Federal Housing Finance Agency v. Nomura Holding America, Inc.

873 F.3d 85 (2nd Cir. 2017)

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Nature of the Case

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Facts

Congress passed the Securities Act of 1933. The Act's chief innovation was to replace the traditional buyer-beware or caveat emptor rule of contract with an affirmative duty on sellers to disclose all material information fully and fairly prior to public offerings of securities. That change marked a paradigm shift in the securities markets. The height of the housing bubble in the mid-2000s saw an explosion in the market for residential mortgage-backed securities (RMBS). The Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae)(collectively, the GSEs), purchased a subset of RMBS known as private-label securitizations (PLS) from a host of private banks. D sold the GSEs seven of these certificates in senior tranches of PLS using prospectus supplements (ProSupps). Each ProSupp described the creditworthiness of the loans supporting the Securitization, including an affirmation that the loans 'were originated generally in accordance with the underwriting criteria.' With the housing market collapse in 2007, the value of PLS declined rapidly. P, the statutory conservator of Freddie and Fannie brought sixteen actions financial institutions that sold PLS certificates to the GSEs, alleging that the offering documents used in those transactions overstated the reliability of the loans backing the securitizations, in violation of the Securities Act and analogous provisions of certain 'Blue Sky Laws,' the Virginia Securities Act, and the District of Columbia Securities Act. Fifteen of those cases settled, resulting in more than $20 billion in recovery for P. The case on appeal was the only one to go to trial. The District Court filed a 361-page trial opinion rendering judgment in favor of P. The court D violated Sections 12(a)(2) and 15 of the Securities Act, and analogous provisions of the Virginia and D.C. Blue Sky laws by falsely stating in the ProSupps that, the loans supporting the Securitizations were originated generally in accordance with the pertinent underwriting guidelines. the court awarded P more than $806 million in recession-like relief. D appealed.