Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

The Securities and Exchange Commission could be going to school on private litigation being brought against MBS issuers.

In a recent article from the April 2011 issue of  Mortgage Banking Magazine, Perkins Coie attorneys Pravin Rao and Suleen Lee discuss recent MBS litigation trends and related SEC enforcement priorities.  The article discusses how mortgage-backed securities have become a significant priority for the Securities and Exchange Commission's (SEC) investigative resources.  It also describes what might constitute a potential SEC action against banks, and suggests proactive measures banks should take to ensure they do not become ensnared by regulatory or private litigants.

Read "Notebook on MBS Litigation" article from Mortgage Banking Magaznine.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Litigation by investors regarding the quality of loans in Mortgage Backed Securities continue to pile up.  In an April 4, 2011 complaint filed in the U.S. District Court for the Southern District of New York, Union Central Life Insurance Co. alleged that Credit Suisse Securities (USA) LLC and affiliated entities made false statements and omitted information about the quality of loans included in its MBS pools.  According to a Law360 article, the suit claims that  Credit Suisse First Boston Mortgage Securities Corp. and certain of its directors ignored consultants who found that 37% of the loans in the pools failed to conform to stated loan underwriting guidelines.  According to the Complaint, the lenders originating the underlying mortgages regularly granted exceptions to loan guidelines; pressed appraisers to inflate home values; and failed to verify borrowers' income and monitor loan officer activity.  The suit advances claims of fraud, negligent misrepresentation, unjust enrichment and purported violations of securities law.

The Union Central Life Insurance  case is yet another example of continued litigation surrounding subprime lending.  While the first wave of litigation primarily concerned consumer claims, more recent litigation brought by MBS investors have attacked the institutions who underwrote the securitized vehicles. 



 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The SEC and Financial Industry Regulatory Authority (FINRA) filed separate lawsuits alleging that 16 brokers from the now defunct Brookstreet Securities Crop. fraudulently mislead investors that derivatives based on mortgage-backed securities were safe and conservative investments.  In its complaint, the SEC alleges that 10 Brookstreet brokers failed to inform customers about the risks associated with investing in collateralized mortgage obligations.  The brokers portrayed collateralized mortgage obligations as secure investments to more than 750 customers, which ultimately cost those investors more than $36 million in losses, but earned the brokers $18 million in commission and salaries, according to SEC allegations.  The SEC is seeking civil penalties and repayment of ill-gotten gains.

FINRA filed a companion complaint against six other former Brookstreet brokers.  According to a FINRA press release,  from June 2004 through May 2007, the brokers sold collateralized mortgage obligations to customers when the brokers themselves lacked a basic understanding of these complex and illiquid securities.

• Email This
• Print
• Comments
• Trackbacks
• Share Link