Lawsuits that charge Goldman Sachs (GD) and Deutsche Bank (DB) with misleading mortgage investors may proceed, a federal judge in Manhattan has ruled.
The decisions mean the companies must prepare to defend themselves against allegations by the Federal Housing Finance Agency of wrongdoing in the sale of securities backed by residential mortgages.
U.S. District Judge Denise Cote, of the southern district of New York, made the rulings Monday. Cote had previously ruled that the FHFA my proceed with lawsuits that accuse JPMorgan Chase (JPM) and Bank of America's (BAC) Merrill Lynch unit with misleading investors.
The lawsuits against the four companies are among 16 cases before Cote that FHFA has brought involving charges of misconduct by underwriters of securities backed by residential mortgage loans. Fannie Mae and Freddie Mac purchased the securities over a roughly two-year period beginning in 2005. FHFA filed the lawsuits last December as part of its role as conservator for Fannie and Freddie.
The FHFA alleges that Goldman, Deutsche Bank and the other defendants falsely asserted that the underlying mortgages complied with certain underwriting guidelines and standards.
The suits against both Goldman and Deutsche Bank concern mortgage-backed securities purchased by Fannie and Freddie in 40 securitizations each by Goldman and Deutsche Bank.
In their motions to dismiss the case, Goldman and Deutsche Bank, like JPMorgan and Merrill, claimed that the FHFA had failed to support claims that the loans underlying the securitizations departed from the guidelines described in offering documents.
Though the allegations against each of the defendants vary accordingly, "an independent review of the plaintiff's allegations in this case compels an outcome similar to those this court has reached in previous opinions in this matter," Cote wrote in her opinion on Goldman's motion.
Cote winnowed the claims against Deutsche Bank, but she allowed the FHFA's lawsuit against the company to proceed.
Both Goldman and Deutsche Bank declined to comment on the rulings, which were first reported by Reuters.
Cote rejected a request by Goldman to dismiss the lawsuit with regard to four securitizations for which Goldman acted solely as underwriter. The company contended it lacked control over the contents of offering documents used to secure Fannie and Freddie's purchases in those instances. "This proposition is both factually and legally dubious," Cote ruled.
The judge dismissed as "meritless" a contention by Deutsche Bank that Fannie and Freddie had purchased the securities on the basis of terms sheets and other preliminary materials and could not have relied on allegedly false statements in prospectus supplements the entities did not receive until after closing.
Cote also rejected arguments by Deutsche Bank that New York law precludes a securities lawsuit by the FHFA and that an affiliate of the bank cannot be liable for allegedly misleading statements by MortageIT Holdings, a real estate investment trust acquired by Deutsche Bank in 2007 that originated some of the underlying mortgages.
The court said it expects depositions in the case to take place next year in anticipation of a trial in September 2014.