On May 4, 2012, the United States District Court for the Southern District of New York rejected UBS Americas, Inc.'s motion to dismiss federal securities claims brought against it by the Federal Housing Finance Agency (FHFA). This action is one of several lawsuits brought last year by the FHFA, as conservator for Fannie Mae and Freddie Mac (the "GSEs"), against a number of banks claiming the banks violated federal securities laws by misleading the GSEs into buying billions of dollars of subprime and other residential mortgage-backed securities.
In the action against UBS, the FHFA accused the Swiss bank of failing to perform due diligence on the underlying loans, misrepresenting the quality of the underwriting and misleading investors about the ability of borrowers to repay the loans. As a result of this alleged wrongdoing, the FHFA seeks to recover billions of dollars in losses the GSEs incurred on the securities as borrowers defaulted on their loans.
Although the judge dismissed state law claims accusing UBS of negligent misrepresentations, she rejected UBS's argument that the federal securities claims were time-barred. This ruling is significant in that a contrary finding in favor of the defense's position that the claims were untimely, would have marked the end of the FHFA's litigation not only against UBS, but the other banks it has sued for selling the risky mortgage-backed securities. Having survived the motion to dismiss, the FHFA can now proceed into fact discovery against UBS, and likely the other banks against which it has brought suit, under the same precedent.
Federal Housing Finance Agency v. UBS Americas, Inc., No. 11CIV5201, 2012 WL 1570856 (S.D.N.Y. May 4, 2012)