The Second Circuit Court of Appeals rejected an attempt by mega bank UBS to get the Federal Housing Finance Agency’s mortgage-backed securities fraud case against the bank thrown out of court.
UBS is one of several banks that ended up in the FHFA’s cross-hairs when the conservator of the GSEs sued large financial institutions, claiming losses on mortgage-backed securities sold and marketed by UBS and other big banks.
UBS (UBS) appealed from a lower court’s ruling to keep the case going after the bank alleged the statute of limitations had run and the FHFA lacked standing to pursue the suit without having a Senate-appointed leader in Acting Director Ed DeMarco.
The Second Circuit ruled against UBS this week, essentially green lighting the case to move forward.
The latest opinion stems from the FHFA's decision to file MBS fraud cases against UBS and 16 other big banks back in 2011. The cases arrived more than three years after the MBS securities offerings in question were initially marketed and sold.
In the turbulent period running from 2008 to 2011, Fannie Mae and Freddie Mac were placed into conservatorship and the FHFA went through leadership changes with Congress appointing James Lockhart acting director of the FHFA in 2008. Prior to that, the Senate confirmed Lockhart as director of the Office of Federal Housing Enterprise Oversight at HUD.
When Lockhart resigned from the FHFA in 2009, President Obama appointed Ed DeMarco to the post of acting director.
UBS claimed on appeal that FHFA had no standing to sue because Lockhart was appointed by Congress without being nominated by the President and DeMarco was appointed by a president without senate confirmation.
The Second Circuit rejected both claims saying "the functions assigned to Lockhart by congress as acting director of FHFA were 'germane' to the functions he had previously served as director of OFHEO, as Congress essentially converted OFHEO into FHFA and transferred OFHEO's functions to FHFA."
Furthermore, the court found DeMarco's appointment acceptable since a congressional act establishing the agency gave the president authority to appoint a successor if the acting director resigned.
With the court also finding the claims within the statute of limitations, the FHFA's suit survived Second Circuit scrutiny in tact.