FDIC’s $388M MBS Suit Brought On Behalf Of Colonial Bank Survives Motion to Dismiss

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On September 27, Judge Louis L. Stanton of the Southern District of New York denied a motion by JPMorgan, Citigroup and several other banks to dismiss a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving $388 million in RMBS. Judge Stanton rejected the defendants’ arguments that the claims were barred by the statute of limitations, finding that publicly available information about troubles in the mortgage industry in 2007 did not put the plaintiff on notice of facts constituting an alleged violation of federal securities laws in connection with the specific transactions at issue. Judge Stanton also held that the FDIC’s allegations of misstatements in the offering documents were sufficiently detailed to survive the pleading stage. The court concluded that it was premature to rule on whether a defendant may be liable under Section 11 of the Securities Act of 1933 when it did not underwrite the particular tranche of a securitization that the plaintiff purchased. Opinion.

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