U.S. Department of Justice

Deutsche Bank Settles DOJ RMBS Claims for $7.2 Billion

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On December 23, 2016, Deutsche Bank AG (“Deutsche Bank“) announced that it had reached a settlement in principle with the United States Department of Justice (“DOJ“) to resolve possible civil claims arising from Deutsche Bank’s issuance and underwriting of RMBS in the years leading up to the financial crisis. The $7.2 billion settlement includes a $3.1 billion civil penalty, with an additional $4.1 billion paid in the form of consumer relief (including loan modifications and other types of borrower assistance).

Morgan Stanley Agrees to Settlement with DOJ and NYAG Totaling $3.15 Billion

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On February 11, the U.S. Department of Justice and the Attorney General of State of New York announced dual settlement agreements with Morgan Stanley providing for the payment of $3.2 billion. The settlements relate to Morgan Stanley’s marketing, underwriting, and issuance of RMBS from 2005-2007.

In its agreement with the U.S. Department of Justice, Morgan Stanley acknowledged that it had failed to disclose that certain securitized loans did not comply with applicable underwriting guidelines, and that Morgan Stanley’s due diligence practices did not conform to those described in presentations to RMBS investors. Morgan Stanley will pay $2.6 billion to the U.S. Department of Justice, $150 million to the State of New York, and an additional $400 million in relief directly to consumers.  Payment to the U.S. Department of Justice releases Morgan Stanley from any civil claim brought under FIRREA. DOJ Settlement Agreement. State of New York Settlement Agreement.

Morgan Stanley Reaches Agreement to End DOJ Investigation into MBS Deals

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On February 25, 2015, Morgan Stanley announced that it reached an agreement in principle with the U.S. Department of Justice, Civil Division, and the U.S. Attorney’s Office for the Northern District of Califoirnia, Civil Division (collectively, the “Civil Division”) to resolve claims that the Civil Division intended to bring against Morgan Stanley related to residential mortgage-backed securities.  As part of the settlement, Morgan Stanley agreed to pay the Civil Division $2.6 billion.  The exact nature of the resolved claims and additional terms of the settlement agreement were not specified.  8-K.

SEC and DOJ File Parallel Civil Suits Alleging BofA Defrauded RMBS Investors

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On August 6, the SEC and the U.S. Department of Justice filed parallel civil suits against several Bank of America affiliates, alleging that the bank defrauded investors in connection with its packaging and sale of US$850 million in RMBS.  The actions, both filed in the Western District of North Carolina, allege that BofA misled investors by failing to disclose information concerning the quality of the loans backing the RMBS, including their origination channel, misrepresenting compliance with underwriting guidelines, and making other false statements in loan tapes and free writing prospectuses filed with the SEC.  The SEC sued BofA for alleged violations of Sections 17(a)(2), 17(a)(3), and 5(b)(1) of the Securities Act of 1933.  SEC Complaint.  The DOJ sued BofA for alleged violations of Sections 1001 and 1014 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.  DOJ Complaint.

DOJ Sues Deutsche Bank and MortgageIT for $1.1 Billion Related to Mortgage Lending Activities

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On May 3, 2011, the U.S. Department of Justice filed suit in the Southern District of New York against Deutsche Bank AG and MortgageIT Inc. (which was a wholly owned by Deutsche Bank), asserting multiple claims under the False Claims Act as well as claims for breach of fiduciary duty, gross negligence, negligence and indemnity. The Complaint arises out of MortgageIT’s activities as a qualified Direct Endorsement Lender of the Federal Housing Administration (“FHA”) of the Department of Housing and Urban Development (“HUD”). From 1999 through 2009, the defendants originated mortgages that were insured by FHA. The Complaint alleges that during this time the defendants lied to FHA to maintain their Direct Endorsement Lender status which in turn allowed them to continue originating loans that were insured by FHA. The DOJ alleges that the defendants failed to abide by FHA’s standards to control the amount of risk the program would assume by funding mortgages that did not satisfy the underwriting guidelines and failing to implement quality control provisions to monitor the strength of the loans. The Complaint also alleges that HUD has paid more than $386 million in FHA insurance claims arising out of mortgages originated by the defendants. The DOJ seeks treble damages and penalties under the False Claims Act, as well as compensatory and punitive damages in connection with its other claims. Complaint.