residential mortgage

Second Circuit to Issuers: You Need Not Disclose Every Single Asset in Your Registration Statements

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Matrix

That was the Second Circuit’s message to companies in a September 25, 2013 order by upholding dismissal of claims against defendant Royal Bank of Scotland (“RBS”) for alleged failure to disclose enough information about its exposure to subprime mortgages. In so doing, the Court reaffirmed longstanding principles at the heart the securities laws and issued an opinion as applicable to technology companies as it is to banks.

RBS had issued five offering documents in 2005 and 2006, which plaintiff alleged contained a number of misstatements and omissions. Among others, the complaint alleged RBS had misstated its exposure to subprime mortgages, falsely claimed it had effective risk controls, and failed to disclose an inadequate capital base. READ MORE →

Monoline Insurer Hoist with its Own Petard

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A common claim alleged by monoline insurers is that RMBS sponsors fraudulently induced them to provide the insurance by misrepresenting the quality of loans and underwriting.  As the story invariably goes, the insurer only discovered that it was defrauded after its vendor reviewed a sample of several hundred loan files, and was shocked to find that most loans, usually alleged to be somewhere between 75% to 95% of the sample, breached representations and warranties.  On May 4, a New York court turned these types of post-loss file reviews against the insurer in CIFG Assur. N.A., Inc. v. Goldman Sachs & Co., Index No. 652286/2011 (N.Y. Sup. Ct.).  Here, the court found that the very same file sampling and review easily could have been done – and legally should have been done – in the insurers’ due diligence.  The insurer’s failure to conduct adequate due diligence when it issued its policy required dismissal of its fraud claim for lack of reasonable reliance. READ MORE →