11 May 2015 Cases

Federal Housing Finance Agency v. Nomura Holding America Inc., et al.

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On May 11, 2015, Judge Denise Cote of the Southern District of New York ruled in favor of the Federal Housing Finance Agency (“FHFA”), and found Nomura Holdings Inc. (“Nomura”) and RBS Securities Inc. (“RBS”) liable under Federal and State securities laws for making false representations in the Offering Documents of seven private label mortgage-backed securitizations (“RMBS”) between 2005 and 2007. The false representations related to the origination and underwriting characteristics of the loans in the supporting loan groups of the RMBS. After a lengthy trial, the Court concluded “The magnitude of falsity, conservatively measured, is enormous.” In a second order on May 15, 2015, the Court awarded FHFA damages and prejudgment interest of $806 million.

Compass Lexecon served as consulting experts and provided support for testifying experts Professor G. William Schwert and Professor James Barth, who testified as rebuttal experts to defendant’s affirmative defense of loss causation. Based in substantial part on their testimony, Judge Cote, ultimately concluded after an extended multi-page critique of defendants’ experts’ analysis and testimony that defendants’ loss causation expert’s analysis “was completely eviscerated at trial.” Professor Schwert also testified as an affirmative expert on materiality; the judge found that Schwert’s regression analysis “demonstrated the intuitive proposition that if the underlying collateral is riskier, one needs to provide more protection to structure a AAA rated security.”

FHFA was successfully represented at trial by Philippe Z. Selendy, Richard I. Werder, Jr., Jonathan B. Oblak, Sascha N. Rand, Manisha M. Sheth, and Andrew R. Dunlap of Quinn Emanuel Urquhart & Sullivan, LLP. The Compass Lexecon consulting team was headed by David Ross, and included Kevin Hartt, Jerry Lumer, Merritt Lyon, Erika Morris, Yoad Shefi, Elizabeth Wall, and Yili Wang in our Chicago office. A separate Compass Lexecon consulting team focusing on accounting-related issues was headed by Elisabeth Browne in our Pasadena office.

The Nomura case was the most recent in a long series of cases where Compass Lexecon was retained by the FHFA as its principal economic expert consulting firm. These previously resolved cases resulted in settlements totaling $18 billion.

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