SDNY Allows FHFA’s Claims Against Goldman Sachs and Deutsche Bank to Proceed

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In two separate orders issued on November 12, Judge Cote of the Southern District of New York granted in part and denied in part motions to dismiss claims brought by the FHFA against Goldman Sachs & Co. and Deutsche Bank AG. FHFA’s claims are based on alleged purchases by Fannie Mae and Freddie Mac of residential mortgage-backed securities from these banks. The court dismissed FHFA’s common-law fraud claims against both banks based on owner-occupancy and LTV ratio allegations for failure to sufficiently allege scienter. The court rejected the remaining arguments to dismiss other aspects of the claims. Judge Cote denied Deutsche Bank’s motion as to the FHFA’s pleading of reasonable reliance and held that New York’s Martin Act did not preclude FHFA from raising claims based on other states’ securities laws. The court also rejected Goldman’s argument that as an underwriter it lacked “ultimate authority” over the contents of certain offering documents. In both actions, FHFA asserts claims for violations of Sections 11, 12, and 15 of the Securities Act of 1933, for violations of the Virginia and District of Columbia securities laws, and for fraud. Goldman Sachs Decision. Deutsche Bank Decision.