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Federal Housing Finance Agency v. Nomura Holdingamerica, Inc.

United States Court of Appeals, Second Circuit

September 28, 2017

FEDERAL HOUSING FINANCE AGENCY, as Conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, Plaintiff-Appellee,

          Argued: November 18, 2016

         Appeal from a May 15, 2015 final judgment and earlier orders of the United States District Court for the Southern District of New York (Cote, J.).

         From 2005 to 2007, in the midst of the housing bubble, defendants-appellants, principals, and entities associated with investment banks Nomura Holding America, Inc. and RBS Securities, Inc. (collectively, "Defendants"), sold to two government-sponsored enterprises, the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") (collectively, the "GSEs"), seven certificates tied to private-label securitizations ("PLLs"), a subset of residential mortgage-backed securities. The prospectus supplements used in those transactions represented that the loans supporting the securitizations were "originated generally in accordance with the underwriting criteria, " an important indication of credit risk.

         After the housing bubble burst in 2007, plaintiff-appellee the Federal Housing Finance Agency (the "FHFA"), the conservator for the GSEs, sued Defendants in the U.S. District Court for the Southern District of New York for violations of the Securities Act of 1933 (the "Securities Act") and analogous state "Blue Sky laws, " the Virginia Securities Act and the D.C. Securities Act. The FHFA alleged, inter alia, that the above representation regarding underwriting criteria was a material misstatement. The FHFA also brought fifteen similar actions against other financial institutions that also sold the GSEs private-label securitizations, and all of the actions were consolidated before Judge Denise Cote. Fifteen of these actions settled, resulting in more than $20 billion of recovery for the FHFA. Only the case presently on appeal went to trial. After conducting a bench trial, the District Court issued a 361-page opinion rendering judgment in favor of the FHFA under Sections 12(a)(2) and 15 of the Securities Act, and analogous provisions of the Virginia and D.C. Blue Sky laws. The court awarded rescission and ordered Defendants to refund the FHFA a total adjusted purchase price of approximately $806 million in exchange for the certificates.

         Defendants appeal that final judgment, as well as numerous pretrial decisions. Finding no merit in any of their arguments, we conclude that Defendants failed to discharge their duty under the Securities Act to disclose fully and fairly all of the information necessary for investors to make an informed decision whether to purchase the certificates at issue. AFFIRMED.

          Kathleen M. Sullivan (Philippe Z. Selendy, Adam M. Abensohn, William B. Adams, Andrew R. Dunlap, Yelena Konanova, on the brief), Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, for plaintiff-appellee.

          David B. Tulchin, Sullivan & Cromwell LLP, New York, NY (Amanda F. Davidoff, Sullivan & Cromwell LLP, Washington, D.C.; Bruce E. Clark, Steven L. Holley, Adam R. Brebner, Owen R. Wolfe, Sullivan & Cromwell LLP, New York, NY, on the brief), for defendants-appellants Nomura Holding America, Inc., Nomura Asset Acceptance Corporation, Nomura Home Equity Loan, Inc., Nomura Credit & Capital, Inc., Nomura Securities International, Inc., David Findlay, John McCarthy, John P. Graham, Nathan Gorin, and N. Dante LaRocca.

          E. Joshua Rosenkranz, Orrick, Herrington & Sutcliffe LLP, New York, NY (Thomas C. Rice, Andrew T. Frankel, Alan C. Turner, Craig S. Waldman, Simpson Thacher & Bartlett LLP, New York, NY; Paul F. Rugani, Orrick, Herrington & Sutcliffe LLP, Seattle, WA; Daniel A. Rubens, Orrick, Herrington & Sutcliffe LLP, New York, NY; Kelsi Brown Corkran, Orrick, Herrington & Sutcliffe LLP, Washington, D.C., on the brief), for defendant-appellant RBS Securities, Inc.

          Michael J. Dell, Kramer Levin Naftalis & Frankel LLP, New York, NY, for amici curiae Securities Industry and Financial Markets Association and The Clearing House Association LLC, in support of defendants-appellants.

          Before: Wesley, Livingston, and Droney, Circuit Judges.


         In the wake of the Great Depression, Congress took measures to protect the U.S economy from suffering another catastrophic collapse. Congress's first step in that endeavor was the Securities Act of 1933 (the "Securities Act" or "Act"), ch. 38, 48 Stat. 74 (codified as amended at 15 U.S.C. § 77a et seq.). The Act's chief innovation was to replace the traditional buyer-beware or caveat emptor rule of contract with an affirmative duty on sellers to disclose all material information fully and fairly prior to public offerings of securities. That change marked a paradigm shift in the securities markets. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194-95 (1976).

         This case demonstrates the persistent power of the Securities Act's full-disclosure requirement in the context of the Great Recession. The height of the housing bubble in the mid-2000s saw an explosion in the market for residential mortgage-backed securities ("RMBS"). See Adam J. Levitin & Susan M. Wachter, Explaining the Housing Bubble, 100 Geo. L.J. 1177, 1192-202 (2012). In the midst of that market frenzy, two government-sponsored enterprises, the Federal Home Loan Mortgage Corporation ("Freddie Mac" or "Freddie)" and Federal National Mortgage Association ("Fannie Mae" or "Fannie") (collectively, the "GSEs"), purchased a subset of RMBS known as private-label securitizations ("PLS") from a host of private banks. Defendants-appellants Nomura[1] and RBS[2] (collectively, "Defendants")[3] sold the GSEs seven of these certificates (the "Certificates") in senior tranches of PLS (the "Securitizations") using prospectus supplements (the "ProSupps"). Each ProSupp described the creditworthiness of the loans supporting the Securitization, including an affirmation that the loans "were originated generally in accordance with the underwriting criteria."

         The housing market began to collapse in 2007 and the value of PLS declined rapidly. Shortly thereafter, plaintiff-appellee the Federal Housing Finance Agency (the "FHFA"), the statutory conservator of Freddie and Fannie, [4] brought sixteen actions in the U.S. District Court for the Southern District of New York against financial institutions that sold PLS certificates to the GSEs, alleging that the offering documents used in those transactions overstated the reliability of the loans backing the securitizations, in violation of the Securities Act and analogous provisions of certain "Blue Sky laws, "[5] the Virginia Securities Act, as amended, Va. Code Ann. § 13.1-522, and the District of Columbia Securities Act, D.C. Code § 31-5606.05.[6] Sixteen of the FHFA's actions were coordinated before District Judge Denise Cote. Fifteen of those cases settled, resulting in more than $20 billion in recovery for the FHFA. The case on appeal was the only one to go to trial.

         After issuing multiple pre-trial decisions and conducting a bench trial, the District Court filed a 361-page trial opinion rendering judgment in favor of the FHFA. The court found that Defendants violated Sections 12(a)(2) and 15 of the Securities Act, see 15 U.S.C. §§ 77l(a)(2), 77o, and analogous provisions of the Virginia and D.C. Blue Sky laws, see Va. Code Ann. § 13.1-522(A)(ii); D.C. Code § 31- 5606.05(a)(1)(B), (c), by falsely stating in the ProSupps that, inter alia, the loans supporting the Securitizations were originated generally in accordance with the pertinent underwriting guidelines. As a result, the court awarded the FHFA more than $806 million in recession-like relief. Special App. 362-68.

         Defendants appeal multiple aspects of the District Court's trial opinion, as well as many of the court's pretrial decisions. We find no merit in any of Defendants' arguments and AFFIRM the judgment. The ProSupps Defendants used to sell the Certificates to the GSEs contained untrue statements of material fact-that the mortgage loans supporting the PLS were originated generally in accordance with the underwriting criteria- that the GSEs did not know and that Defendants knew or should have known were false. Moreover, the FHFA's claims were timely, the District Court properly conducted a bench trial, Defendants are not entitled to a reduction in the FHFA's award for loss attributable to factors other than the untrue statements at issue, Defendants NAAC and NHELI were statutory sellers, and the FHFA exercised jurisdiction over Blue Sky claims.


