Nomura, RBS Lose Bid to Unwind $806 Million Award to Regulators

By Chris Bruce

Nomura Holdings Inc. and Royal Bank of Scotland Group Plc. can’t escape a $806 million award to federal housing regulators for failing to disclose information about home mortgages in documents for a securities offering, a federal appeals court said Sept. 28. ( FHFA v. Nomura Holding Am. Inc. , 2d Cir., 15-cv-01872, 9/28/17 ).

The 151-page ruling by the U.S. Court of Appeals for the Second Circuit, which could drive up the cost of settlements in other mortgage-backed securities litigation, involves one of several cases brought by the Federal Housing Finance Agency against financial institutions that sold mortgage-backed securities to Fannie Mae and Freddie Mac between 2005 and 2007. The case involving Nomura and RBS was the only one of those cases to go to trial. The FHFA recovered roughly $20 billion in settlements in the other cases.

A district court held for the FHFA in 2015, saying the defendants didn’t correctly describe mortgages that backed securities sold to the government-sponsored enterprises and ordering them to refund $806 million in exchange for certificates purchased by the GSEs.

Nomura and RBS appealed, but the Second Circuit affirmed the lower court’s ruling. Judge Richard C. Wesley, writing for a three-judge panel, said the defendants “failed to discharge their duty under the Securities Act to disclose fully and fairly all of the information necessary for investors to make an informed decision whether to purchase the certificates at issue.”

Among other points, the case has been watched because of the size of the award and its potential to affect settlement talks in other residential mortgage-backed securities (RMBS) litigation. By upholding the district court, the Second Circuit’s decision may encourage plaintiffs in other cases to demand higher settlement amounts.

Nomura spokeswoman Jennifer Will declined to comment on the ruling. RBS spokeswoman Lisa Williams also declined to comment. RBS previously said its exposure in this case was included in RMBS provisioning at the end of 2017’s first quarter.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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