UBS lost its appeal today to dismiss the Federal Housing Finance Agency lawsuit against it for fraud and misrepresentation in mortgage-backed securities, according to court documents.
The Southern District of New York denied the appeal to dismiss that was made on the grounds that the three year statute of limitation had been reached by the time the FHFA filed its claim.
In the court documents filed today, circuit Judge Denny Chin wrote for a three-judge 2nd Circuit panel that the FHFA did not wait too long to bring the claim to court.
Congress enacted the Housing and Economic Recovery Act (HERA) of 2008 and appointed the FHFA as conservator of the GSEs. At the same time it extended the statute of limitations for claims to begin after the appointment of the FHFA as conservator.
HERA’s extender statute gave the FHFA time to investigate and develop potential claims on behalf of the GSEs. “Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims,” Judge Chin wrote in the court document. “…It must have been evident to Congress when it was enacting HERA that FHFA would have to consider potential claims under the federal securities and state Blue Sky laws.”
The agency sued UBS in July 2011 for fraud and misrepresentation in its underwriting and sale of debt that Fannie Mae and Freddie Mac bought from September 2005 through August 2007. The FHFA purchased $6.4 billion in RMBS sponsored and underwritten by UBS.
Under the extended statute it means that the FHFA commenced its claim in a timely manner, within the three years since it was appointed conservator of the GSEs. The FHFA also filed seventeen other similar actions against other financial institutions.
The court also rejected UBS’ claim the FHFA lacks standing to sue because the appointments of FHFA director Edward DeMarco and before him, acting director James Lockhart were unconstitutional because they failed to go through proper procedures.