         I. Legal Framework

         A. The Securities Act

         "Federal regulation of transactions in securities emerged as part of the aftermath of the market crash in 1929." Ernst & Ernst, 425 U.S. at 194-95. The first set of regulations came in the Securities Act, which was "designed to provide investors with full disclosure of material information concerning public offerings of securities in commerce, to protect investors against fraud and, through the imposition of specified civil liabilities, to promote ethical standards of honesty and fair dealing." Id. at 195 (citing H.R. Rep. No. 85, at 1-5 (1933)). Shortly thereafter, Congress passed a series of companion statutes, including the Securities Exchange Act of 1934 (the "Exchange Act"), ch. 404, 48 Stat. 881 (codified as amended at 15 U.S.C. § 78a et seq.), which was intended "to protect investors against manipulation of stock prices through regulation of transactions upon securities exchanges and in over-the-counter markets, and to impose regular reporting requirements on companies whose stock is listed on national securities exchanges." Ernst & Ernst, 425 U.S. at 195 (citing S. Rep. No. 792, at 1-5 (1934)). Congress's purpose for this regulatory scheme "'was to substitute a philosophy of full disclosure for the philosophy of caveat emptor . . . in the securities industry.'" Basic Inc. v. Levinson, 485 U.S. 224, 234 (1988) (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186 (1963)).

         The Securities Act regulates the use of prospectuses in securities offerings. A prospectus is "any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security, " with certain exceptions not applicable here. 15 U.S.C. § 77b(a)(10). Section 5(b)(1) of the Securities Act provides that it is unlawful "to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to carry or transmit any prospectus relating to any security" unless the prospectus meets certain disclosure requirements. 15 U.S.C. § 77e(b)(1); see 17 C.F.R. § 230.164. Section 5(b)(2) provides that it is unlawful "to carry or cause to be carried through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus" that meets additional disclosure requirements. 15 U.S.C. § 77e(b)(2).

         Section 12(a)(2) of the Act, as amended, 15 U.S.C. § 77l, accords relief to any person (1) who was offered or purchased a security "by means of a prospectus or oral communication"; (2) from a statutory seller; (3) when the prospectus or oral communication "includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading"; and (4) the plaintiff did not "know[] of such untruth or omission" at the time of sale (the "absence-of- knowledge element"). 15 U.S.C. § 77l(a)(2); see In re Morgan Stanley Info. Fund Sec. Litig. (Morgan Stanley), 592 F.3d 347, 359 (2d Cir. 2010). Scienter, reliance, and loss causation are not prima facie elements of a Section 12(a)(2) claim. Morgan Stanley, 592 F.3d at 359.

         Section 12 authorizes two types of mutually-exclusive recovery. See 15 U.S.C. § 77l(a); Wigand v. Flo-Tek, Inc., 609 F.2d 1028, 1035 (2d Cir. 1979). If the plaintiff owned the security when the complaint was filed, Section 12 authorizes rescission-the plaintiff returns the security to the defendant and the defendant refunds the plaintiff the purchase price with adjustments for interest and income. See 15 U.S.C. § 77l(a); Wigand, 609 F.2d at 1035. If the plaintiff no longer owned the security when the complaint was filed, Section 12(a)(2) permits the plaintiff to recover "damages." 15 U.S.C. § 77l(a); see Wigand, 609 F.2d at 1035.

         Section 12 contains two affirmative defenses. First, a plaintiff will not be entitled to relief if the defendant "did not know, and in the exercise of reasonable care could not have known, of [the] untruth or omission" at issue. 15 U.S.C. § 77l(a)(2). This is known as the "reasonable care" defense. Morgan Stanley, 592 F.3d at 359 n.7.

         Second, a defendant may seek a reduction in the amount recoverable under Section 12 equal to

any portion . . . [that] represents [an amount] other than the depreciation in value of the subject security resulting from such part of the prospectus or oral communication, with respect to which the liability of that person is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statement not misleading, then such portion or amount, as the case may be.

15 U.S.C. § 77l(b). This is known as the "loss causation" defense, Iowa Pub. Emps.' Ret. Sys. v. MF Glob., Ltd., 620 F.3d 137, 145 (2d Cir. 2010), or "negative loss causation, " In re Smart Techs., Inc. S'holder Litig., 295 F.R.D. 50, 59 (S.D.N.Y. 2013). Unlike the Exchange Act, which generally requires plaintiffs to prove loss causation as a prima facie element, see 15 U.S.C. § 78u-4(b)(4), the Securities Act places the burden on defendants to prove negative loss causation as an affirmative defense, see McMahan & Co. v. Wherehouse Entm't, Inc., 65 F.3d 1044, 1048 (2d Cir. 1995).

         Section 12 is closely related to Section 11 of the Securities Act, as amended, 15 U.S.C. § 77k, which "imposes strict liability on issuers and signatories, and negligence liability on underwriters, " for material misstatements or omissions in a registration statement. NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. (NECA), 693 F.3d 145, 156 (2d Cir. 2012). Both provisions are limited in scope and create in terrorem[7] liability. See id.; William O. Douglas & George E. Bates, The Federal Securities Act of 1933, 43 Yale L.J. 171, 173 (1933). The loss causation defense in Section 12 was adapted from the loss causation defense in Section 11(e) of the Securities Act. See S. Rep. No. 104-98, at 23 (1995).

         Finally, Section 15 of the Act, as amended 15 U.S.C. § 77o, provides that "[e]very person who . . . controls any person liable under . . . [Section 12(a)(2)] shall also be liable jointly and severally with and to the same extent as such controlled person." 15 U.S.C. § 77o(a). "To establish [Section] 15 liability, a plaintiff must show a 'primary violation' of [Section 12] and control of the primary violator by defendants." See In re Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167, 185 (2d Cir. 2011) (quoting ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 206-07 (2d Cir. 2009)).

         In this case, the District Court awarded the FHFA rescission-like relief against all Defendants under Section 12(a)(2) and found NHA, NCCI, and the Individual Defendants control persons under Section 15 for the seven PLS transactions at issue. FHFA v. Nomura Holding Am., Inc. (Nomura VII), 104 F.Supp.3d 441, 598 (S.D.N.Y. 2015). Defendants appeal the District Court's decisions as to each prima facie element of the Section 12(a)(2) claims (except that the sales were made by means of a prospectus) and as to both affirmative defenses.[8]

         B. The Blue Sky Laws

         The Commonwealth of Virginia and District of Columbia have enacted Blue Sky laws modeled on the Securities Act as originally enacted in 1933. Andrews v. Browne, 662 S.E.2d 58, 62 (Va. 2008); see Forrestal Vill., Inc. v. Graham, 551 F.2d 411, 414 & n.4 (D.C. Cir. 1977) (observing that the D.C. Blue Sky law was based on the Uniform Securities Act); see also Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 602-03 (1995) (Ginsburg, J., dissenting) (observing that the Uniform Securities Act was based on the Securities Act of 1933). These Blue Sky laws contain provisions that are "substantially identical" to Sections 12(a)(2) and 15. Dunn v. Borta, 369 F.3d 421, 428 (4th Cir. 2004); see Hite v. Leeds Weld Equity Partners, IV, LP, 429 F.Supp.2d 110, 114 (D.D.C. 2006).[9] As relevant to this appeal, the Blue Sky laws are distinct only in that each requires as a jurisdictional element that some portion of the securities transaction at issue occurred in the State. D.C. Code § 31-5608.01(a); see Lintz v. Carey Manor Ltd., 613 F.Supp. 543, 550 (W.D. Va. 1985) (citing Travelers Health Ass'n v. Commonwealth, 51 S.E.2d 263 (Va. 1949)).

         The District Court awarded the FHFA relief under the D.C. Blue Sky law for the sale of one Certificate and relief under the Virginia Blue Sky law for the sales of three other Certificates. Nomura VII, 104 F.Supp.3d at 598.

