FDIC Sues Goldman, JPMorgan Over Mortgage-Backed Securities

The following article is brought to you by Andrew Harris at BusinessWeek.Com.

Goldman Sachs & Co. and units of JPMorgan Chase & Co. (JPM) and Ally Financial Inc. overstated the quality of loans underlying mortgage-backed securities they sold to the failed Guaranty Bank in Austin, Texas, according to lawsuits brought by the FDIC as its receiver.

In three separate complaints filed in state court in Austin on Aug. 17, the Federal Deposit Insurance Corp. alleged those institutions and others sold about $5.4 billion worth of certificates to Guaranty Bank.

“The defendants made numerous statements of material fact about the certificates and, in particular, about the credit quality of the mortgage loans that backed them,” according to each of the FDIC complaints. “Many of those statements were untrue.”

Guaranty Bank, which had 103 branches in Texas and 59 in California, was closed by the Office of Thrift Supervision three years ago today. Its branches were acquired by BBVA Compass of Birmingham, Alabama, the FDIC said in a statement issued then.

BBVA Compass also acquired almost all of Guaranty’s $12 billion in deposits, the insurer said, while entering into a loss-share transaction with the FDIC on about $11 billion of the bank’s assets.

Claiming the certificate sellers breached Texas securities law by making misleading or untrue statements about loans backing those certificates, the FDIC said in one complaint that it seeks at least $900 million in damages from Goldman Sachs, Ally Financial’s Residential Funding Securities LLC and from units of Deutsche Bank AG and JPMorgan Chase.

Separate Complaint

A separate complaint seeks damages of more than $677 million in damages from JPMorgan Securities LLC, Bank of America (BAC) Corp.’s Merrill Lynch Pierce Fenner & Smith Inc. securities unit and a brokerage unit of Royal Bank of Scotland Group Plc.

Finally a third complaint seeks almost $560 million in damages from Bank of America, its Countrywide Securities unit and other defendants.

Thomas Kelly, a spokesman for JPMorgan Chase, declined to comment on the litigation. David Wells, a Goldman Sachs spokesman, also declined to comment. Both institutions are based in New York.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, didn’t immediately reply to a voice-mail message seeking comment. Gina Proia, a spokeswoman for Ally Financial, didn’t immediately reply to an e-mail message seeking comment.

The cases are Federal Deposit Insurance Co. as receiver for Guaranty Bank v. Ally Securities LLC, D-1-GN-12-002522; FDIC v. Countrywide Securities Corp., D-1-GN-12-002516 and FDIC v. JPMorgan Securities Inc., D-1-GN-12-002517, Travis County, Texas, District Court (Austin).

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