, the U.S. District Judge Louis Stanton in Manhattan rescinded
the bid filed by
biggies along with other banks, regarding the dismissal of a
lawsuit charged against the bank, accusing it of selling risky
debts via misleading statements. Stanton has ordered the
plaintiffs to pursue the proceedings over their claims against
Such decisions come as a major blow to the big banks that are
already burdened under numerous litigations related to the sale
of risky mortgage-backed securities (MBS).
The aforesaid lawsuit has been filed by the Federal Deposit
Insurance Corp. (FDIC) against major banks in 2012, over the
alleged sale of $388 million of risky MBS to the failed Colonial
Bank. Apart from attorney fees and court expenses, the FDIC asked
for $189 million in damages.
Colonial Bank-based in Montgomery, Ala. failed in Aug 2009 and
was acquired by
). At that time, Colonial Bank had nearly $25 billion in assets
and the FDIC had estimated the cost to the federal
deposit-insurance fund to be $2.8 billion.
The major lenders against whose units the FDIC filed the lawsuit
include biggies like
JPMorgan Chase & Co.
Bank of America Corporation
Wells Fargo & Company
Deutsche Bank AG
Credit Suisse Group
HSBC Holdings plc
), Ally Financial Inc. and
The Royal Bank of Scotland Group plc
), among others. The FDIC has alleged that the lenders distorted
the facts related to the MBS sold to Colonial Bank.
Moreover, the FDIC accused the banks of not disclosing authentic
facts related to the quality of the underlying assets while
selling risky MBS to Colonial Bank. This also included distortion
of loan-to-value ratios that were based on the inflated property
values. Further, the fact that a large number of these properties
had second mortgages was also concealed.
The regulators are proactively trying to recover losses through
lawsuits against banks that were involved in malpractices related
to the sale of mortgage-backed securities. Moreover, the
investors and other financial institutions, which suffered as a
result of these faulty practices, are expected to get a
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