         II. Factual Background [10]

         This case centers on the RMBS industry of the late 2000s. RMBS are asset-backed financial instruments supported by residential mortgage loans. A buyer of an RMBS certificate pays a lump sum in exchange for a certificate representing the right to a future stream of income from the mortgage loans' principal and income payments. PLS are RMBS sold by private financial institutions. See Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc. (Pension Benefit Guar.), 712 F.3d 705, 713-14 (2d Cir. 2013).

         This case touches on nearly every aspect of the PLS securitization process-from the issuance of mortgage loans through the purchase of a securitization. Because of the size and complexity of this case, in addition to the fact that the final order rule requires us to review a number of the District Court's pre-trial rulings, see 28 U.S.C. § 1291, there is much to consider. We think it best to begin with a summary of the securitization process from 2005 to 2007, the time period relevant to this case, and then to introduce the parties and the transactions at issue. Issue-specific facts are addressed in more detail in the discussion sections below.

         A. The PLS Securitization Process

         1. Originating a Mortgage Loan Using Underwriting Guidelines

         The first step in the PLS process was the issuance of residential mortgage loans. Mortgage loans were issued to borrowers by entities known as originators. Originators issued loans according to their loan underwriting guidelines, which listed the criteria used to approve a loan. See United States ex rel. O'Donnell v. Countrywide Home Loans, Inc. (O'Donnell), 822 F.3d 650, 653 n.2 (2d Cir. 2016). These guidelines helped each originator assess the borrower's ability to repay the loan and the value of the collateral. Originators balanced those two criteria to determine a potential loan's credit risk.

         Following the underwriting guidelines, originators required each prospective borrower to complete a loan application, usually on the Uniform Residential Loan Application (the "URLA"). The URLA required borrowers to disclose, under penalty of civil liability or criminal prosecution, their income, employment, housing history, assets, liabilities, intended occupancy status for the property, and the sources of the funds they intended to use in paying the costs of closing the loan. Originators used this information to determine objective factors relevant to the borrower's credit risk, such as a credit score according to the Fair Isaac Corporation's model (a "FICO score"), credit history, and debt-to-income ratio. Once each borrower submitted the URLA, the originator kept it and other related documentation in the borrower's loan file.

         The underwriting guidelines required originators to assess the reasonableness of the borrower's assertions on the URLA. This was easiest when borrowers supported their URLA applications with corroborating documentation. Some applications required verification of both the borrower's assets and income, while some required verification only of the borrower's assets. Other borrowers submitted stated-income-stated-assets ("SISA") applications, which did not require verification of income or assets, or no-income-no-assets ("NINA") applications, which were complete without the borrower even stating his or her income or assets. SISA and NINA applications were more difficult to assess, but not categorically ineligible to receive loans.

         The underwriting guidelines generally permitted originators to accept SISA and NINA applications and to make other exceptions to the underwriting criteria if there were compensating factors that indicated the borrower's ability and willingness to repay the loan. The guidelines set forth the specific conditions under which exceptions would be permitted. Originators were required to mark the borrower's loan file whenever an exception to the underwriting criteria had been granted and to explain the basis for that decision.

         After forming an opinion about a borrower's creditworthiness based on the URLA and related documentation, originators assigned the transaction a credit risk designation, which affected the interest rate for the loan. When an applicant had good credit, the transaction was labeled "prime." When an applicant had materially impaired credit, the transaction was labeled "subprime." And when an applicant's credit fell between good and materially impaired, the transaction was labeled "Alt-A." See Pension Benefit Guar., 712 F.3d at 715.

         Once they had assessed the borrower's credit, originators balanced that assessment against the value of the collateral (i.e., the present market value of the residence the borrower wanted to purchase or refinance), as determined by an appraiser, to measure the overall credit risk of the loan. Originators compared the amount of the loan against the value of the collateral to develop a loan-to- value ratio, a key indicator of credit risk. It was common in the RMBS industry to use a loan-to-value ratio of 80% as a benchmark. Relative to loans at that ratio, a loan worth between 80% and 90% of the collateral value was 1.5 times more likely to default and a loan worth between 95% and 100% of the collateral value was 4.5 times more likely to default. A loan-to-value ratio of more than 100% meant that the loan exceeded the value of the residence and the borrower was "underwater."

         If the originator was comfortable with the overall credit risk after reviewing the buyer's creditworthiness, the value of the collateral, and the loan-to-value ratio, the loan would be approved.

         The underwriting guidelines and loan files were crucial throughout and beyond the origination process. Supervisors employed by the originators could check loan files against the underwriting guidelines to ensure that loan issuance decisions met important criteria. For example, the District Court found that "[c]ompliance with underwriting guidelines ensure[d] . . . an accurate calculation of the borrower's [debt-to-income] ratio, which is a critical data point in the evaluation of a loan's risk profile." Nomura VII, 104 F.Supp.3d at 536. After the loan issued, originators used the information in the loan file to describe the loan characteristics for financial institutions interested in purchasing it.

         2. Creating a PLS

         The next step in the PLS process was the aggregation and securitization of the residential mortgage loans into an RMBS. Originators compiled their issued loans into "trade pools" and then solicited bids from PLS "sponsors" or "aggregators" to purchase them. The originators provided prospective bidders with a "loan tape" for each pool-"a spreadsheet that provided data about the characteristics of each loan in the trade pool" including "loan type (fixed or adjustable rate), . . . original and unpaid principal balance, amortization term, borrower's FICO score, the mortgaged property's purchase price and/or appraised value, occupancy status, documentation type and any prepayment penalty-related information." J.A. 4385.

         The sponsor that prevailed in the bidding process was given access to a limited number of loan files to conduct a due diligence review of the originators' underwriting and valuation processes before final settlement.[11] The sponsor was entitled prior to closing to remove from the trade pool any loans that did not meet its purchasing requirements, such as those below a minimum FICO score or exceeding a maximum debt-to-income ratio. Upon closing, the prevailing sponsor acquired title to the loans in the trade pools and gained access to the complete set of loan files. The prevailing sponsor was also given a copy of the underwriting guidelines the originators used to issue the loans.

         The sponsor then sold the loans to a "depositor, " a special purpose vehicle created solely to facilitate PLS transactions. The true sale from sponsor to depositor was intended to protect the future PLS certificate-holders' interests in the loans in the event that the sponsor declared bankruptcy. It was common in the RMBS industry for the depositor and sponsor entities to act at the direction of the same corporate parent.

         The depositor then grouped the loans into supporting loan groups ("SLGs") and transferred each group of loans to a trust. In exchange, the trust issued the depositor certificates that represented the right to receive principal and interest payments from the SLGs. The trustee managed the loans for the benefit of the certificate holders, often hiring a mortgage loan servicing vendor to manage the loans on a day-to-day basis. The depositor then sold most of the certificates to a lead underwriter, who would shepherd them to the public securities markets; a few certificates remained under the ownership of the depositor. It was also common in the industry for the lead underwriter to be controlled by the same corporate parent that controlled the sponsor and depositor.

         3. Preparing a PLS for Public Sale

         The final steps in the PLS process were the preparation and sale to the public of the certificates. The lead underwriter, sponsor, and depositor (collectively, "PLS sellers") worked together to structure the securitization, to solicit credit ratings for the certificates principally from three major credit-rating agencies, Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P"), and Fitch Ratings ("Fitch") (collectively, the "Credit-Rating Agencies" or "Rating Agencies"), and to draft and confirm the accuracy of the offering documents. Once those tasks were completed, the lead underwriter would market the certificates to potential buyers.

         The PLS sellers structured securitizations with two credit enhancements that distributed the risk of the loans unequally among the certificate holders. The first was subordination. The PLS certificates were organized into tranches, ranked by seniority. Each SLG supported one or more tranches of certificates and distributed payments in a "waterfall" arrangement. This arrangement guaranteed senior certificate-holders first claim to all principal and interest payments. Once all the senior certificate-holders were satisfied, the SLGs' payments spilled over to junior certificate-holders, who would receive the remaining balance of the payments.

