The banks targeted by the Federal Housing Finance Agency haven’t had many victories in the litigation over some $200 billion in residential mortgage–backed securities they sold to Fannie Mae and Freddie Mac. The Manhattan federal judge adjudicating all but one of the cases has been unreceptive to their arguments (see here, here, and here), and the U.S. Court of Appeals for the Second Circuit hasn’t helped them out either. This week individual defendants named in the cases that haven’t yet settled were dealt another setback. On Tuesday, Manhattan U.S. District Court Judge Denise Cote slapped down a last-ditch motion on behalf of roughly 60 individuals who signed registration statements on the loss-generating RMBS.
Sullivan & Cromwell’s Richard Klapper, who represents individual Goldman Sachs defendants as well as the bank itself, argued in a joint defense brief that the individual signers aren’t liable because the allegedly false statements in the RMBS documents appeared in follow-on supplements that the defendants didn’t sign. Under a 2005 change to a Securities and Exchange Commission rule applying Section 11 of the 1933 Securities Act, only those who sign a prospectus that included false statements can be held liable.
