On June 3, the Federal Housing Finance Agency (FHFA), as conservator for the Federal Home Loan Mortgage Corporation (Freddie Mac), filed a lawsuit in the United States District Court for the Southern District of New York against Wells Fargo Securities, LLC (Wells Fargo) (as successor to Wachovia Capital Markets, LLC (Wachovia)), alleging a violation of Section 11 of the Securities Act. FHFA’s lawsuit alleges losses resulting from Wachovia’s underwriting of two NovaStar securitizations purchased in 2006. FHFA alleges that Freddie Mac was misled about the quality of the loans in the bond deals, and that Wachovia, which Wells Fargo acquired in 2008, participated in drafting the registration statements at issue. These registration statements allegedly contained material misstatements and omissions. FHFA further alleges that its claims are timely because of various tolling agreements entered into between FHFA, Freddie Mac and Wells Fargo. The two deals at issue in FHFA’s Complaint are among six securitizations subject to a $165 million class-action settlement between investors and underwriters, including Wells Fargo, from 2017. FHFA has made multiple unsuccessful bids to be excluded from the settlement, including an appeal that the Second Circuit denied in January of this year, where it argued that the settlement would infringe on the agency’s statutorily-authorized conservatorship powers. FHFA has since filed another appeal, which the agency contends permits it to pursue the claims in this Complaint against Wells Fargo.