         The second of these credit enhancements was overcollateralization. The total outstanding balance of all of the mortgage loans supporting an entire PLS often exceeded the outstanding balance of the loans supporting the publicly available PLS certificates. As a result, some loans in the PLS were tethered to certificates owned by the depositor or sponsor and were not available for public purchase. These non-public loans served as a loss-saving measure by making payments to the public certificate- holders (in order of seniority) in the event that the loans supporting their public certificates defaulted.

         After structuring the PLS, the PLS sellers would solicit a credit rating for each tranche. Because, as the District Court explained, PLS "were only as good as their underlying mortgage loans, " Nomura VII, 104 F.Supp.3d at 465, the Credit-Rating Agencies based their determinations primarily on the quality of the certificates' supporting loans. They did this by modeling the credit risk of the SLGs using information from the loan tape, provided by the PLS sellers. The Rating Agencies also evaluated the certificates' credit enhancements.

         The Rating Agencies' review included examining draft offering documents for representations that the supporting loans were originated in accordance with originators' underwriting criteria. This was standard in the industry, as the Rating Agencies agreed that compliance with the underwriting guidelines was an important indicator of a loan's credit risk. More credit enhancements were required to secure an investment-grade rating for any certificate backed by loans that either did not comply with the underwriting guidelines or were missing documentation from their loan files.

         The PLS sellers explained these credit enhancements, credit ratings, and other important features of the PLS to the public primarily in three offering documents-a shelf registration, a free writing prospectus, and a prospectus supplement. The shelf registration was a pre-approved registration statement filed with the Securities and Exchange Commission (the "SEC") that contained generally applicable information about PLS. See 17 C.F.R. §§ 230.409, 230.415. The shelf registration enabled the lead PLS underwriter to make written offers to potential buyers using a free writing prospectus. See id. § 230.433(b)(1). The free writing prospectus broadly described the characteristics of the certificate and the supporting SLGs. If an offeree was interested after reading the description, it could commit to purchasing the certificate. Title in the certificate and payment were exchanged within approximately a month of that commitment. The PLS sellers sent the buyer a prospectus supplement and filed the same with the SEC near the date of that exchange.[12]

         The prospectus supplement contained the most detailed disclosures of any of the offering documents. This document provided specific information regarding the certificate, the SLGs, and the credit quality of the underlying loans. It warranted the accuracy of its representations regarding loan characteristics. And, crucially, it affirmed that the loans in the SLGs were originated in accordance with the applicable underwriting guidelines. As the District Court noted, "whether loans were actually underwritten in compliance with guidelines was extremely significant to investors." Nomura VII, 104 F.Supp.3d at 536. The prospectus supplement ordinarily disclosed that some number of loans in the SLG may deviate substantially from, or violate, the applicable underwriting guidelines.[13]

         B. The PLS Transactions at Issue

         1. The Parties

         a. The Sellers

         Defendants sold the Certificates to the GSEs. Subsidiaries of Defendant NHA were the Certificates' primary sellers. Defendant NCCI served as the sponsor for all seven of the transactions at issue. Defendant NAAC served as the depositor for one Securitization, and Defendant NHELI served as the depositor for the remaining six. And Defendant Nomura Securities, served as the lead or co-lead underwriter for three of the Securitizations.

         Defendant RBS served as the lead or co-lead underwriter for four of the Securitizations.[14]

         b. The Buyers [15]

         Fannie and Freddie purchased the Certificates. Both GSEs are privately-owned corporations chartered by Congress to provide stability and liquidity in the mortgage loan market. Fannie was established in 1938. See National Housing Act Amendments of 1938, ch. 13, 52 Stat. 8. Freddie was established in 1970. See Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450. They were at the time of the transactions at issue, and remain today, "the dominant force[s]" in the mortgage loan market. See Town of Babylon v. FHFA, 699 F.3d 221, 225 (2d Cir. 2012).

         The primary way the GSEs injected liquidity into the mortgage market was by purchasing mortgage loans from private loan originators. See O'Donnell, 822 F.3d at 653. This side of the GSEs' operations was known as the "Single Family Businesses." By purchasing loans from originators, the Single Family Businesses replenished originators' capital, allowing originators to issue new loans. The Single Family Businesses held the loans purchased from originators on their books and sometimes securitized them into agency RMBS, similar to a PLS, to be offered for public sale. See Pension Benefit Guar., 712 F.3d at 714-15; Levitin & Wachter, supra, at 1187-89.

         The Single Family Businesses contained due diligence departments. These departments conducted due diligence of specific loans prior to purchase. They also periodically reviewed their originator counterparties' general underwriting practices, and PLS sellers' due diligence practices, including Defendants'.[16]

         As a secondary element of their businesses, the GSEs operated securities trading desks that purchased PLS. PLS purchases created liquidity in the mortgage market by funneling cash back through PLS sponsors and underwriters to loan originators for use in future loans. The GSEs' PLS traders generally operated out of Fannie's headquarters in Washington, D.C. and Freddie's headquarters in McLean, Virginia.

         The GSEs played a significant role in the PLS market despite the relatively minor role it occupied in their businesses. The GSEs' PLS portfolios reached their heights in 2005, when they owned approximately $350 billion worth of PLS, with $145 billion backed by subprime loans and $40 billion backed by Alt-A loans (loans that were rated lower than prime loans but higher than subprime loans). The GSEs bought approximated 8% of the $3 trillion dollars' worth of PLS sold from 2005 to 2007. PLS traders working for the GSEs purchased the Certificates at issue.

         2. The Transactions

         Between 2005 and 2007, the GSEs purchased Certificates from Defendants in seven PLS Securitizations- NAA 2005-AR6, NHELI 2006-FM1, NHELI 2006-HE3, NHELI 2006-FM2, NHELI 2007-1, NHELI 2007-2, and NHELI 2007-3. These transactions were executed generally in accordance with the standard practices at the time, as described in the previous sections. The supporting loans are predominantly Alt-A or subprime. Each Certificate is in a senior tranche of its respective Securitization. Combined, the Certificates cost approximately $2.05 billion and, at times of sale, had expected value of $2.45 billion.[17]

         Defendants sold the Certificates by means of shelf registrations, free writing prospectuses, and the ProSupps.[18]The ProSupps provided detailed information regarding the loans in the SLGs. They described the risks inherent in subprime and Alt-A loan transactions and provided the credit ratings for each tranche. They included charts displaying the objective characteristics for loans in each SLG, such as aggregate remaining principal balances, FICO scores, and loan-to-value ratios. Five ProSupps promised that "[i]f . . . any material pool characteristic differs by 5% or more from the description in this [ProSupp], revised disclosure will be provided either in a supplement or in a Current Report on Form 8-K." E.g., J.A. 9120.

         Most importantly for purposes of this appeal, every ProSupp stated that "the Mortgage Loans . . . were originated generally in accordance with the underwriting criteria described in this section, " (the "underwriting guidelines statement"). J.A. 9117; see J.A. 6884, 7174, 7527, 7895, 8296, 8718.[19] The ProSupps then described the underwriting criteria used by originators that contributed loans to the SLGs and stated that the originators may have made "certain exceptions to the underwriting standards . . . in the event that compensating factors are demonstrated by a prospective borrower." E.g., J.A. 9117. Six of the ProSupps described the specific underwriting guidelines for each originator that alone contributed more than 20% of the loans in the SLGs. For these originators, the ProSupps typically also stated that the loans were issued "generally" in accordance with the underwriting guidelines. E.g., J.A. 7520.

