October 7, 2013 / 2:28 PM / 4 years ago

UPDATE 1-U.S. Supreme Court says banks cannot appeal in FHFA case

By Lawrence Hurley

WASHINGTON, Oct 7 (Reuters) - 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 banks.

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 prosecutor.

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 discovery.

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 Court, 13-M30

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