By Casey Sullivan
NEW YORK, Nov 26 (Reuters) - A federal appeals court on
Monday questioned whether federal regulators were too late in
suing UBS AG over accusations the Swiss bank misled Fannie Mae
and Freddie Mac into buying billions of dollars of risky
The outcome of the case before the 2nd U.S. Circuit Court of
Appeals in New York could have big implications for the Federal
Housing Finance Agency's securities fraud claims against an
array of other big banks.
UBS is seeking to reverse a lower court's finding that the
regulator's claims could proceed toward trial and were not
time-barred under the 2008 Housing and Economic Recovery Act,
which empowers regulators pursuing mortgage-backed securities
A three-judge panel of the court asked lawyers for the FHFA
and UBS whether the law had extended by three years the time
regulators could file claims for the suspected wrongdoing.
The FHFA last year filed claims against 17 banks over losses
suffered by housing finance giants Fannie Mae and Freddie Mac on
approximately $200 billion of mortgage debt. Losses on the
securities were a major factor in the 2008 financial crises. The
defendants include Bank of America Corp, Barclays Plc, Citigroup
Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Royal Bank
of Scotland Group Plc.
In the UBS lawsuit, the FHFA accused the bank of misleading
Fannie Mae and Freddie Mac into buying $6.4 billion of subprime
and other residential mortgage-backed securities.
In May, U.S. District Judge Denise Cote in Manhattan
dismissed UBS's argument that the FHFA claims were time-barred.
The bank had argued that legislators did not include a statute
of repose within the Housing and Economic Recovery Act to allow
three years -- the time FHFA needed -- to file claims against
the bank. As such, UBS claimed that the FHFA's claims were not
But in her ruling, Cote pointed to an extension of statute
of limitations within the Housing and Economic Recovery Act,
which she said was meant to give the FHFA extra time to fully
evaluate Fannie and Freddie's potential claims.
Jay Kasner, a lawyer representing UBS, was the first to make
his case before the three-judge panel, which consisted of
Circuit Judges Denny Chin and Raymond Lohier and stand-in U.S.
District Judge Paul Gardephe.
Chin interrupted Kasner before he finished his opening
statement, which began to detail the merits of his argument that
the statute of repose and statute of limitation are two
different things, and that Congress could not have substituted
one for the other interchangeably when passing the Housing and
Economic Recovery Act.
"What is there to suggest that the Congress meant to
differentiate between the statute of repose and the statute of
limitation?" Chin asked. "Doesn't your position undermine the
intent of the statute?"
Judge Lohier asked Kathleen Sullivan, a lawyer for FHFA,
whether the law included a statute of repose, and whether there
was any ambiguity about the time extension within the act.
Sullivan said there was not an explicit statute of repose
within the law but there was no ambiguity about the time
extension. She said the judges should interpret the act in the
context of Congress's overall intent to give the FHFA "robust
expansive powers" to spend sufficient time preparing claims.
The cases are Federal Housing Finance Agency v. UBS Americas
Inc, U.S. District Court, Southern District of New York, No.
11-05201; and FHFA v. UBS, 2nd U.S. Circuit Court of Appeals,
For UBS: Jay Kasner of Skadden, Arps, Slate, Meagher & Flom.
For the Federal Housing Finance Agency: Kathleen Sullivan of
Quinn, Emanuel, Urquhart & Sullivan.
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