The U.S. Justice Department has filed a civil securities fraud case against Paul Mangione, a former senior Deutsche Bank (DB) trader. According to the government, Mangione, who headed up the bank’s subprime trading, took part in a fraudulent scam that involved misrepresenting the loans backing two residential mortgage-backed securities that the bank was selling, resulting in investors losing hundreds of millions of dollars.
The DOJ’s RMBS fraud complaint contends that Mangione committed fraud when selling the ACE 2007-HE5 and ACE 2007-HE4, which were $400M and $1B securities, respectively. He allegedly did this by misleading investors about the loans backing the investments and the originating practices of DB Home Lending, which is a Deutsche Bank subsidiary and was the primary loan originator.
According to the US government, the former Deutsche Bank head trader “fraudulently induced” different investors, including financial institutions, pension plans, government-sponsored editions, and religious organizations, to invest almost $1.5B in the two RMBSs, resulting in “extraordinary losses” for them. Mangione allegedly provided offering documents for the HE5 and HE4 that he knew included misrepresentations about compliance lending guidelines, loan characteristics, appraisal accuracy, and other matters. The documents made it appear as if DB Home had put into place underwriting guidelines that “generated quality loans,” as well as processes to properly oversee loan production.
The DOJ believes that Mangione was aware that these representations, among others, were false, and, also, that he knew some of Deutsche Bank’s RMBSs held mortgages that failed to meet appraisal and credit standards. He is accused of purposely selling faulty mortgage loans in the run up to the financial crisis.
Meantime, the ex-Deutsche Bank trader’s legal team claims that Mangione never consented to mislead investors and that there were others at the bank who had greater “input and responsibility” in this matter. They have called the RMBS fraud lawsuit “meritless.”
In a statement, Mangione’s attorneys disputed the civil charges, arguing that he was not involved in the origination or purchase of the loans that backed the securitizations, did not play a part in Deutsche Bank’s purchase of Chapel Funding LLC, which is a subsidiary that originated the mortgage loans that were supposedly “problematic,” and is not responsible for the bank’s disclosure policy regarding RMBS deals.
Deutsche Bank Settled Related Fraud Case Earlier This Year
In January, Deutsche Bank settled a related mortgage securities fraud case for $7.2B. Claims included allegations that the bank misled investors in its securitization, packaging, sale, marketing, and issuance of RMBSs between 2006 and 2007. As part of the agreement, Deutsche Bank consented to pay a $3.1BB civil penalty and $4.1B in relief to beleaguered borrowers, homeowners, and communities that were affected. It also admitted to making the false representations and leaving out material information from disclosures about the loans tied to the RMBSs. The government said that the bank purposely securitized billions of loans of faulty mortgages.
Deutsche Bank’s settlement is the largest by a single entity to date over allegations that RMBS investors were misled. Citigroup (C) settled its own residential mortgage-backed securities case for $7B in 2014.
Contact our RMBS Fraud lawyers at The SSEK Partners Group today.
United States Files Civil Fraud Complaint Against Former Deutsche Bank Head of Subprime Mortgage Trading, Justice.gov, September 11, 2017