KANSAS CITY, Kan. (2/22/13)--J.P. Morgan Securities, formerly known as Bear, Stearns & Co., Wednesday asked a federal judge in Kansas to dismiss a lawsuit by the National Credit Union Administration over $3.6 billion in residential mortgage-backed securities (RMBS) sold to four corporate credit unions that later failed, or stay any action until an appellate court decision on a similar lawsuit.
The motion was filed in the U.S. District Court in Kansas City, Kan. It asks that if the court can't dismiss the case entirely, it should stay any action pending results of an appeal in similar RMBS lawsuit NCUA filed against RBS Securities Inc. That case is on appeal before the Tenth Circuit Court of Appeals in Denver.
NCUA's lawsuit, filed Dec. 14, alleges that Bear Stearns violated federal and state securities laws when it sold the RMBS to U.S. Central FCU, Western Corporate FCU, Southwest Corporate FCU, and Members United Corporate FCU. It alleges that the company's underwriting guidelines had been systemically abandoned and the investments were presented as less risky than they really were.
The motion to dismiss or stay said that "despite warnings from the offering documents, the news media and even the board itself, the credit unions made the informed decision to plunge the majority of their assets into RMBS at the height of the housing bubble. That investment strategy--which even the board has condemned as 'aggressive,' 'excessive' and 'unreasonable'--backfired when the housing bubble burst. The credit unions lost their 'unreasonable' wager and subsequently collapsed."
Defendants base their motion on three arguments:
- NCUA's claims are time-barred by the applicable statutes of limitation and repose;
- It "fails to plead an actionable misrepresentation or omission"; and
- It "cannot plausibly allege materiality" related to any purported misrepresentation because of the offering documents' "extensive disclosures and the information publicly available at the time of the credit unions' purchases."
J.P. Morgan bought Bear, Stearns and Co. in 2008, after the sales occurred. The credit unions were liquidated in 2010. NCUA's lawsuits are filed in its role as liquidating agent of the corporate credit unions.
So far, NCUA has sued Credit Suisse (USA), J.P. Morgan Securities, RBS Securities, Goldman Sachs Group Inc., Barclays Capital and Wachovia. Those cases are progressing through various courts. Other suits against Citigroup, Deutsche Bank Securities and HSBC were settled for more than $170 million.