Nat'l Credit Union Admin. Bd. v. RBS Sec., Inc.

Decision Date25 July 2012
Docket NumberCase Nos. 11–2340–RDR, 11–2649–RDR.
Citation900 F.Supp.2d 1222
PartiesNATIONAL CREDIT UNION ADMINISTRATION BOARD, Plaintiff, v. RBS SECURITIES, INC. formerly known as Greenwich Capital Markets, Inc., et al., Defendants. National Credit Union Administration Board, Plaintiff, v. Wachovia Capital Markets, LLC, now known as Wells Fargo Securities, LLC, Defendant.
CourtU.S. District Court — District of Kansas

900 F.Supp.2d 1222

NATIONAL CREDIT UNION ADMINISTRATION BOARD, Plaintiff,
v.
RBS SECURITIES, INC. formerly known as Greenwich Capital Markets, Inc., et al., Defendants.

National Credit Union Administration Board, Plaintiff,
v.
Wachovia Capital Markets, LLC, now known as Wells Fargo Securities, LLC, Defendant.

Case Nos. 11–2340–RDR, 11–2649–RDR.

United States District Court,
D. Kansas.

July 25, 2012.


[900 F.Supp.2d 1225]


David C. Frederick, Joseph S. Hall, Mark C. Hansen, Scott K. Attaway, Wan Joo Kim, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, DC, George A. Zelcs, Korein Tillery, LLC, Chicago,

[900 F.Supp.2d 1226]

IL, Norman E. Siegel, Rachel E. Schwartz, Stueve Siegel Hanson LLP, Kansas City, MO, for Plaintiff.

David I. Horowitz, Kristin E. Rose, Mark T. Cramer, R. Alexander Pilmer, Tammy A. Tsoumas, Kirkland & Ellis, Los Angeles, CA, Mikel L. Stout, Foulston Siefkin LLP, Wichita, KS, Karina B. Sterman, Michael C. Lieb, Ervin Cohen & Jessup, LLC, Beverly Hills, CA, Stacey R. Gilman, Berkowitz Oliver Williams Shaw & Eisenbrandt, LLP, James Moloney, Jane Alison Auxter, Lathrop & Gage, LLP, Lawrence D. Greenbaum, McAnany, Van Cleave & Phillips, P.A., Faiza Bergquist, Michael Thompson, Husch Blackwell LLP, William Perry Brandt, Bryan Cave LLP, Kansas City, MO, J. Matthew Goodin, Kevin Wisniewski, Thomas J. Cunningham, Locke Lord LLP, Barbara S. Steiner, Matthew J. Thomas, Jenner & Block LLC, Chicago, IL, Scott H. Christensen, Hughes, Hubbard & Reed, LLP, Washington, DC, William F. Alderman, Orrick, Herrington & Sutcliffe LLP, San Francisco, CA, Arthur E. Palmer, Goodell, Stratton, Edmonds & Palmer, LLP, Topeka, KS, Jeffrey J. Kalinowski, Richard H. Kuhlman, Bryan Cave LLP, St. Louis, MO, for Defendants.


MEMORANDUM AND ORDER

RICHARD D. ROGERS, District Judge.

This order decides motions to dismiss filed in two cases which have been consolidated and assigned to this court. Both cases are brought by the National Credit Union Administration Board and assert violations of federal and state securities statutes involving the sale of residential mortgage-backed securities certificates.

I. NCUAB v. RBS Securities, et al., Case No. 11–2340A. Introduction

The complaint in this case involves 29 residential mortgage-backed securities (“MBS”) certificates. Doc. No. 1, ¶ 8 and Table 1 at pp. 3–6. It alleges violations of § 11 and § 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77 l (a)(2), and Article 5 of the Kansas Uniform Securities Act, K.S.A. 17–12a509. Plaintiff is suing in its capacity as the liquidating agent of the U.S. Central Federal Credit Union (“U.S. Central”). Plaintiff is the managing authority of the National Credit Union Administration (“NCUA”) which is an independent agency of the United States Government charged with regulating federal credit unions.

According to the complaint, U.S. Central was a federally-chartered corporate credit union. Doc. No. 1, ¶ 12. Prior to being placed into conservatorship by plaintiff on March 20, 2009, U.S. Central was the largest corporate credit union in the United States. Id. at ¶¶ 13–14. On October 1, 2010 plaintiff placed U.S. Central into involuntary liquidation. Id. at ¶ 14. As liquidating agent, plaintiff succeeded to the rights, titles, powers and privileges of U.S. Central and may sue on its behalf. 12 U.S.C. §§ 1786(h)(8), 1787(b)(2)(A), 1766(b)(3)(A), 1789(a)(2).

B. Mortgage securitization

This case involves the business of mortgage securitization which was described in In re Lehman Brothers Securities and Erisa Litigation, 800 F.Supp.2d 477, 479 (S.D.N.Y.2011) as follows:

In a mortgage securitization, mortgage loans are acquired, pooled together, and then sold to a trust which in turn issues certificates to purchasers who become the beneficiaries of the trust and who then receive distributions from the trustee from the cash flow generated by the pool of mortgages and in accordance with the specifications of the rights of the respective classes of certificate holders set out in the trust instrument.

