By Lawrence Hurley
WASHINGTON Oct 7 The U.S. Supreme Court said on
Monday that banks sued by the U.S. Federal Housing Finance
Agency over mortgage-backed securities that were sold to Fannie
Mae and Freddie Mac cannot appeal a
preliminary lower court ruling.
In 2011, the FHFA sued 18 banks, including Barclays Plc
, Bank of America Corp, Deutsche Bank AG
, Goldman Sachs Group Inc and JPMorgan
Chase & Co, accusing them of violating securities laws
by misleading Fannie and Freddie about $200 billion in
mortgage-backed securities they purchased.
The Supreme Court said that banks involved in 13 lawsuits in
the same U.S. district court that have yet to be settled did not
have permission to seek review of a New York-based 2nd U.S.
Circuit Court of Appeals decision from April.
The appeals court upheld several preliminary rulings that a
district court made in a test case that focused on the claims
against one defendant, UBS AG .
UBS settled the claims in July for $885 million, but the 13
other banks, which were not parties in the appeals court case,
asked for special permission so they can appeal the decision.
The banks say the appeals court ruling will also affect their
cases. Normally, an entity that is not a party in litigation
does not have a right to appeal.
The litigation will now continue in the district court, with
the various banks able at a later date to appeal, if an adverse
court ruling directly affects them.
UBS had argued that the lawsuit was filed too late - beyond
a three-year deadline required under law. A Supreme Court ruling
on that point in favor of UBS would also benefit the other
The lawsuits alleged the banks misrepresented how well they
had checked the underlying mortgages and charged that they did
not meet investors' criteria. As borrowers fell behind in
payments, the value of the securities fell, causing losses.
Sixteen of the lawsuits were transferred in December 2011 to
U.S. District Judge Denise Cote in Manhattan, a former federal
In the year and a half since, Cote has become a major
influence in the direction of the litigation, denying motions to
dismiss the lawsuits and limiting depositions and document
In addition to UBS, two other defendants who were before
Cote - General Electric Co and Citigroup Inc - have
settled so far. Terms were confidential.
Other banks involved in the litigation, some directly and
others via subsidiaries, are First Horizon National Corp
, Nomura Holdings Inc, Societe Generale
, Morgan Stanley, Ally Financial Inc, Royal Bank
of Scotland Group , HSBC Holdings Plc and
Credit Suisse Group AG . Separately, two other
cases, one against Bank of America's Countrywide Financial Corp
and the other against Royal Bank of Scotland Group, are being
heard in California and Connecticut respectively.
The case is JPMorgan Chase et al v. FHFA, U.S. Supreme