Appeal denied to overturn $839 million RMBS award

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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