         Six of the ProSupps stated that some loans were issued under "Modified [Underwriting] Standards." E.g., J.A. 9118. The ProSupps stated that these modified standards permitted originators, for example, to issue loans to foreign nationals, who might lack reliable sources to verify their credit score or lack a score altogether, or use "less restrictive parameters" in issuing loans, such as "higher loan amounts, higher maximum loan-to-value ratios, . . . the ability to originate mortgage loans with loan- to-value ratios in excess of 80% without the requirement to obtain mortgage insurance if such loans are secured by investment properties." E.g., J.A. 9119. The ProSupps disclosed the number of loans issued under the modified standards.[20]

         C. The Housing and Financial Crisis [21]

         The GSEs purchased the Certificates from Defendants during a period when the markets for mortgage loans and associated securities were exploding. A combination of factors including low interest and unemployment rates, an increased use of adjustable-rate mortgages and other innovative loan products, and government policies encouraging home ownership heated the housing market. Home prices increased, and aggregate mortgage debt in the U.S. more than doubled between 2000 and 2008.

         During this period, originators also relaxed underwriting standards. Subprime lending jumped from 9.5% of all new mortgage loans in 2000 to 20% of all new mortgage loans in 2005; Alt-A lending also grew substantially. Originators also began to approve loans that failed to meet the underwriting guidelines with an eye towards securitizing these loans quickly, thus transferring the credit risk of the loans from originators to PLS certificate-holders. See Levitin & Wachter, supra, at 1190.

         Securitization fueled the credit bubble. As described above, securitization enabled originators to shift credit risk to the financial markets and turn the prospect of future loan repayment into instant cash for new loans. In 2000, the PLS market was worth less than $150 billion. By 2005-2006, the PLS market was worth more than $1.1 trillion. Once it began, the securitization frenzy built on itself- securitizations of subprime mortgages increased the quantity of new subprime mortgage originations. Those new mortgages were in turn securitized, and the cycle started over.

         The housing market began its decline in 2006. Increased mortgage interest rates led to a spike in prices that made many homes too expensive for potential buyers, decreasing demand. An oversupply of housing also put downward pressure on home prices. U.S. housing prices started to fall in April 2006. From April 2007 through May 2009, they fell almost 33%.

         Default and delinquency rates increased with the decline in housing prices. By 2009, 24% of homeowners, many of whom had purchased homes during the mid-2000s boom, were left with negative equity: mortgages with outstanding principal balances greater than the homes' current valuations. Shoddy underwriting practices, which approved loans for borrowers who could not afford to repay, and spikes in adjustable mortgage rates also contributed to an increase in defaults. With rising interest rates, refinancing was difficult. Defaulting on mortgage loans became an attractive option for homeowners. Each default and resulting foreclosure sale depressed the prices of surrounding homes further, sending the housing market into a vicious downward cycle.

         Increased default rates had an adverse impact on investment products tied to mortgage loans, and on the entire financial system as a result. As principal and interest payments slowed over the course of 2007, the value of these securities declined. One bank in August 2007 reported that the decrease in mortgage securitization markets' liquidity made it "impossible" to value certain RMBS instruments. J.A. 5419. Banks that had invested heavily in RMBS sold off their positions (driving down the value of those assets further) and closed related hedge fund divisions. Credit tightened, interbank lending ceased, and concerns about financial institutions' liquidity and solvency led to runs on financial institutions. Several major financial institutions, including Lehman Brothers, Bear Sterns, and Merrill Lynch, experienced significant financial stress.

         In December 2007, the U.S. entered a one-and-a-half- year recession, the longest since the Great Depression. U.S. real gross domestic product contracted by about 4.3% during that time. Unemployment rose to 10% in 2009, more than double the 2007 rate.

         III. Procedural History

         In the aftermath of the financial crisis, Congress passed the Housing and Economic Recovery Act of 2008 (the "HERA"), Pub. L. No. 110-289, 122 Stat. 2654, out of concern for the GSEs' financial condition. See UBS II, 712 F.3d at 138. The HERA created the FHFA, an "independent agency of the Federal Government, " 12 U.S.C. § 4511(a), to serve as a conservator for Fannie, Freddie, and other GSEs in financial straits, see id. § 4617(a). The HERA empowered the FHFA to "collect all obligations and money due the [GSEs], " id. §4617(b)(2)(B)(ii), and take other actions necessary to return them to solvency. Id. § 4617(b)(2)(B)(i).

         On September 2, 2011, the FHFA initiated sixteen actions that were eventually litigated together in the Southern District of New York, including the instant "Nomura action, " against financial institutions that sold PLS certificates to Fannie Mae and Freddie Mac. These cases were consolidated before Judge Cote. They all settled before trial, with the exception of this case.

         The FHFA began the Nomura action by bringing claims under Sections 11, 12(a)(2), and 15 of the Securities Act and Virginia and D.C. Blue Sky analogs based on alleged misstatements in the PLS offering documents. The FHFA alleged that Defendants' offering documents falsely stated (1) the underwriting guidelines statement, (2) the supporting loans' loan-to-value ratios, (3) whether mortgaged properties were occupied by the mortgagors, and (4) that the Credit-Rating Agencies were provided with accurate information regarding loan characteristics before issuing ratings decisions. The FHFA initially demanded a jury trial for "all issues triable by jury." J.A. 409.

         The District Court issued numerous pre-trial decisions. Defendants appeal from the following:

. An opinion holding that the Virginia and D.C. Blue Sky laws do not provide a loss causation defense, HSBC I, 988 F.Supp.2d 363;
. An opinion granting the FHFA's motion for summary judgment on the absence-of-knowledge element of a Section 12(a)(2) claim, FHFA v. HSBC N Am. Holdings Inc. (HSBC II), 33 F.Supp.3d 455 (S.D.N.Y. 2014);
. Two opinions denying Defendants' motion for summary judgment on the ground that the FHFA's claims are time-barred, FHFA v. HSBC N. Am. Holdings Inc. (HSBC III), Nos. 11cv6189, 11cv6201, 2014 WL 4276420 (S.D.N.Y. August 28, 2014) (statutes of repose); FHFA v. Nomura Holding Am., Inc. (Nomura I), 60 F.Supp.3d 479 (S.D.N.Y. 2014) (statutes of limitations);
. An opinion granting the FHFA's motion for summary judgment on Defendants' reasonable care defense, FHFA v. Nomura Holding Am. Inc. (Nomura II), 68 F.Supp.3d 439 (S.D.N.Y. 2014);
. An opinion granting the FHFA's motion in limine to exclude evidence related to the GSEs' housing goals, FHFA v. Nomura Holding Am., Inc. (Nomura III), No. 11cv6201, 2014 WL 7229361 (S.D.N.Y. Dec. 18, 2014);
. An opinion, FHFA v. Nomura Holding Am., Inc. (Nomura IV), 68 F.Supp.3d 486 (S.D.N.Y. 2014), and a related bench decision, Special App. 544-49, denying Defendants' motion for a jury trial on the FHFA's Section 12(a)(2) claims;
. An opinion granting the FHFA's motion in limine to exclude evidence related to the timing of the purchases of the Certificates, FHFA v. Nomura Holding Am., Inc. (Nomura V), 68 F.Supp.3d 499 (S.D.N.Y. 2014);
. An opinion denying in relevant part Defendants' Daubert challenge to an FHFA expert's testimony, FHFA v. Nomura Holding Am., Inc. (Nomura VI), No. 11cv6201, 2015 WL 353929 (S.D.N.Y. Jan. 28, 2015);
. Several decisions excluding evidence related to the GSEs' Single Family Businesses, e.g., J.A. 11619-21.

