“As victims, Fannie Mae and Freddie Mac have sustained significant losses, which to date have been borne by taxpayers. This lawsuit sends the clear message that reckless lending practices will not be tolerated.”
Steve A. Linick, FHFA Inspector General
Update: Monday, July 22
U.S. appeals court will not intervene in FHFA lawsuits vs Banks
Published: July 19, 2013 in Reuters
The banks had jointly in March filed what is called a mandamus petition, complaining that U.S. District Judge Denise Cote in Manhattan had systematically deprived them of evidence needed to fight the FHFA's lawsuits. The banks, which include UBS AG, JPMorgan Chase & Co and Bank of America Corp, also said the judge had issued rulings that sought to force them to settle.
The banks asked the 2nd Circuit to reverse rulings by Cote and allow them to gain more access to information about Fannie Mae and Freddie Mac. The FHFA regulates Fannie and Freddie after the two mortgage finance companies were placed into federal conservatorship at the height of the 2008 financial crisis.
The filing, unusual in its targeted critique of a federal judge, was a sign of how serious the litigation had become for the banks.
The FHFA sued 18 banks in 2011, accusing them of violating securities laws by misleading Fannie and Freddie about $200 billion in mortgage-backed securities they purchased. Sixteen of those lawsuits were transferred in December 2011 to Cote, a former federal prosecutor who recently ruled against Apple Inc in an antitrust case over ebooks brought by the U.S. Justice Department.
In the year and a half since, Cote has become a major influence in the direction of the litigation, denying motions to dismiss the lawsuits and limiting depositions and document discovery.
The banks, which also include Barclays PLC, Goldman Sachs Group Inc and Deutsche Bank AG, in their petition to the 2nd Circuit called the judge's approach "one-sided." "The rulings prejudge facts a jury should decide based on a full evidentiary record," the banks said. The rulings so far have meant banks "are being forced to proceed under a series of gravely prejudicial rulings, some aimed at pressuring petitioners to settle," the petition said.
The appeals court denied the petition on Friday. Cote has set a quick trial schedule. UBS is set to go to trial first, in January 2014.
Two defendants who were before Cote, General Electric Co and Citigroup Inc, have settled so far. Terms were confidential. The mandamus petition was not the first trip for the FHFA cases to the 2nd Circuit. In April, a different appellate panel upheld Cote's decision not to dismiss the case against UBS, in a ruling that would apply to the 13 other cases remaining before her, as well as one in Connecticut.
Banks other than UBS on Monday sought permission to intervene in order to appeal the dismissal decision to the U.S. Supreme Court, citing the "substantial risk" the UBS case might settle before the high court could rule. Other banks that were part of the mandamus petition to the 2nd Circuit were First Horizon National Corp, Nomura Holdings Inc, Societe Generale, Morgan Stanley, Ally Financial Inc, Royal Bank of Scotland Group and Credit Suisse Group AG.
Representatives for the banks and FHFA either declined comment or did not immediately respond to requests for comment. The case is In re FHFA Coordinated Securities Litigation, 2nd U.S. Circuit Court of Appeals, No. 13-1122.