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From Banking and Finance Law Daily, June 20, 2014

RBS Securities settles claims for $99.5 million in FHFA’s enforcement action

By Thomas G. Wolfe, J.D.

RBS Securities, Inc. has entered into a $99.5 million settlement with the Federal Housing Finance Agency—in the FHFA’s capacity as conservator of the Federal Home Loan Mortgage Corporation (Freddie Mac)—to resolve the FHFA’s claims against RBS Securities for the company’s alleged violations of federal and state securities laws in connection with certain private-label mortgage-backed securities purchased by Freddie Mac during 2005 to 2007.

According to a June 19, 2014, release by the FHFA, the parties have agreed to settle the claims against RBS Securities in FHFA v. Ally Financial, Inc., pending in the U.S. District Court for the Southern District of New York. The FHFA indicates that this is the 15th settlement related to 18 separate lawsuits filed by the FHFA in 2011; these actions alleged securities law violations and, in some instances, fraud in the sale of private-label securities to government-sponsored enterprises, namely Freddie Mac and/or Fannie Mae.

Background. The FHFA regulates Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks. As observed by the FHFA, these government-sponsored enterprises provide more than $5.5 trillion in funding for mortgage markets and financial institutions in the United States.

In September 2011, as the conservator for Freddie Mac, the FHFA brought an action against RBS Securities and other defendants in New York state court. About a month later, the action was successfully removed to the federal district court in New York, captioned as FHFA v. Ally Financial, Inc. (S.D.N.Y., Docket No. 11 Civ. 7010 (DLC)).

Settlement Agreement. Among other things, the June 19, 2014, Settlement Agreement between RBS Securities and the FHFA provides that:

  1. RBS Securities is to pay $99.5 million to Freddie Mac—in keeping with the FHFA’s written instructions—for the release and settlement of all claims asserted against the company in the Ally Financial litigation;
  2. all claims contained in the FHFA’s amended complaint against RBS Securities in the Ally Financial litigation are dismissed with prejudice and without costs;
  3. the settlement does not constitute an admission by RBS Securities of any liability or wrongdoing in the Ally Financial litigation; and
  4. RBS Securities and Freddie Mac have not agreed to fully and finally resolve or settle any claims against RBS Securities pertaining to two separate actions: (i) Federal Housing Finance Agency v. Nomura Holding America Inc. (S.D.N.Y., Docket No. 11 Civ. 6201); and (ii) Federal Housing Finance Agency v. The Royal Bank of Scotland Group plc (D. Conn., Docket No. 11 Civ. 1383).

Companies: Fannie Mae; Freddie Mac; Greenwich Capital Markets, Inc.; RBS Securities, Inc.

Attorneys: Marc E. Kasowitz, Christopher P. Johnson, and Kanchana Wangkeo Leung (Kasowitz, Benson, Torres & Friedman LLP) for Federal Housing Finance Agency and Freddie Mac. Thomas C. Rice, Andrew T. Frankel, Alan C. Turner, and David J. Woll (Simpson Thacher & Bartlett LLP) for RBS Securities, Inc.

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