Fed. Hous. Fin. Agency v. HSBC N. Am. Holdings Inc.
| Decision Date | 10 December 2013 |
| Docket Number | No. 11 Civ. 7010 (DLC).,No. 11 Civ. 6189 (DLC), 11 Civ. 6190 (DLC), 11 Civ. 6192 (DLC).,No. 11 Civ. 6200 (DLC), 11 Civ. 6201 (DLC), 11 Civ. 6202 (DLC).,No. 11 Civ. 6202 (DLC), 11 Civ. 6203 (DLC), 11 Civ. 6739 (DLC).,No. 11 Civ. 6193 (DLC), 11 Civ. 6195 (DLC), 11 Civ. 6198 (DLC).,11 Civ. 6189 (DLC), 11 Civ. 6190 (DLC), 11 Civ. 6192 (DLC).,11 Civ. 6193 (DLC), 11 Civ. 6195 (DLC), 11 Civ. 6198 (DLC).,11 Civ. 6200 (DLC), 11 Civ. 6201 (DLC), 11 Civ. 6202 (DLC).,11 Civ. 6202 (DLC), 11 Civ. 6203 (DLC), 11 Civ. 6739 (DLC).,11 Civ. 7010 (DLC). |
| Citation | 987 F.Supp.2d 369 |
| Parties | FEDERAL HOUSING FINANCE AGENCY, Plaintiff, v. HSBC NORTH AMERICA HOLDINGS INC., et al., Defendants; And other FHFA cases. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Philippe Z. Selendy, Christine H. Chung, Adam M. Abensohn, Jordan A. Goldstein, Quinn Emanuel Urquhart & Sullivan, LLP, Marc E. Kasowitz, Christopher P. Johnson, Michael A. Hanin, Kanchana Wangkeo Leung, Kasowitz, Benson, Torres & Friedman LLP, New York, NY, for the plaintiff.
Richard H. Klapper, Theodore Edelman, Michael T. Tomaino, Jr., Tracy Richelle High, Sullivan & Cromwell LLP, New York, NY, for defendants Kevin Gasvoda, Michelle Gill, David J. Rosenblum, Jonathan S. Sobel, Daniel L. Sparks, and Mark Weiss.
Theresa Trzaskoma, David Elbaum, Jessica Holloway, Brune & Richard LLP, New York, NY, for defendants Keith Johnson, Kim Lutthans, and John F. Robinsion.
Steven L. Holley, Robert A. Sacks, Penny Shane, Sharon L. Nelles, Jonathan M. Sedlak, Yavar Bathaee, Sullivan & Cromwell LLP, New York, NY, for defendants David M. Duzyk, Louis Schioppo, Jr., Christine E. Cole, Edwin F. McMichael, William A. King, Brian Bernard, Joseph T. Jurkowski, Jr., Katherine Garniewski, Richard Careaga, David Beck, Diane Novak, Rolland Jurgens, Thomas G. Lehmann, Stephen Fortunato, Donald Wilhelm, David H. Zielke, Suzanne Krahling, Thomas Casey, and Larry Breitbarth.
Richard A. Edlin, Ronald D. Lefton, Candace Camarata, Greenberg Traurig LLP, New York, NY, for defendant Jeffrey Mayer.
Joel C. Haims, James J. Beha II, Morrison & Foerster LLP, New York, NY, for defendants Thomas Marano and Michael Nierenberg.
Pamela Rogers Chepiga, Josephine A. Cheatham, Allen & Overy LLP, New York, NY, for defendant Samuel L. Molinaro, Jr.
Dani R. James, Jade A. Burns, Kramer Levin Naftalis & Frankel LLP, New York, NY, for Defendant Jeffrey L. Verschleiser.
Sandra D. Hauser, Patrick E. Fitzmaurice, Lauren Perlgut, Dentons U.S. LLP, New York, NY, for Defendant Matthew Perkins.
John M. Conlon, Mark S. Hanchet, Michael O. Ware, Mayer Brown LLP, New York, NY, for defendants Neal Leonard, Gerard Mattia, Todd White, and Jon Voigtman.
David H. Braff, Brian T. Frawley, Jeffrey T. Scott, Sullivan & Cromwell LLP, New York, NY, for defendants Barclays Bank PLC, Barclays Capital Inc., Securitized Asset Backed Receivables LLC, Paul Menefee, John Carroll, and Michael Wade.
Thomas C. Rice, David J. Woll, Simpson Thacher & Bartlett LLP, New York, NY, for defendants Douglas K. Johnson, Evelyn Echevarria, and Juliana C. Johnson.
Daniel C. Zinman, H. Rowan Gaither IV, Matthew M. Riccardi, Richards Kibbe & Orbe LLP, New York, NY, for defendants George C. Carp, Robert Caruso, George E. Ellison, Adam D. Glassner, Daniel B. Goodwin, Juliana Johnson, Michael J. Kula, William L. Maxwell, Mark I. Ryan, and Antoine Schetritt, Matthew Whalen, Brian Sullivan, Michael McGovern, Donald Puglisi, Paul Park, and Donald Han.
Richard W. Clary, Richard J. Stark, Michael T. Reynolds, Lauren A. Moskowitz, Cravath, Swaine & Moore LLP, New York, NY, for defendants Andrew A. Kimura, Jeffrey A. Altabef, Evelyn Echevarria, Michael A. Marriott, Thomas Zingalli, Carlos Onis, Joseph M. Donovan, Juliana Johnson, and Greg Richter.