         Trial was originally slated to be held before a jury to decide the Section 11 claims, while the District Court would decide the Section 12 claims, with the jury's determination controlling overlapping factual issues. Roughly a month before pretrial memoranda were due, the FHFA voluntarily withdrew its Section 11 claim. As a result, the District Court, over Defendants' objection, conducted a four-week bench trial on the Section 12, Section 15, and Blue Sky claims.[22]

         One month after trial concluded, the District Court issued a detailed 361-page opinion systematically finding for the FHFA on each claim. See generally Nomura VII, 104 F.Supp.3d 441. The court held that Defendants violated Section 12(a)(2) because each ProSupp contained three categories of false statements of material information: (1) the underwriting guidelines statements, (2) the loan-to- value ratio statements, and (3) the credit ratings statements. See id. at 559-73. Our focus on appeal, on this point, is devoted solely to the statements regarding underwriting guidelines, which are sufficient to affirm the court's judgment. See 15 U.S.C. § 77l(a)(2) (authorizing relief if the offering documents contain just one untrue statement of material fact); N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp., PLC (N.J. Carpenters Health Fund II), 709 F.3d 109, 116, 123 (2d Cir. 2013) (allowing a Section 11 lawsuit to proceed on the allegation that RMBS offering documents falsely stated that the loans adhered to the underwriting guidelines).

         The court also rejected Defendants' loss causation defense, see Nomura VII, 104 F.Supp.3d at 585-93, found that Defendants violated the analogous provisions of the Virginia and D.C. Blue Sky laws, see id. at 593-98, and held that NHA, NCCI, and the Individual Defendants were control persons under Section 15, see id. at 573-83. The court awarded the FHFA $806, 023, 457, comprised of roughly $555 million for violations of the Blue Sky laws and roughly $250 million for violations of the Securities Act. See id. at 598.[23]

         This appeal followed.


         Our discussion proceeds in two parts. The first addresses issues the District Court resolved before trial: (A) whether the FHFA's claims were timely under the statutes of repose; (B) whether in light of the GSEs' generalized knowledge and experience in the mortgage loan market (1) the FHFA's claims were timely under the statutes of limitations and (2) the FHFA was entitled to summary judgment holding that the GSEs did not know the ProSupps' underwriting guidelines statements were false; (C) whether the FHFA was entitled to summary judgment holding that Defendants failed to exercise reasonable care; and (D) whether the Seventh Amendment entitled Defendants to a jury trial. The second addresses issues resolved after trial: (A) whether the FHFA is entitled to relief under Section 12(a)(2) because (1) each Defendant is a statutory seller, (2) the underwriting guidelines statements were false, (3) those statements were material, and (4) Defendants failed to make out an affirmative defense of loss causation; as well as (B) whether the FHFA is entitled to relief under the analogous Virginia and D.C. Blue Sky provisions.

         I. Pretrial Decisions [24]

         A. Statutes of Repose

         Defendants appeal the District Court's denial of their motion for summary judgment on the ground that the FHFA's claims, which were filed on September 2, 2011 (more than three years after the Securitizations were sold), were time-barred by the Securities Act, Virginia Blue Sky, and D.C. Blue Sky statutes of repose. See 15 U.S.C. § 77m (three-year period of repose); Va. Code Ann. § 13.1-522(D) (two-year period of repose); D.C. Code § 31-5606.05(f)(1) (three-year period of repose).[25] The District Court held that the statutes of repose were displaced by an extender provision in the HERA, codified at 12 U.S.C. § 4617(b)(12), which permits the FHFA to bring any "tort claim" within three years and any "contract claim" within six years of its appointment as the GSEs' conservator on September 6, 2008.[26] See FHFA v. UBS Ams., Inc. (UBS I), 858 F.Supp.2d 306, 313-17 (S.D.N.Y. 2012) (holding all coordinate cases brought by the FHFA before September 6, 2011 timely under the HERA), aff'd, UBS II, 712 F.3d 136 (2d Cir. 2013); see also HSBC III, 2014 WL 4276420, at *1. On appeal, Defendants argue that while the HERA displaces otherwise applicable statutes of limitations, it does not affect statutes of repose.

         In UBS II, a 2013 decision in an interlocutory appeal in one of the FHFA's parallel coordinated actions, a panel of this Court held that § 4617(b)(12) "supplants any other [federal or state] time limitations that otherwise might have applied" to the FHFA's actions, including the Securities Act and Blue Sky statutes of repose. 712 F.3d at 143-44. This conclusion was compelled by the definitive language in § 4617(b)(12), which makes clear that "the applicable statute of limitations with regard to any action brought by the [FHFA] . . . shall be" time periods provided in the HERA, see UBS II, 712 F.3d at 141-42 (internal quotation marks omitted) (quoting 12 U.S.C. § 4617(b)(12)), and was corroborated by the purpose of the HERA to permit the FHFA to "'collect all obligations and money due' to the GSEs[] to restore them to a 'sound and solvent condition, '" id. at 142 (quoting 12 U.S.C. §§ 4617(b)(2)(B)(ii), (D)). We considered that reading § 4617(b)(12) to preclude and pre- empt all types of time-limitation statutes, including statutes of repose, was consistent with Congress's intent because it allowed the FHFA more "time to investigate and develop potential claims on behalf of the GSEs." Id.

         Ordinarily, UBS II would end our inquiry. See Lotes Co., Ltd. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 405 (2d Cir. 2014) ("[A] panel of this Court is 'bound by the decisions of prior panels until such time as they are overruled either by an en banc panel of our Court or by the Supreme Court.'" (quoting In re Zarnel, 619 F.3d 156, 168 (2d Cir. 2010))). But one year after UBS II was decided, the Supreme Court handed down CTS Corp. v. Waldburger, 134 S.Ct. 2175 (2014), which held that 42 U.S.C. § 9658, [27] a provision in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (the "CERCLA") that imposes a federal commencement date for state statutes of limitations, does not pre-empt state statutes of repose. See 134 S.Ct. at 2188. Defendants' sole argument in the present appeal is that CTS abrogated UBS II.

         This is not the first case in this Circuit to consider the impact of CTS on UBS II. In FDIC v. First Horizon Asset Sec., Inc. (First Horizon), 821 F.3d 372 (2d Cir. 2016), cert. denied, 137 S.Ct. 628 (2017), we held that CTS did not disturb the portion of UBS II's holding that held § 4617(b)(12) precludes the federal Securities Act's statute of repose. Id. at 380-81. That forecloses Defendants' argument insofar as it applies to the FHFA's claims under the Securities Act. [28] See Lotes, 753 F.3d at 405.

         It remains an open question in this Circuit whether CTS undermined the portion of UBS II's holding that held § 4617(b)(12) pre-empts the Virginia and D.C. Blue Sky laws' statutes of repose. Cf. Church & Dwight Co., Inc. v. SPD Swiss Precision Diagnostics, GmBH, 843 F.3d 48, 64-65 (2d Cir. 2016) (observing that pre-emption analysis does not control preclusion analysis).[29] "[C]oncerns about the primacy of federal law and the state-federal balance" that are unique to the pre-emption context presented here distinguish it from preclusion context in First Horizon. Church & Dwight Co., 843 F.3d at 64 (internal quotation mark omitted) (quoting POM Wonderful LLC v. Coca-Cola Co., 134 S.Ct. 2228, 2236 (2014)). Still, some aspects of our earlier preclusion analysis aid in deciding the pre-emption issue on this appeal. Cf. id. ("[P]re[-]emption principles can be 'instructive' in the . . . preclusion context . . . ." (quoting POM Wonderful, 134 S.Ct. at 2236)).[30]

         Nothing about CTS seriously undermines UBS II. The Supreme Court's analysis in CTS focused primarily on four considerations. First, § 9658 provides that state law will be the default rule for time limitations and that a federal commencement date will operate as a limited "exception" to that rule. This suggested to the Court that Congress intended § 9658 to leave many of the state time-limitation rules in place. See CTS, 134 S.Ct. at 2185 (majority opinion). Second, § 9658 refers explicitly to a "statute of limitations" but does not mention a "statute of repose." Although this was not dispositive of the ultimate issue, the Court took this as an indication that Congress did not intend § 9658 to reach statutes of repose. Id. at 2185-86. Third, Congress, in debating the CERCLA, considered a report that recommended language providing for explicit pre-emption of state statutes of repose, but chose not to include the proposed language in the final statute. Id. at 2186. Fourth, § 9658 defines the state provisions it preempts as the "applicable limitations period[s]" during "which a civil action may be brought" and provides for equitable tolling in certain circumstances, two concepts inapplicable to repose analyses. Id. at 2187-88 (internal quotation marks omitted). For these reasons, the Supreme Court held § 9658 did not reflect clear congressional intent to pre-empt overlapping state statutes of repose. Id. at 2188.

