNA Mutual’s allegations of misrepresentations concerning compliance with underwriting guidelines, finding that CUNA Mutual presented insufficient evidence to allow a trier of fact to conclude that it actually relied on any of those representations. Judge Conley similarly granted summary judgment to RBS in connection with CUNA Mutual’s allegations of misrepresentations concerning owner occupancy status, finding that CUNA Mutual had not submitted adequate evidence of any misstatement by RBS of the owner occupancy ratios, which were based on occupancy information provided by the borrowers. As to the six certificates remaining in the lawsuit, CUNA Mutual is allowed to proceed on its claim for rescission based on allegations that RBS misrepresented the LTV and CLTV ratios of the collateral pools. Finally, Judge Conley denied a series of discovery and sanctions motions raised by both parties. The case is scheduled to proceed to trial on August 4. Order.
European Commission Imposes EUR 1.71 Billion Fine for Participating in Illegal Cartels
On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.
Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen. The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.
The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro. The banks were Barclays, Deutsche Bank, RBS and Société Générale. Utilizing the Commission’s 2006 Leniency Notice, Barclays and UBS received complete immunity from fines. Announcement.
RBS Settles RMBS Claims By SEC
On November 7, Royal Bank of Scotland PLC (RBS) entered into a consent decree with the Securities and Exchange Commission (SEC) agreeing to pay $153.8 million in settlement of allegations concerning RBS’s disclosures in connection with an RMBS offering. In a Complaint filed simultaneously with the consent decree, the SEC alleged that RBS made misstatements and omissions in offering documents for the April, 2007 Soundview Home Loan Trust 2007-OPT1 (the Trust) securitization to investors. In particular, the SEC alleged that RBS misrepresented that the loan originator (Option One Mortgage Company) generally complied with its underwriting guidelines. RBS neither admitted nor denied the allegations. RBS’s settlement consists of three component parts: disgorgement of $80.4 million, prejudgment interest of $25.2 million and a civil penalty of $48.2 million. Complaint. Consent Decree.