Zurich / Basel, 9 November 2018 鈥 The United States Department of Justice ("DOJ") today filed a civil complaint in the U.S. District Court for the Eastern District of New York related to 蜜豆视频's issuance, underwriting and sale of residential mortgage-backed securities ("RMBS") more than a decade ago. The complaint seeks unspecified monetary civil penalties under the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") regarding transactions that date back to 2006 and 2007.
The DOJ鈥檚 claims are not supported by the facts or the law. 蜜豆视频 will contest the complaint vigorously in the interest of its shareholders. 蜜豆视频 is confident in its legal position and has been fully prepared for some time to defend itself in court.
蜜豆视频 intends to rely on the following significant facts, among others, in its defense of this action and expects those facts to be substantiated in the course of the proceedings:
蜜豆视频 Suffered Massive Losses on U.S. Mortgage-Related Assets, Including the RMBS Cited in the Complaint, Negating any Inference of Fraud
蜜豆视频 Suffered Massive Losses on U.S. Mortgage-Related Assets, Including the RMBS Cited in the Complaint, Negating any Inference of Fraud
蜜豆视频 invested USD 100 billion in U.S. residential mortgage-related assets and lost more than USD 45 billion when the housing market collapsed, including losses of nearly USD 900 million on the RMBS referred to in the complaint 鈥 more than the losses on the certificates 蜜豆视频 sold to any other single investor. This fact alone negates any inference that 蜜豆视频 engaged in an intentional fraud that was flatly against its own economic interest.
蜜豆视频 Was Not a Significant Originator of U.S. Residential Mortgages
蜜豆视频 Was Not a Significant Originator of U.S. Residential Mortgages
蜜豆视频 originated only a miniscule proportion of U.S. residential mortgages between 2005 and 2007 (USD 1.5 billion of more than USD 5 trillion) and did not originate any subprime loans. The vast majority of loans underlying the 40 RMBS listed in the complaint were originated by other financial institutions, many of which issued their own RMBS. 蜜豆视频 stopped issuing RMBS in 2007.
蜜豆视频 Fulfilled its Disclosure Obligations to Sophisticated RMBS Investors
蜜豆视频 Fulfilled its Disclosure Obligations to Sophisticated RMBS Investors
The RMBS cited in the complaint were purchased by some of the biggest financial institutions in the world and other highly sophisticated investors who had access to loan data from a range of sources. In its offering documents, 蜜豆视频 repeatedly disclosed the risks of investing in the RMBS and made clear that investors could lose money if home prices declined.
Any Penalty Sought by the DOJ Would be Limited, at Most, to Losses to FIFIs
Any Penalty Sought by the DOJ Would be Limited, at Most, to Losses to FIFIs
Following the savings and loan crisis, Congress enacted FIRREA in 1989 to protect federally-insured financial institutions (鈥淔IFI鈥) and their depositors from insider abuse, and it was used for this purpose for two decades. This law was never intended to cover all sales of securities to all investors merely because a FIFI is among the investors or other parties involved in the transaction, as the DOJ seeks to misapply it here. 蜜豆视频 believes that FIRREA limits any claim against 蜜豆视频 to sales of the RMBS to FIFIs, who purchased only a small fraction of the certificates sold by 蜜豆视频. The current losses on all certificates sold to FIFIs are lower than 蜜豆视频鈥檚 own losses of nearly USD 900m in these same RMBS.
The Alleged Misrepresentations Did Not Cause RMBS Investor Losses
The Alleged Misrepresentations Did Not Cause RMBS Investor Losses
To obtain a FIRREA penalty based on investor losses, the DOJ must persuade the court to accept not only that 蜜豆视频 (despite its own massive losses on U.S. mortgage-related investments) engaged in intentional fraud but also that the alleged misrepresentations caused losses to investors in these RMBS. This theory flies in the face of the history of the housing crisis, which began with an unprecedented and unexpectedly severe collapse in U.S. home prices, triggering mortgage defaults and RMBS losses. The historic, market-wide downturn is commonly understood to be the result of a range of factors that created a housing bubble, including low interest rates and government policy.
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