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Financial Services Law Insights and Observations

DOJ sues international bank for RMBS fraud

Courts Federal Issues DOJ RMBS International FIRREA

Courts

On November 8, the DOJ announced it filed a complaint in the U.S. District Court for the Eastern District of New York against an international bank and several of its U.S. affiliates for allegedly defrauding investors in connection with the sale of residential mortgage-backed securities (RMBS) from 2006 through 2007. Specifically, the DOJ alleges the bank violated the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) based on mail fraud, wire fraud, bank fraud, and other misconduct by “knowingly and repeatedly” making false and fraudulent representations to investors about the quality of the loans backing 40 RMBS deals. The DOJ is seeking an unspecified amount of civil money penalties under five FIRREA claims.

In response to the filing, the international bank issued a statement indicating that it intends to “contest the complaint vigorously,” arguing, among other things, that the risks of RMBS investments were clearly disclosed to investors and that the bank suffered its own losses from investing in the RMBS referred to in the DOJ complaint.

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