Mortgage Backed Securities

Wells Fargo Sued for More than $1B in RMBS Fraud Case

Published on: June 12, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Housing Finance Agency (FHFA) has filed a more than $1B residential mortgage-backed securities (RMBS) fraud lawsuit against Wells Fargo (WFC) on behalf of Freddie Mac. The government-owned mortgage company had invested in over $1B in RMBSs backed by NovaStar loans prior to the 2008 financial crisis. NovaStar, once a subprime lender, is no longer in operation.

While several banks underwrote the securities, the investor fraud case is targeting Wachovia Capital Markets, LLC, an ex-Wachovia brokerage firm, that is now Wells Fargo Securities, LLC. Wachovia was a Wells Fargo acquisition in 2008.

According to the RMBS fraud case, FHFA claims that offering documents sent to Freddie about the quality of the loans backing the RMBSs were misleading. The independent federal agency contends that Wachovia, which played a part in packaging these securities, put out registration statements that were also allegedly misleading and included misrepresentations that eventually resulted in Freddie Mac sustaining huge financial losses.

HSBC and Nomura to Pay $765M and $480M, Respectively to Settle RMBS Fraud Claims

Published on: October 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

HSBC will pay a $765M penalty over claims involving its packaging, marketing, and sale of residential mortgage-backed securities prior to the 2008 economic crisis. According to the US Attorney Bob Troyer, from the beginning HSBC employed a due diligence process that it knew was ineffective, “chose” to place faulty mortgages in deals, and disregarded these problems even as it sold the RMBSs to investors. As a result, contends the US government, investors, including federally-insured financial institutions that bought the HSBC Residential Mortgage-Backed Securities that were backed by faulty loans, sustained “major losses.”

HSBC had touted using a proprietary model that would choose 20% of the riskiest loans for further examination and another 5% that would be randomly chosen. The government, however, claims that the financial firm’s trading desk exerted undue influence on which loans would be securitized and sometimes failed to employ a random sample. Outside vendors then studied the chosen loans.

The US alleges that even when a number of loans were marked as low grade, HSBC “waived” them through or regraded them, and concerns about loans that had defaulted right away were purportedly disregarded. The bank even allegedly continued to buy loans from an originator who was found to likely be providing loans that were fraudulent.

Moody’s Corp. Settles With US Government, States Over Pre-Crisis Mortgage Securities Ratings for Almost $864M

Published on: January 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Moody’s Corp. (MCO) will pay nearly $864M to settle allegations about the way that credit ratings agency rated high-risk mortgage securities, including residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs), leading up to the 2008 financial crisis. The settlement was reached between Moody’s Corporation, Moody’s Analytics Inc., and Moodys’ Investors Services, and the US Department of Justice, the District of Columbia, and 21 US states. Moody’s is accused of knowing that it was inflating the ratings of mortgage securities that were toxic.

As part of the agreement, $437M will be paid as penalty to the DOJ. The rest of the $426.3M would be divided between DC and the states. Moody’s consented to measures that would make sure of its credit ratings’ integrity moving forward, and its chief executive will have to certify measures of compliance for a minimum of five years.

Despite settling, Moody’s maintains that its ratings pre-the 2008 crisis were valid. The credit rater also pointed out that this case has been resolved without any findings that it violated any laws. Moody’s is not admitting any liability. However, in a Statement of Facts, the company admitted to key parts of its purported behavior.

Mortgage Company President Charged With Defrauding Ginnie Mae

Published on: August 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

U.S. prosecutors are charging Robert Pena with fraud. Pena, who is the founder and president of Mortgage Security— a mortgage company that is no longer in operation—was indicted on wire fraud and conspiracy charges.

Court documents state that Mortgage Security was contracted with the Government National Mortgage Association, also known as Ginnie Mae. Its job was to pool eligible residential mortgage loans and sell mortgage bonds that were backed by Ginnie Mae to investors. Mortgage Security also was supposed service the loans, including collecting payments plus interest from the borrower ( in addition to loan payoffs) and putting the money in accounts that Ginnie Mae held in trust. The funds were to eventually go to investors.

However, contends the indictment, starting in 2011, Pena allegedly started moving the funds that borrowers sent to Mortgage Security into secret accounts without Ginnie Mae’s knowledge. He purportedly used the money for business and personal expenses, eventually taking close to $3M. He allegedly tried to conceal his scam through false reports that he issued to Ginnie Mae regarding the loans. Ginnie Mae wound up having to pay investors because it had guaranteed their investments.

Texas Appeals Courts Upholds $2.1M Mortgage-Backed Securities Ruling Against Morgan Keegan

Published on: May 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Texas Court of Appeals for the Fifth District has upheld a $2.1M judgment for a client of Houston Securities Fraud Attorney Sam Edwards of Shepherd Smith Edwards & Kantas. The ruling ordered Morgan Keegan to pay $2.1M for not telling investors about the actual risks involved in a mortgage-backed securities stake.

