The decision comes in an action that the Federal Housing Finance Agency filed against RBS, Nomura and 15 other financial institutions in September 2011, alleging violations of the Securities Act of 1933 and other statutes.
With trial for two of these banks wrapping up earlier this year, U.S. District Judge Denise Cote wasted little time Monday in finding RBS and Nomura culpable in hundreds of scathing pages.
“This case is complex from almost any angle, but at its core there is a single, simple question,” Cote wrote. “Did defendants accurately describe the home mortgages in the offering documents for the securities they sold that were backed by those mortgages? Following trial, the answer to that question is clear. The offering documents did not correctly describe the mortgage loans. The magnitude of falsity, conservatively measured, is enormous.
“Given the magnitude of the falsity, it is perhaps not surprising that in defending this lawsuit defendants did not opt to prove that the statements in the offering documents were truthful,” she added. “Instead, defendants relied, as they are entitled to do, on a multifaceted attack on plaintiff’s evidence. That attack failed, as did defendants’ sole surviving affirmative defense of loss causation. Accordingly, judgment will be entered in favor of plaintiff.”
Cote’s ruling sorts out liability issues under five charges, for multiple defendants, and related to seven sets of offering documents.
The opinion ends on an historical note. “Eighty-two years ago, in the midst of the Great Depression, Congress passed the Securities Act in the hope that ‘full disclosure of material information’ … in offering documents would ‘prevent further exploitation of the public by the sale of unsound… securities through misrepresentation,” Cote wrote.
“Now, in the aftermath of our great recession, FHFA seeks to vindicate those principles,” she added. “For the reasons stated here, it is entitled to judgment.”
Using her findings as a guide, the FHFA must calculate a proposed judgment on Wednesday.
The “most appropriate” rate for Securities Act damages will be greater than $624 million, according to the opinion.
“Blue Sky” laws will put that amount at slightly under $523 million.
The FHFA did not respond to an inquiry about roughly how high a damages figure may be calculated.
FHFA’s lawyer Alfred Pollard said the agency is “pleased” with what he called an “important ruling.”
“It is clear the court found that the facts presented by FHFA were convincing,” Pollard said in a statement. “FHFA looks forward to submitting proposed damages calculated under the formulae applied in the court’s opinion.
Nomura indicated a plan to appeal.
“While Nomura is still reviewing the court’s ruling, it disagrees with the court’s conclusion and intends to appeal the decision,” Jennifer Will, a spokeswoman for the financial institution said in an email. “Nomura is confident that it was consistently candid, transparent and professional in all of its dealings with Fannie Mae and Freddie Mac and looks forward to bringing its case to the U.S. Court of Appeals.”
RBS has not returned a request for comment.
- Family Sues NorCal Police Shooter
- Oracle, Maintech Settle Support-Services Riff