Banks Rejected by Supreme Court on FDIC Mortgage-Bond Suits

By Chris Bruce

The U.S. Supreme Court Jan. 9 turned away a petition by several banks urging review of a ruling that gives federal regulators more time to sue them ( First Horizon Securities Inc. v. FDIC , U.S., No. 16-cv-00463, cert. den. 1/9/17 ).

In October, First Horizon, Credit Suisse, Deutsche Bank, HSBC, RBS, UBS, and Wells Fargo asked the Supreme Court to review a May ruling by the U.S. Court of Appeals for the Second Circuit, saying the matter affected at least 12 pending lawsuits and more than $30 billion in claims by federal regulators.

The Second Circuit, with one judge dissenting, said the Federal Deposit Insurance Corporation may sue institutions that issued or underwrote mortgage-backed securities purchased by a now-failed bank, even though the FDIC filed its claims after expiration of the three-year statute of repose under the Securities Act of 1933.

The Second Circuit’s majority said so-called extender provisions in the Financial Institutions Reform, Recovery, and Enforcement Act completely displaced the repose statute, allowing the FDIC to press its claims.

The case arose after the 2009 failure of Colonial Bank in Montgomery, Ala. The FDIC, as Colonial’s receiver, alleged misstatements by banks and financial companies that issued or underwrote mortgage-backed securities purchased by the bank.

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