Regulators are frequently acting as plaintiffs in lawsuits against defendants who allegedly played various roles in deceiving investors of mortgage-backed securities.
An Aug. 14 announcement from the Securities and Exchange Commission indicated that Wells Fargo Brokerage Services and a former vice president were charged with selling investments tied to mortgage-backed securities even though they didn’t comprehend the complexity of the securities and failed to disclose risks to investors. The SEC alleges that brokerage, which is now known as Wells Fargo Securities, sold asset-backed commercial paper structured with high-risk MBS and collateralized-debt obligations in 2007 to municipalities, non-profit institutions and others without obtaining sufficient information while relying almost exclusively upon credit ratings.
Wells Fargo reportedly agreed to pay more than $6.5 million to settle the charges.
A month earlier, the SEC extracted a $128 million settlement from Japan-based Mizuho Financial Group and three former employees. The defendants were accused of misleading investors about CDO investments by using “dummy assets” to inflate the deal’s credit ratings. Also charged was the firm that served as the deal’s collateral manager and the individual who was its portfolio manager.
An Oct. 4 federal lawsuit filed in Kansas by the National Credit Union Administration against Credit Suisse Securities alleges that the defendant misrepresented underwriting in the sale of $715 million in MBS sold to U.S. Central Federal Credit Union, Western Corporate Federal Credit Union and Southwest Corporate Federal Credit Union — three failed corporate credit unions. Numerous other misrepresentations and omissions are alleged to have led the failed institutions to falsely believe that the securities were safer than they were.
“Credit Suisse is one of several firms that sold faulty securities to corporate credit unions, which led to their collapse,” said NCUA Board Chairman Debbie Matz in a statement. “These Wall Street firms ran a bait and switch operation, and the effects were felt not only in credit unions, but throughout the financial industry.”
The NCUA filed a lawsuit in the same court on Sept. 25 against Barclays Capital Inc. alleging violations of federal and state securities laws through misrepresentations in $555 million in MBS sales to two of the failed corporate credit unions. Numerous misrepresentations and omissions of material facts are alleged in the offering documents of the securities.
On Sept. 6, the NCUA sued UBS Securities LLC in the same Kansas federal court over losses suffered by U.S. Central and Western Corporate on the purchase of $1.1 billion in MBS.
A motion to dismiss a case consolidated from two other cases filed by the NCUA against RBS Securities and Wells Fargo was denied. Like the other NCUA cases, this one was filed in a Kansas federal court and involves MBS sold to U.S. Central Federal Credit Union.
A case dismissal requested by defendant JPMorgan Chase & Co. in a lawsuit filed by the Federal Housing Finance Agency in a Manhattan federal court in September 2011 was denied Monday by the judge. Three claims were, however, dismissed.
Countrywide Financial Corp. made a similar request in the FHFA’s lawsuit against it.
FHFA filed a complaint on behalf of Ace Securities MBS owned by Freddie Mac against DB Structured Products Inc. on Aug. 24 in New York’s supreme court. The securities were issued at the pinnacle of the U.S. housing market in 2006.
A Federal judge in Connecticut granted the defendant’s request for a discovery motion FHFA’s lawsuit against The Royal Bank of Scotland Group PLC on Aug. 17. The regulator had sued RBS on behalf of Fannie and Freddie.
The August 2009 failure of Guaranty Bank was expected to cost the Federal Deposit Insurance Corp. around $3 billion.
The FDIC filed a lawsuit in Travis County, Texas, court on Aug. 17 against a group of banks including Goldman Sachs & Co., Ally Securities LLC, Deutsche Bank Securities Inc., JPMorgan Securities LLC, Structured Asset Mortgage Investments II Inc. and The Bear Stearns Cos. LLC seeking $900.6 million for losses on $1.8 billion in MBS sold to Guaranty, according to Courthouse News. Another complaint for $677 million was filed against J.P. Morgan Securities fka Bear, Stearns & Co.; Merrill Lynch, Pierce, Fenner & Smith; RBS Securities; WaMu Asset Acceptance Corp.; and WaMu Capital Corp. A third complaint seeks $560 million for losses on $1.5 billion in MBS purchased and was filed against Countrywide Securities Corp.; CWALT, Inc.; Countrywide Financial Corp.; Bank of America Corp.; Deutsche Bank Securities; and Goldman, Sachs & Co.
