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FDIC Bank Lawsuit Floodgates Ready to Open

thestreet.comMay 22, 2012

By Philip van Doorn

NEW YORK (TheStreet) -- The Federal Deposit Insurance Corp.'s three lawsuits filed on Friday against a group of large banks could be the tip of the iceberg.

The FDIC -- as receiver for two failed banks -- filed three lawsuits last Friday against a group of large mortgage securitizers seeking $92 million in relief, plus attorney fees and other expenses.

But while that may seem a paltry sum for the large banks being sued, the FDIC may be pursuing many more similar cases in the very near future.

As receiver for Citizens National Bank of Macomb, Ill, and Strategic Capital Bank of Champaign, Ill., which both failed on May 22, 2009, the FDIC filed a complaint in the U.S. District Court for the Southern District of New York, seeking $66 million in damages against a large number of banks and subsidiary companies that played different roles in securitizing 19 mortgage pools. The defendants include subsidiaries of Bear Stearns, which was acquired by JPMorgan Chase (JPM_) in 2008, and subsidiaries of Citigroup (C_), Credit Suisse (CS_); Merrill Lynch, which was acquired by Bank of America (BAC_) in 2008, Ally Securities, and subsidiaries of Deutsche Bank (DB_), HSBC (HBC_), Royal Bank of Scotland (RBS_) and UBS (UBS_).

The FDIC as receiver for Strategic Capital Bank filed a separate complaint in New York, seeking $11 million in damages over four mortgage securitizations, against subsidiaries of JPMorgan Chase, Citigroup, Bank of America and Deutsche Bank.

The agency as receiver for Strategic Capital Bank filed suit in California against subsidiaries of Countrywide Financial, which was acquired by Bank of America in 2008, along with a subsidiary of Citigroup, and Bank of America itself, seeking $15 million in damages.

The lawsuits highlight a complicated array of mortgage securitization problems, with many different parties to blame.

According to the New York filings, the securitizers made "material untrue or misleading statements" about more than half of the loans in each of the securitized pools.

While an FDIC spokesman confirmed that the agency had filed the lawsuits, the agency's policy is not to comment on pending litigation.

Frank Mayer -- a partner in the Financial Services Practice Group of Pepper Hamilton LLP, in the firm's Philadelphia office -- says "it is unusual that the FDIC is bringing actions against other banks," as "historically they have been reluctant to do that."

Back to May 2012 Archive

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