Bruce Clark, Sullivan & Cromwell LLP, New York, NY, Amanda F. Davidoff, Sullivan & Cromwell LLP, Washington, DC, for defendants David Findlay, John McCarthy, John P. Graham, Nathan Gorin, and N. Dante LaRocca.
Jay B. Kasner, Scott Musoff, George Zimmerman, Robert A. Fumerton, Skadden Arps Slate Meagher & Flom LLP, New York, NY, for defendants Arnaud Denis, Abner Figueroa, Tony Tusi, and Orlando Figueroa.
James P. Rouhandeh, Brian S. Weinstein, Daniel J. Schwartz, Nicholas N. George, Jane M. Morril, Davis Polk & Wardwell LLP, New York, NY, for defendants Gail P. McDonnell, Howard Hubler, David R. Warren, and Steven S. Stern.
Before the Court is an August 13, 2013 motion for partial judgment on the pleadings under Rule 12(c), Fed.R.Civ.P., filed by certain of the individual defendants in these actions. The motion requires the Court to decide whether the SEC radically altered Section 11 liability for individuals who sign registration statements in the context of the shelf registration process when the SEC promulgated Rule 430B in 2005. For the following reasons, the Court concludes that Rule 430B made no such fundamental changes and that motion must be denied.
These actions involve alleged misrepresentations in the offering materials for residential mortgage backed securities purchased by Fannie Mae and Freddie Mac (collectively, the “GSEs”) between 2005 and 2007.1 The securities at issue consisted of certificates issued by a trust that were backed by pools of underlying mortgages and entitled the owners to income in the form of payments on those mortgages. The value of the certificates thus depended on the ability of mortgagors to repay the loan principal and interest and the adequacy of the collateral in the event of default. FHFA v. UBS Americas, Inc., 858 F.Supp.2d 306, 312 (S.D.N.Y.2012).
The certificates purchased by the GSEs were issued pursuant to shelf registration statements filed with the Securities and Exchange Commission (“SEC”), prospectuses, and prospectus supplements that together constitute the “offering documents” for each security. The alleged misrepresentations at the heart of these cases concerned the creditworthiness of the borrowers and the quality of the collateral underlying the certificates and were made in the prospectus supplements; the original registration statements contained only a base prospectus with generic information about future offerings. FHFA v. UBS Americas, Inc., No. 11 Civ. 5201(DLC), 2012 WL 2400263, at *4 (S.D.N.Y. June 26, 2012). The information that was material to investors “was only provided at the time that each securitization was marketed to the public—in the form of lengthy prospectus supplements that purported to convey in detail the soundness of the underlying assets.” Id. at *5.
The defendants in these cases include various corporate entities that played different roles in the securitization process as well as individuals whom FHFA alleges are liable as a “control person” under Section 15 of the Securities Act of 1933, 15 U.S.C. § 77 o, or as directors or signing officers under Section 11 of the Securities Act. 15 U.S.C. § 77k(a). The instant motion for judgment on the pleadings, which was fully submitted on September 6, is brought by certain individual defendants who signed the relevant shelf registration statements but did not sign the prospectus supplements (the “Individual Defendants”). The Individual Defendants argue that they cannot be liable under Section 11 for misstatements contained in the prospectus supplements.
Shelf registration is a process by which securities can be registered to be offered or sold on a delayed or continuous basis. The purpose of shelf registration is to afford the issuer the “procedural flexibility” to vary “the structure and terms of securities on short notice” and “time its offering to avail itself of the most advantageous market conditions.” Shelf Registration, SEC Release No. 6499, 1983 WL 408321, at *4 (Nov. 17, 1983) (“SEC Rel. 6499”); see In re WorldCom, Inc. Sec. Litig., 346 F.Supp.2d 628, 667 (S.D.N.Y.2004).
As a general matter, the registration statement for a new securities offering must include a copy of the prospectus that will be used to market the securities for sale to the public. 17 C.F.R. § 230.404. In order to satisfy Section 10(a) of the Securities Act, 15 U.S.C. § 77j(a), the prospectus must make detailed disclosures about the securities at issue and, in the case of asset-backed securities, the underlying asset pools. See Regulation S–K, 17 C.F.R. § 229.10 et seq.; Regulation AB, 17 C.F.R. § 229.1100 et seq.; see also In re WorldCom, 346 F.Supp.2d at 658.
The shelf registration process allows certain would-be issuers to file a generic registration statement with the SEC that omits the type of detailed information that must generally be disclosed to purchasers. 17 C.F.R. §§ 230.409, 230.415, 230.430A. A qualified registrant commits that, at the time of any offering, it will have made the omitted disclosures in some form or another, including by filing a post-effective amendment to the registration statement, filing a prospectus supplement with the SEC, or filing an annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act. See17 C.F.R. § 229.512. Once this “shelf registration statement” becomes effective, the issuer can take the registration statement “off the shelf,” make the required supplemental disclosures, and use the shelf registration statement to issue securities whenever it chooses, without the need for further SEC action. Thus, as in this case, a single shelf registration statement may be used for a series of offerings. SEC Rel. 6499, 1983 WL 408321, at *4.
In 2005, the SEC promulgated Rule 430B, which among other things broadened the category of disclosures that can be made in prospectus supplements rather than post-effective amendments to registration statements. See17 C.F.R. § 230.430B; FHFA v. UBS, 2012 WL 2400263, at *4 (). In a motion to dismiss filed in 2012 in one of these coordinated actions, certain defendants argued that FHFA's claims were time-barred because the effective dates of the certificates at issue were the dates of the underlying registration statements, not the dates they were actually marketed to the public. See FHFA v. UBS, 2012 WL 2400263,...
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