The Federal Deposit Insurance Corporation (FDIC) has sued Goldman Sachs & Co. and other big banks in a Texas state court, seeking $2.1 billion in damages for the banks’ alleged role in convincing the now-defunct Guaranty Bank to purchase mortgage-backed securities (MBS). Guaranty’s 2009 failure was attributed to massive losses in its securities portfolio, which invested more than $5.4 billion in MBS products. The FDIC, as receiver of Guaranty, has alleged that the MBS offering documents, offered by the big banks, contained omissions or made misleading statements regarding the conditions of the underlying loans, including the appraisal quality, occupancy rates of borrowers and underwriting standards employed by loan originators.
Other banks named in connection with the lawsuits surrounding Guaranty’s failure are Bank of America Corp., JP Morgan Chase & Co., Ally Financial Inc., Royal Bank of Scotland and Deutsche Bank AG. The FDIC has also recently brought similar lawsuits in Alabama, New York and California against other large financial institutions in connection with the failure of Colonial Bank and its MBS investment losses. (“FDIC Demands $2B From Goldman, BofA, Others Over MBS,” Law360, August 21, 2012).