[900 F.Supp.2d 1227]

The following terms have been used by the parties and are used in this opinion. An “originator” is an entity that processes the borrower's loan application and makes the loan in exchange for a mortgage. The entity that purchases a pool of mortgage loans is the “depositor.” The entity, often referred to as a “trust,” which securitizes the loans and issues securities backed by the loan pools is the “issuer.” The issuer establishes classes of certificates, referred to as “tranches,” which are portions of a MBS which may have different levels of credit protection and, therefore, different credit ratings. Credit protection may be accomplished by subordination where, for instance, one tranche will be paid before the other tranches. Over collateralization is another form of credit enhancement, where the pool of loans serving as collateral for a tranche has a principal balance which exceeds the principal balance of the tranche security issued by the trust. A tranche may also be designed so that the interest income exceeds the monthly liabilities owed to the certificate purchasers.

Each tranche receives a credit rating from a rating agency before it is sold. This process is explained in a report by the Office of the Inspector General for the NCUA:

A key step in the process of creating and ultimately selling [a MBS] is the issuance of a credit rating for each of the tranches issued by a trust. The arranger of the [MBS] initiates the ratings process by sending the credit rating agency a range of data on each of the loans to be held by the trust (e.g., principal amount, geographic location of the property, credit history and FICO score of the borrower, ratio of the loan amount to the value of the property and type of loan: first lien, second lien, primary residence, secondary residence), the proposed capital structure of the trust and the proposed levels of credit enhancement to be provided to each [MBS] tranche issued by the trust. A lead analyst at the rating agency is assigned responsibility for analyzing the loan pool, proposed capital structure, and proposed credit enhancement levels, and for ultimately formulating a ratings recommendation for a rating committee. The credit rating for each rated tranche indicates the credit rating agency's view as to the creditworthiness of the debt instrument. Creditworthiness is assessed in terms of the likelihood that the issuer would default on its obligations to make interest and principal payments on the debt instrument.

Doc. No. 67, Exhibit 44 at p. 6.


A corporate credit union, such as U.S. Central, is restricted by regulation to acquiring only highly rated securities. Id.

Depositors must file registration statements with the Securities and Exchange Commission regarding the sale of the certificates. The registration statements are accompanied by prospectus and prospectus supplements (referred to as “offering documents”). These documents explain the details of the offerings for each trust and describe the characteristics of the mortgages that supply the income for the certificates. Federal securities laws provide for liability when there are false and misleading statements in these documents.

C. MBS offerings involved in this case

U.S. Central is alleged to have purchased MBS certificates from the following offerings:

First Franklin Mortgage Loan Trust 2006–FF16 (3 certificates);

Fremont Home Loan Trust 2006–3 (1 certificate);

Fremont Home Loan Trust 2006–D (2 certificates);

Harbor View 2006–10 (2 certificates);

Harbor View 2006–11 (1 certificate);

[900 F.Supp.2d 1228]

Harbor View 2006–12 (2 certificates);

Harbor View 2006–14 (1 certificate);

Harbor View 2006–SB1 (1 certificate);

Home Equity Loan Trust 2007–HSA2 (1 certificate);

IndyMac INDX Mortgage Loan Trust 2006–AR35 (1 certificate);

IndyMac INDX Mortgage Loan Trust 2006–AR6 (1 certificate);

Luminent Mortgage Trust 2006–2 (1 certificate);

Luminent Mortgage Trust 2007–1 (1 certificate);

Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series 2007–1 (1 certificate);

NovaStar Mortgage Funding Trust, Series 2006–5 (3 certificates);

Soundview Home Loan Trust 2006–WF2 (1 certificate);

Soundview Home Loan Trust 2007–OPT1 (1 certificate);

Harbor View 2006–6 (2 certificates);

Saxon Asset Securities Trust 2006–3 (1 certificate);

Wachovia Mortgage Loan Trust, Series 2006–ALT1 (1 certificate).

D. Identification and status of the defendants

There are eleven defendants listed in the complaint. One defendant, RBS Securities, Inc. (“RBS”), formerly known as Greenwich Capital Markets, Inc., allegedly acted as a seller and/or underwriter of MBS certificates purchased by U.S. Central. The other ten defendants have been labeled “issuer defendants” because they allegedly issued certain MBS purchased by U.S. Central. These defendants are: Greenwich Capital Acceptance, Inc.; Financial Asset Securities Corp.; Fremont Mortgage Securities Corp.; Residential Funding Mortgage Securities II, Inc.; IndyMac MBS, Inc.; NovaStar Mortgage Funding Corp.; Nomura Home Equity Loan, Inc.; Lares Asset Securitization, Inc.; Saxon Asset Securities Co.; and Wachovia Mortgage Loan Trust, LLC. Defendant Saxon has been voluntarily dismissed from this case. Doc. No. 43. Defendant Residential Funding Mortgage Securities II, Inc. filed a motion to dismiss, but has since filed for bankruptcy and proceedings against it are subject to a bankruptcy stay. Defendant Lares has not filed an answer or a motion to dismiss as of this time.

E. Counts of the complaint

There are twelve counts in the complaint. The first ten counts of the complaint allege violations of § 11. Count 11 alleges violations of § 12(a)(2). Count 12 alleges violations of the Kansas Uniform Securities Act, K.S.A. 17–12a509. Defendant RBS is sued in each count of the complaint. The other defendants are charged in single counts with violations of § 11.

F. Pending motions

This case is before the court upon motions to dismiss...

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    ...F. Supp. 2d 641, 648-49 (E.D. Penn. 2007). Before FIRREA, Section 2415 governed claims brought by NCUA and FDIC. NCUA v. RBS Sec., Inc., 900 F.Supp.2d 1222, 1239 (D. Kan. 2012); see, e.g., Bachman, 894 F.2d at 1237; FDIC v. Hinkson, 848 F.2d 432, 433 (3d Cir. 1988). Congress used Section 24......
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