AUSTIN, Texas (CN) - The powerhouses of finance urged a federal judge to toss, what they call, a contradictory and otherwise flawed $900.6 million lawsuit over their sales of mortgage-backed securities to the failed Guaranty Bank.
The Federal Deposit Insurance Corp. sued Goldman Sachs, J.P. Morgan, Deutsche Bank, Ally Securities, Structured Asset Mortgage Investments II and the Bear Stearns Cos. in Travis County Court in August, claiming that they sold Guaranty eight certificates for $1.8 billion.
To push the sale through, the banks allegedly used false statements about the quality of the underlying mortgages.
Austin-based Guaranty failed in August 2009 during the financial crisis. It was taken over by the FDIC and then sold to BBVA Compass, a subsidiary of Spain-based Banco Bilbao Vizcaya Argentaria.
After removing the case to the U.S. District Court for the Western District of Texas, the defendants moved to dismiss on the basis of the statute of limitations.
"Plaintiff's own allegations clearly reveal that all of the information relied on in bringing these claims was available - and was sufficient to put Guaranty on notice of the same claims - long before the FDIC filed suit in August 2012," the 34-page motion states. "The rise in [early payment defaults], on which the FDIC relies heavily, was reflected in monthly trustee reports that were made available to Guaranty following each RMBS [residential mortgage-backed securities] issuance."
The FDIC cannot excuse its untimely claims by pointing to an extender provision under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, according to the motion.
This provision allows the FDIC, under certain circumstances, more time to sue as receiver. But the banks insist that "that provision neither revives stale claims, nor applies to statutes of repose or to the securities claims asserted here."
Even if the claims were not time-barred, they would still fail because the FDIC does not plead any actionable misstatement or omission, the defendants say.
Allegations regarding represented occupancy status are not actionable, and the FDIC concedes that the owner-occupancy data in offering materials relied on the representations of the borrowers, the defendants say.
Allegations regarding underwriting standards are also not actionable, according to the motion.
"Plaintiff's contention that mortgage originators 'may have; disregarded underwriting standards is reason alone to dismiss these allegations, as they 'do not permit the court to infer more than the mere possibility of misconduct,'" the motion states.
In a parallel complaint, the FDIC demanded $677.4 million from defendants that charged Guaranty $2.1 billion for 20 certificates. Those defendants are J.P. Morgan Securities fka Bear, Stearns & Co.; Merrill Lynch, Pierce, Fenner & Smith; RBS Securities; WaMu Asset Acceptance Corp.; and WaMu Capital Corp.
Yet another complaint involves an FDIC demand for $559.7 million from defendants that charged Guaranty Bank $1.5 billion for eight certificates. Those defendants are Countrywide Securities Corp.; CWALT, Inc.; Countrywide Financial Corp.; Bank of America Corp.; Deutsche Bank Securities; and Goldman, Sachs & Co.Follow @davejourno
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