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Securities Regulation Keyed to Cox
Federal Housing Finance Agency v. Nomura Holding America, Inc.
Citation:
873 F.3d 85 (2017)Facts
The Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac, brought claims under the Securities Act and state Blue Sky laws against Nomura entities and RBS Securities for selling seven residential mortgage-backed securities certificates between 2005 and 2007. The offering documents (prospectus supplements) represented that the mortgage loans backing these securities “were originated generally in accordance with the underwriting criteria.” Defendants conducted pre-acquisition due diligence by sampling loans using adverse selection methods and third-party vendors, but their processes were inadequate. Expert testimony at trial demonstrated that at least 46% of loans in each supporting loan group had material underwriting defects that affected credit risk. The certificates, purchased for approximately $2.05 billion, suffered substantial losses following the 2008 financial crisis. Defendants argued these losses resulted from macroeconomic factors rather than their misrepresentations, but the court found the misrepresentations contributed to the systemic risks that caused the crisis. The district court awarded FHFA over $806 million in rescission-like relief after a four-week bench trial.
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