U.S. Supreme Court says banks cannot appeal in FHFA case

Reuters

By Lawrence Hurley

WASHINGTON, Oct 7 (Reuters) - The U.S. Supreme Court said onMonday that banks sued by the U.S. Federal Housing FinanceAgency over mortgage-backed securities that were sold to FannieMae and Freddie Mac cannot appeal apreliminary lower court ruling.

In 2011, the FHFA sued 18 banks, including Barclays Plc, Bank of America Corp, Deutsche Bank AG , Goldman Sachs Group Inc and JPMorganChase & Co, accusing them of violating securities lawsby misleading Fannie and Freddie about $200 billion inmortgage-backed securities they purchased.

The Supreme Court said that banks involved in 13 lawsuits inthe same U.S. district court that have yet to be settled did nothave permission to seek review of a New York-based 2nd U.S.Circuit Court of Appeals decision from April.

The appeals court upheld several preliminary rulings that adistrict court made in a test case that focused on the claimsagainst one defendant, UBS AG .

UBS settled the claims in July for $885 million, but the 13other banks, which were not parties in the appeals court case,asked for special permission so they can appeal the decision.The banks say the appeals court ruling will also affect theircases. Normally, an entity that is not a party in litigationdoes not have a right to appeal.

The litigation will now continue in the district court, withthe various banks able at a later date to appeal, if an adversecourt ruling directly affects them.

UBS had argued that the lawsuit was filed too late - beyonda three-year deadline required under law. A Supreme Court rulingon that point in favor of UBS would also benefit the otherbanks.

The lawsuits alleged the banks misrepresented how well theyhad checked the underlying mortgages and charged that they didnot meet investors' criteria. As borrowers fell behind inpayments, the value of the securities fell, causing losses.

Sixteen of the lawsuits were transferred in December 2011 toU.S. District Judge Denise Cote in Manhattan, a former federalprosecutor.

In the year and a half since, Cote has become a majorinfluence in the direction of the litigation, denying motions todismiss the lawsuits and limiting depositions and documentdiscovery.

In addition to UBS, two other defendants who were beforeCote - General Electric Co and Citigroup Inc - havesettled so far. Terms were confidential.

Other banks involved in the litigation, some directly andothers via subsidiaries, are First Horizon National Corp, Nomura Holdings Inc, Societe Generale, Morgan Stanley, Ally Financial Inc, Royal Bankof Scotland Group , HSBC Holdings Plc andCredit Suisse Group AG . Separately, two othercases, one against Bank of America's Countrywide Financial Corpand the other against Royal Bank of Scotland Group, are beingheard in California and Connecticut respectively.

The case is JPMorgan Chase et al v. FHFA, U.S. SupremeCourt, 13-M30

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