It was in October 2014 that a Dallas state court judge determined that the wealth management and capital markets firm had violated the Texas Securities Act by not accurately representing the risks involved in securities in which Purdue Avenue Investors LP and its principals Dana and Robert Howard had invested. These were MBS purchased by bond funds that Morgan Keegan underwrote and Morgan Asset Management managed. The purportedly undisclosed risk was that the funds were heavily involved in lower than investment grade structured finance.

The Howards invested more than $2M in the RMK Strategic Income Fund and the RMK Advantage Income Fund. The funds would go on to lose more than $2B.

11th Circuit Revives City of Miami’s Mortgage Fraud Lawsuits Against Wells Fargo, Citigroup, and Bank of America

Published on: August 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The 11th U.S. Circuit Court of Appeals said that a lower court made a mistake when it threw out the city of Miami’s claims accusing Bank of America Corp. (BAC), Wells Fargo & Co. (WFC ), and Citigroup Inc. (C) of engaging in predatory mortgage lending to Hispanic and black borrowers. The Florida city brought its claims under the Fair Housing Act.

Miami claims that the three banks directed non-Caucasian borrowers toward more expensive loans that were frequently not affordable to them even if their credit was good. The city said that because of this “reverse redlining,” there were a lot of foreclosures, a rise in spending to fight blight, and lower property tax collections.

A U.S. district court judge threw out Miami’s mortgage fraud lawsuits last year. Judge William Dimitrouleas claimed that the city did not have the standing to sue and the harm alleged was too remote from the conduct of the banks.

The 11th circuit, however, said that standard was too strict. It believes that the banks could have foreseen that there would be attendant harm from such alleged discriminatory practices.
Continue Reading ›

Securities Fraud News: SEC Charges NY Firm With Stealing Investor Funds, Stock Promoter Accused of Bilking Clients Over Twitter, Facebook Pre-IPO Shares, and NY Lawyer Under Fire for Alleged Ponzi Scam

Published on: December 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges NY Firm, Fund Managers With Securities Fraud

The Securities and Exchange Commission is charging VERO Capital Management, its CFO Steven Downey, President Robert Geiger, and General Counsel George Barbaresi with secretly taking investor money to support a side business. The three men ran funds with offering documents that touted their objective as making good returns via mortgage-backed securities investments. Instead, after winding down the funds, the officers allegedly diverted around $4.4 million to undocumented bridge loans to an affiliate company that was supposedly in risk management. Investors and the funds’ directors were purportedly not notified that these unauthorized loans were taking place.

The SEC Enforcement Division also claims that VERO Capital and the three men compelled the funds to buy three notes totalling $7 million from an affiliate, which is a principal transaction that requires written notice and consent of a client before the transaction can be finished. The division claims that no attempt was made to get this mandatory notice. The regulator is alleging multiple violations of the Investment Advisers Act of 1940 and other rules.

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

Published on: December 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims

Published on: August 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) will pay $3.15 billion to buy back residential mortgage-backed securities related to bonds that were sold to Freddie Mac and Fannie Mae. The repurchase represents an approximately $1. 2billion premium and makes the mortgage companies whole on the securities. The RMBS case was brought by the Federal Housing Finance Agency.

It was in 2011 that FHFA sued 18 firms to get back taxpayer money from when the U.S. took control of Freddie and Fannie after the economy tanked in 2008. Goldman is the fifteenth bank to settle.

The firm will pay Fannie May $1 billion and $2.15 billion to Freddie Mac for the securities. The two had purchased $11.1 billion from Goldman Sachs. A few of the other banks that have settled with the FHFA include Morgan Stanley (MS), JPMorgan Chase (JPM), and Bank of America Corp. (BAC). The agency’s remaining RMBS fraud cases still pending are those against RBS Securities Inc. (RBS), HSBC North America Holdings Inc., (HSBC), and Nomura Holding America Inc. (NMR).

Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA

Published on: June 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Attorney General Martha Coakley is suing Freddie Mae, and the Federal Housing Finance Agency because she says that they are not working with the nonprofits willing to repurchase bank-owned homes and then sell them back to their prior owners. Coakley is claiming violations of the state’s foreclosure prevention law.

Under certain Massachusetts programs, nonprofits can now buy homes that belong to the bank at market value and then sell them to previous owners that qualify for financing at a new price that is lower than market value. The Massachusetts AG believes that the FHFA, Freddie, and Fannie are getting “in the way” of these sales.

Coakley has pointed to the regulator’s policies, including one that won’t allow the two home mortgage companies to accept a price under the outstanding loan amount when houses are resold. Coakley says this is preventing families from getting their houses back. Meantime, FHFA has said that its policies protect taxpayers.