MANHATTAN (CN) — Upholding a scathing mortgage-fraud ruling Thursday, the Second Circuit touted the application of a law passed after the Great Depression against companies that contributed to the 2008 financial meltdown.
“This case demonstrates the persistent power of the Securities Act’s full‐disclosure requirement in the context of the Great Recession,” the 147-page opinion states.
Nomura Securities International and RBS Securities had ventured to the Manhattan-based federal appeals court after U.S. District Judge Denise Cote slammed the financial-services companies for misrepresentations about mortgage-backed securities.
“The offering documents did not correctly describe the mortgage loans,” Cote wrote in May 2015. “The magnitude of falsity, conservatively measured, is enormous.”
Cote later awarded Federal Housing Finance Agency more than $806 million, an amount that included $555 million for violations of Blue Sky laws and $250 million for violations of the Securities Act of 1933.
A three-judge panel of Second Circuit praised Cote’s reasoning today, in a ruling clocking in at less than half of the length.
“In passing the Securities Act, Congress affixed those standards of honesty and fair dealing as a matter of federal law and authorized federal courts to impose civil remedies against any person who failed to honor them,” U.S. Circuit Judge Richard Wesley wrote for the court. “And now, in the wake of the Great Recession, the mandate of Congress weighs heavy on the docket of the Southern District of New York. The district court’s decisions here bespeak of exceptional effort in analyzing a huge and complex record and close attention to detailed legal theories ably assisted by counsel for all parties.”
FHFA general counsel Alfred Pollard applauded the court for upholding the agency’s victory “on all points and in great detail.”
“The only case of 18 filed by the Federal Housing Finance Agency in 2011 to go to trial, the circuit court’s ruling validated the arguments made by FHFA before the District Court in motions and in the four week trial,” Pollard said in a statement. “The lengthy District Court and Circuit Court rulings found major failures in the securitization process for which FHFA appropriately sought remedy on behalf of Fannie Mae and Freddie Mac.”
Nomura’s attorney David Tulchin, from the firm Sullivan & Cromwell, declined to comment.
Joshua Rosenkranz, an attorney for RBS with Orrick, Herrington & Sutcliff, did not immediately respond to a request for comment.