Agency Suits Against Goldman, Deutsche Bank to Go On

Two more banks have lost in their attempts to dismiss claims of misconduct in sale of mortgage-backed securities (MBS) to ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/.

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""U.S. District Judge"":http://www.nysd.uscourts.gov/ Denise Cote rejected motions to dismiss filed by ""Goldman Sachs"":http://www.goldmansachs.com/index.html and ""Deutsche Bank"":https://www.db.com/us/, two of 16 defendants brought before her court by the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA). The agency, acting as conservator of Fannie Mae and Freddie Mac, filed claims in 2011 saying the banks misrepresented the underwriting standards of loans contained in securities sold to the GSEs.

In their arguments, attorneys for ""Deutsche Bank"":https://ecf.nysd.uscourts.gov/doc1/127111564594 and ""Goldman"":https://ecf.nysd.uscourts.gov/doc1/127111565315 say that FHFA's allegations are inadequate to support its claim of fraud.

Cote's rulings on both motions cite previous judgments made on similar arguments brought to her by ""JPMorgan Chase"":https://themreport.com/articles/jpmorgan-chase-fails-in-bid-to-dismiss-fhfa-suit-2012-11-06, ""Bank of America"":https://themreport.com/articles/judge-refuses-to-dismiss-fhfa-suit-against-merrill-lynch-2012-11-09, and UBS--all of which also failed. Though her opinion was influenced by those rulings, Cote noted the importance of examining each motion on a case-by-case basis.

""The roles of these defendants in the RMBS securitization process and their familiarity with it differ from those of defendants in other cases in material respects,"" Cote writes [COLUMN_BREAK]

in the Goldman ruling. ""The plaintiff's allegations in support of its fraud claims differ accordingly. Nonetheless, an independent review of the plaintiff's allegations in this case compels an outcome similar to those this Court has reached in previous Opinions in this litigation.""

Indeed, Cote's refusal to dismiss either case was largely based on the same reasoning used in previous opinions. In both cases, she ruled that FHFA's allegations were sufficient for a claim of fraud. As she did in previous cases, she also agreed with the defendants that there was no base for a fraud claim over disparities in loan-to-value and owner-occupancy information.

The opinions did address specific arguments made by lawyers for both banks. In the case of Deutsche Bank's motion, attorneys contested that the fraud claims should be dismissed because FHFA's complaint does not allege that either GSE relied on specific documents containing faulty material in their purchase of securities.

Cote was not convinced, pointing to FHFA's allegation that the documents the GSEs did use when evaluating securities contained the same information.

Goldman, meanwhile, presented a challenge that has not yet been addressed by Cote's court. Lawyers for the firm argued that FHFA's claims must be dismissed ""with respect to the four securitizations for which Goldman acted only as an underwriter, because it cannot be said that the company exercised ultimate control over the contents of the Offering Documents"" used to sell those securities.

Again, the judge expressed doubt, saying Goldman's denial of responsibility for the materials ""is difficult to square with the fact that the bank's name is prominently displayed on each of them, at the bottom of the cover page and set off from the surrounding text.""

Spokespersons for Goldman and Deutsche Bank declined to comment.