FHFA v. Nomura: Disclosure Violations, Financial Crisis, and the Conclusions of a Fact Finder

FHFA v. Nomura, No. 11cv6201 (DLC) (SD NY May 11, 2015) involved claims arising out of the financial crisis. 

The FHFA brought a number lawsuits against banks and related entities and individuals to recover damages on behalf of Fannie Mae and Freddie Mac arising out of their "investments in residential mortgage-backed securities (“RMBS”), specifically their investment in so-called private-label RMBS (“PLS”)."  The FHFA alleged violations of the securities laws and blue sky statutes.   

Only one of the lawsuits actually went to trial, the one involving Nomura.  A bench trial lasted from March 16 to April 9, 2015.  A week or two ago, the court issued finding of facts and conclusions of law.  The decision is lengthy and detailed.  We note only this paragraph:

• This case is complex from almost any angle, but at its core there is a single, simple question. Did defendants accurately describe the home mortgages in the Offering Documents for the securities they sold that were backed by those mortgages? Following trial, the answer to that question is clear. The Offering Documents did not correctly describe the mortgage loans. The magnitude of falsity, conservatively measured, is enormous.

There has been a considerable amount written about the need for criminal actions against individuals involved in transactions that led to or caused the financial crisis.  But perhaps what was really needed was more trials and more findings by neutral fact finders as to what actually happened in the period leading up to the financial crisis.  Such findings may have been able to determine whether the "enormous" "magnitude of the falsity" was more the rule than the exception.