In an opinion today, Judge Nathan granted summary judgment and dismissed a $500 million suit brought by Bank of America against Bear Stearns Asset Management and three of its executives.  The suit concerned Bank of America’s underwriting of a “CDO squared” that included substantial mortgage-related assets from two Bear Stearns hedge funds.  Bank of America alleged it was not timely told of redemption requests from the hedge funds’ investors that, shortly after the CDO squared closed, led to those funds liquidating and allegedly driving down the price of the type of mortgage assets in the CDO squared. Judge Nathan’s decision was based on (among other things) the fact that Bank of America’s damages expert, Dr. Mukesh Bajaj, improperly measured its losses by comparing the price Bank of America paid for assets to the “fire sale” prices for similar assets that the hedge funds were forced to swiftly liquidate:
Continue Reading Judge Nathan Dismisses Bank of America’s $500 Million Suit Against Bear Stearns Over “CDO Squared”

In an opinion posted online today, Judge Rakoff allowed the federal government to proceed with civil claims against Countrywide and Bank of America under the Financial Institutions Reform, Recovery, and Enforcement Act, or “FIRREA,” for having misrepresented the quality of home loans sold to Fannie Mae and Freddie Mac.  FIRREA applies only to conduct that “affects” a federally-insured financial institution, and Judge Rakoff, reaching the same conclusion as Judge Kaplan (see our prior post here), rejected the defendants’ argument that FIRREA could not be premised on a defendant allegedly “affecting” itself:
Continue Reading Judge Rakoff Rules that Bank Misconduct “Affects” the Bank Itself Under FIRREA

Citing the Second Circuit’s recent decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), Judge Baer yesterday granted plaintiffs’ motion for reconsideration in two cases based on allegedly fraudulent statements in connection with the sale of mortgage backed securities. The order reinstated claims he had previously dismissed because they related to securities that the named plaintiffs had not actually purchased. In the prior orders, Judge Baer had granted the motion of Royal Bank of Scotland, Citigroup, UBS and others on Article III standing grounds. Judge Baer explained the reason for his decision to grant the motion for reconsideration:
Continue Reading Judge Baer Reinstates MBS Claims After Second Ciruit’s NECA Decision

Judge Rakoff yesterday issued one of his short “bottom line” Orders — with full opinion to follow — granting JP Morgan near complete summary judgment in a case in which the European bank Dexia and its former subsidiary accused Bear Stearns (later acquired by JP Morgan) of failing to comply with its stated underwriting guidelines for certain mortgage-backed securities.  Reuters’ Alison Frankel is reporting that the win reduces JP Morgan’s exposure by $770 million, to about $5.7 million.  The motion papers are here: motion; opposition; reply. Based on the transcript (here and here), it appears Judge Rakoff was likely persuaded by the fact that the plaintiffs did not read the offering documents referencing the underwriting guidelines that the complaint alleged were ignored, and, instead, the plaintiffs appeared to try to switch theories for summary judgment:
Continue Reading Judge Rakoff Grants JP Morgan Near Complete Win in Dexia MBS Suit Where Plaintiffs Did Not Read Offering Documents

Today, the ACLU (along with the National Consumer Law Center ) filed a class action suit against Morgan Stanley on behalf of African American homeowners in Detroit, Michigan. The complaint alleges that Morgan Stanley’s policies and practices enabled and encouraged predatory lending by the (now bankrupt) New Century Mortgage Company, that disparately impacted African American borrowers in and around Detroit, and violated the Fair Housing Act and the Equal Credit Opportunity Act.
Continue Reading ACLU Sues Morgan Stanley For Discrimination and Predatory Lending

It has been a busy week for Judge Sullivan. On Friday, Judge Sullivan dismissed with prejudice a securities fraud class action brught against UBS and certain of its executives alleging that UBS misled investors about its exposure to mortgage-backed securities and auction rate securities, and about its compliance with U.S. tax and securities laws.
Continue Reading Judge Sullivan Dismisses UBS Securities Class Action