         One similarity between § 4617(b)(12) and § 9658 is that both refer to statutes of limitations but neither references statutes of repose. See First Horizon, 821 F.3d at 376, 379. While this might suggest on first glance that neither statute reaches repose statutes, we reasoned in UBS II that an explicit statutory reference to repose statutes is not a sine qua non of congressional intent to pre-empt such statutes. See 712 F.3d at 142-43. CTS confirmed-rather than undermined-that reasoning. See 134 S.Ct. at 2185. CTS observed that usage of the terms "limitations" and "repose" "has not always been precise." Id. at 2186; accord UBS II, 712 F.3d at 142-43 ("Although statutes of limitations and statutes of repose are distinct in theory, the courts . . . have long used the term 'statute of limitations' to refer to statutes of repose . . . ."). Indeed, although Congress has indisputably created statutes of repose in the past, it "has never used the expression 'statute of repose' in a statute codified in the United States Code." First Horizon, 821 F.3d at 379 (observing that 15 U.S.C. § 77m, titled "Limitation of actions, " creates a three-year repose period); see also Cal. Pub. Emps.' Ret. Sys. v. ANZ Sec., Inc. (CalPERS), 137 S.Ct. 2042, 2049 (2017) (analyzing federal statute to determine whether it included a statute of limitation or statute of repose). As a result, CTS cautioned, while the presence of the term "statute of limitations" in a federal statute may be "instructive" of Congress's intended pre-emptive scope, it is not "dispositive." See 134 S.Ct. at 2185. That reinforces UBS II's refusal to resolve its pre-emption inquiry based solely on the bare text of § 4617(b)(12). See First Horizon, 821 F.3d at 376.[31]

         Defendants also argue that, under CTS, § 4617(b)(12)'s repeated use of the words "claim accrues" indicates that it was meant only to pre-empt statutes of limitations. In CTS, the Supreme Court noted that § 9658 pre-empts the "commencement date" for any "applicable limitations period" under state law, 42 U.S.C. § 9658(a)(1), and defines the "applicable limitations period" as the period when "a civil action [alleging injury or damage caused by exposure to a hazardous substance] may be brought, " id. § 9658(b)(2). See 134 S.Ct. at 2187. That indicated to the Court that Congress intended to displace only the commencement date for statutes of limitations because a "statute of repose . . . 'is not related to the accrual of any cause of action.'" Id. (quoting 54 C.J.S., Limitations of Actions § 7, p. 24 (2010)).

         Section 4617 uses some similar language. It provides that the new filing period for claims brought by the FHFA is at least six years for any "contract" claim and three years for any "tort" claim, "beginning on the date on which the claim accrues." 12 U.S.C. §§ 4617(b)(12)(A)(i)(I), (ii)(I). It also describes how to determine "the date on which a claim accrues" for purposes of the HERA. Id. § 4617(b)(12)(B). Defendants argue that this language-specifically the words "claim accrues"-carries the same indication of congressional intent as § 9658's definition of the "applicable limitations period."

         We disagree. CTS does not stand for the proposition that whenever "accrue" appears in a federal statute it is a talismanic indication of congressional intent to pre-empt only statutes of limitations. Context is crucial. Congress used the phrase "a civil action . . . may be brought" in § 9658 in defining the class of state statutes it intended to pre-empt. In contrast, Congress used the words "claim accrues" in § 4617(b)(12) in defining the time limitation the HERA newly created for claims brought by the FHFA. Put another way, the HERA's use of the word "accrues" "tells us . . . that [§ 4617(b)(12)] is itself a statute of limitations" but does not "provide[] . . . guidance on the question whether [§ 4617(b)(12)] displaces otherwise applicable statutes of repose . . . ." First Horizon, 821 F.3d at 379.

         The only remaining argument against pre-emption of the state statutes of repose is that both § 9658 and § 4617(b)(12) pre-empt certain time limitations for state claims while leaving untouched "other important rules governing civil actions." CTS, 134 S.Ct. at 2188. "'The case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to stand by both concepts and to tolerate whatever tension there is between them.'" Id. (brackets omitted) (quoting Wyeth v. Levine, 555 U.S. 555, 575 (2009)). But § 9658 leaves in place far more of state law than § 4617(b)(12). Section 9658 provides only a federally mandated accrual date for state limitations periods and leaves unchanged "States' judgments about causes of action, the scope of liability, the duration of the period provided by statutes of limitations, burdens of proof, [and] rules of evidence." CTS, 134 S.Ct. at 2188. Section 4617(b)(12), by contrast, provides a comprehensive, singular time limitation for all actions brought by the FHFA. See UBS II, 712 F.3d at 141-42. It governs entirely the rules regarding when the FHFA may bring its claims-from the moment the filing period commences, see 12 U.S.C. § 4617(b)(12)(B), through the length of the period for each type of the claim, see id. § 4617(b)(12)(A). Congress has not stood by any state time-limitation rules when it comes to claims brought by the FHFA as the GSEs' conservator.

         In all other respects, CTS and UBS II arose in substantially different contexts. Section 9658's legislative history reveals that Congress specifically considered and decided against using language that would explicitly pre- empt statutes of repose. See CTS, 134 S.Ct. at 2186. There is no similar legislative history for Section 4617(b)(12). See UBS II, 712 F.3d at 143. Section 9658 "describ[es] the [preempted] period in the singular, " which "would be an awkward way to mandate the pre-emption of two different time periods." CTS, 134 S.Ct. at 2186-87. Section 4617(b)(12) applies "to any action brought by the [FHFA], " 12 U.S.C. § 4617(b)(12)(A) (emphasis added), "'including claims to which a statute of repose generally attaches.'" UBS II, 712 F.3d at 143 (quoting UBS I, 858 F.Supp.2d at 316-17). Section 9658 contains a provision for equitable tolling, an important characteristic of statutes of limitations that distinguishes them from statutes of repose. See CTS, 134 S.Ct. at 2187-88. There is no similar provision in § 4617(b)(12).

         In sum, "CTS's holding is firmly rooted in a close analysis of § 9658's text, structure, and legislative history." First Horizon, 821 F.3d at 377. None of those statute-specific considerations undermines UBS II's close analysis of § 4617(b)(12), which differs significantly from § 9658. We reaffirm our prior holding that Congress designed § 4617(b)(12) to pre-empt state statutes of repose.[32]

         B. Knowledge Issues - Statutes of Limitations and Knowledge of the ProSupps' Underwriting Guidelines Misrepresentations

         Defendants next raise two pre-trial issues that turn on the extent to which the GSEs were or should have been aware that the ProSupps' underwriting guidelines statements were false. The first is the statute of limitations. In addition to the statute of repose discussed above, Section 13 of the Securities Act contains a statute of limitations that bars any action not brought within one year after the plaintiff learned or should have learned of the material misstatement or omission giving rise to the claim. 15 U.S.C. § 77m; see CalPERS, 137 S.Ct. at 2049 (2017) (discussing three-year time bar).[33] The HERA extended the filing period only for contract claims that were valid on (or became valid after) September 6, 2008, the date when the FHFA assumed conservatorship. See 12 U.S.C. §§ 4617(b)(12)(A), (12)(B); J.A. 341-42. Thus, any FHFA claim that was time-barred by Section 13 on that date remained time-barred under the HERA. On the FHFA's motion for summary judgment, the District Court held that the FHFA's claims were timely as a matter of law. The court concluded that no reasonable jury could find the GSEs knew or should have known as of September 6, 2007, one year before the HERA extender became effective, that ProSupps' underwriting guidelines statements were false, despite widespread PLS credit downgrades in the summer of 2007 and the Single Family Businesses' generalized experience with mortgage loan originators and PLS aggregators. Nomura I, 60 F.Supp.3d at 502-09; see also UBS I, 858 F.Supp.2d at 321-22. Defendants contest that decision on appeal.

