FHFA vs. Nomura and RBS
The defendants Nomura and Royal Bank of Scotland (RBS) lost their appeal of a 2015 trial loss to the Plaintiff, the Federal Housing Finance Authority “FHFA”, which is a conservator for Freddie Mac and Fannie Mae, by a unanimous decision on September 28, 2017. The appeal panel consisted of three 2nd district court judges.
This victory is ground breaking for several reasons:
- – This appeal stems from the first RMBS fraud case to go to trial.
- – The size of this RMBS award was 2.3x larger than the second largest FHFA settlement – potentially increasing higher future settlement amounts.
- – This case tested the solidity of the Securities Act – relating to full disclosure.
- – The plaintiffs were successful proving that the losses on the securities were not a result of the broader economic crisis in 2008.
Circuit Judge Wesley wrote on behalf of the panel: “Defendant may not hide behind a market downturn that is in part their own making simply because their conduct was a relatively small part of the problem.”
The original fine was $839 million, which included as much as $33 million in legal fees. The defendants are required to take back the subject securities, believed to be valued in the range of $400-$475 million, based on a 2015 estimate. Nomura sponsored $2 billion of securities sold to Fannie and Freddie, and RBS underwrote the deals. Based solely on the fine the amount awarded equals 40.3% of the total subject securities.
As you can see based on the following table – the RMBS rewards associated with the trial far exceeded FHFA’s prior settlement rewards:
While this case could be seen as positive for plaintiffs in securities litigation, the decision to pursue litigation is a complex decision and in doing so you should engage expertise to guide you through the process. For the full ruling, view the following PDF:
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