         The second, related issue is whether the FHFA was entitled to summary judgment on the purchaser's absence- of-knowledge element of a Section 12(a)(2) claim. See 15 U.S.C. § 77l(a)(2).[34] The District Court granted the FHFA summary judgment on this element, holding again that the Single Family Businesses' expertise in the general mortgage loan market did not provide adequate knowledge of the specific untruths in the ProSupps. See HSBC II, 33 F.Supp.3d at 480-93. Defendants also contest this decision on appeal.

         We address these issues in tandem, as the relevant facts and legal questions overlap in large part.

         1. Factual Summary [35]

         a. The Single Family Businesses' Due Diligence

         The GSEs' Single Family Businesses, in their capacities as aggregators and sponsors of RMBS instruments, gathered a significant amount of information about the mortgage loan market and mortgage loan originators. Fannie's Single Family due diligence division was the Single Family Counterparty Risk Management Group (the "SFCPRM"); Freddie's Single Family due diligence division was the Alternative Market Operations Group (the "AMO"). Through the work of the SFCPRM and AMO, the GSEs amassed "more knowledge about the mortgage market than probably anybody else." J.A. 1317.

         The SFCPRM and AMO conducted counterparty reviews of originators with whom the GSEs regularly did business. These reviews involved desk audits and on-site visits to originators' offices. Often the GSEs hired Clayton Advisory Services, Ltd. ("Clayton"), a third-party mortgage diligence vendor, to re-underwrite a sample of the originators' issued loans and assess the originators' compliance with their underwriting guidelines. The GSEs also analyzed originators' adherence to appraisal protocols, capability to detect fraud, and ability to meet repurchase obligations. If an originator received a positive result from this review, the GSE placed, or maintained, it on a list of approved originators.

         The SFCPRM and AMO conducted counterparty reviews for at least five originators that issued loans backing the Certificates in this case; we note some pertinent results of those reviews below:

. First NLC Mortgage Corporation, which issued ~14.5% of the loans backing NHELI 2006-HE3 and ~11.5% of the loan backing NHELI 2007-2: The AMO issued a "Poor" rating (the worst possible) in January 2005, reporting "poor command of its credit, appraisal and quality control units, " and a "Marginal" rating in April 2005, J.A. 10409;
. Mandalay Mortgage, which issued ~5.7% of the loans backing NHELI 2006-HE3: The AMO issued a "Poor" rating in November 2004 based on its "aggressive" participation in risky loan product categories, id. at 10410;
. ResMAE, which issued ~77.6% of the loans backing NHELI 2007-3: The AMO issued a "Marginal" rating in April 2004 and recommended that Freddie Mac components dealing with ResMAE "Proceed with Caution" given ResMAE's lack of an internal quality program and relaxed underwriting procedures, id. at 10411; the AMO placed ResMAE on a watch list in April 2007 due to a liquidity crisis; ResMAE later went bankrupt;
. Ownit, which issued ~42.4% of the loans backing NHELI 2007-2: The AMO, in August 2004, found controls "marginal" due to the originator's instability, and noted its practice of keeping "very inaccurate" loan data, id. at 10410; and
. Fremont, which backed entirely NHELI 2006-FM1 and NHELI 2006-FM2: After reviews in February 2004 and August 2005, the AMO found wide LTV variances, "data integrity issues, " and a large number of exceptions to the underwriting guidelines, id. at 10314 (brackets omitted).

         The GSEs' knowledge about the mortgage loan industry required a delicate information sharing arrangement between their Single Family Businesses and their PLS traders.

         On the one hand, the GSEs did not want to purchase loans or securitizations supported by loans that they knew were originated or aggregated by companies they did not trust. The Single Family Businesses' research proved helpful to the PLS traders in that regard; and indeed each GSE required that any originator that individually contributed more than a certain percentage (10% for Fannie, 1% for Freddie) of the total unpaid principal balance of a PLS be on its list of approved originators.

         On the other hand, the GSEs were concerned that its PLS traders would violate federal insider-trading laws if, before purchasing PLS, they reviewed the certain loan- specific information the Single Family Businesses considered in making purchases for their own aggregation practices. The GSEs accordingly limited their PLS traders' access to only the Single Family Businesses' reviews of originators' general practices. Fannie's PLS traders were given the final lists of approved originators; Freddie's were given the full counterparty review paperwork. PLS traders were not given access to any specific loan-level information for the transactions at issue.

         The SFCPRM and AMO also evaluated PLS sellers and maintained a list of approved PLS counterparties. Both Nomura and RBS were placed on the GSEs' lists of approved PLS sellers. In August 2004, the AMO rated Nomura's due diligence program "Satisfactory" based on Nomura's "good due diligence methodologies, reasonable valuation processes and sound controls." Id. at 3170. In a November 2006 review, the SFCPRM noted it had access to somewhat limited information to review RBS's diligence, but apparently accepted RBS's characterization of its practices as robust. Nomura I, 60 F.Supp.3d at 491.

         Despite ensuring that they purchased loans from approved originators and PLS sellers, the GSEs knew that there was still a risk that some defective loans could creep into SLGs for PLS certificates they purchased. The heads of the GSEs' PLS portfolios acknowledged in deposition testimony that they believed that loans in an SLG "would reflect the general underwriting practices of the originators responsible for those loans." J.A. 10323. That meant that "if an originator was not following its own guidelines and was contributing loans to the collateral for the pool, " the GSEs "would have expected that loans not underwritten to the originator's guidelines would then end up in the" SLGs. Id. at 10325 (emphasis added; internal quotation marks omitted). To limit that possibility, the GSEs required "rep[resentation]s and warrant[ie]s" from the approved PLS sellers for each certificate they purchased, believing that they could rely on those institutions to limit the number of the defective loans to an immaterial level. Id. at 1063; see also HSBC II, 33 F.Supp.3d at 471 ("[A Fannie employee] testified that Fannie Mae's 'process basically relied on the dealers and originators providing it with reps and warranties as to the validity of how these loans were underwritten.'" (brackets omitted)).

         b. The GSEs' Awareness of PLS Market Trends

         GSEs were also familiar with public information about the overall RMBS market in 2006 and 2007. This information included a growing number of reports of borrower fraud and lower underwriting standards among mortgage loan originators. Beginning in July and August of 2007, it also included reports that the three primary credit- rating agencies, Moody's, S&P, and Fitch, began to accelerate their negative views of RMBS.

         On July 10, 2007, Moody's downgraded the junior tranches of many RMBS-including Securitizations NHELI 2006-FM1 and NHELI 2006-FM2. The credit ratings for the senior tranches in these Securitizations did not change. Moody's attributed its downgrades to "a persistent negative trend in severe delinquencies for first lien subprime mortgage loans securitized in 2006." Nomura I, 60 F.Supp.3d at 498 (internal quotation marks omitted). Moody's noted that the supporting loans "were originated in an environment of aggressive underwriting" and that increased default rates were caused in part by "certain misrepresentations . . . like occupancy or stated income and appraisal inflation." Id. (internal quotation marks omitted; brackets omitted).

         That same day, S&P placed on negative rating watch a host of RMBS-but none of the Securitizations-citing "lower underwriting standards and misrepresentations in the mortgage market." Id. (internal quotation mark omitted). S&P questioned the quality of the data "concerning some of the borrower and loan characteristics provided during the rating process." Id. S&P made clear that, going forward, its ratings for ...

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