“USD 105,000,000 Aaa/AAA (Moody’s, S&P) tranche. No investment in AA required. Spread: 1.40% in managed format or at 1.60% in static format Pool. Min Rating A2”
“the good risk-return-profile for the Class [A] (Aaa/AAA) yielding up to 150bps” and “the underlying portfolio constraints (minimum rating of A2)”, i.e. the fact that each of the 100 RMBS in the proposed Reference Portfolio was assigned a credit rating of A2 or higher. A strength of the proposed transaction was identified as: “Rating levels of underlying assets (min. A2/A rating)”
“[1] From May 2005 through 2007, Credit Suisse Securities (USA) LLC, itself and through certain of its U.S affiliates (collectively “Credit Suisse”, securitized hundreds of thousands of residential mortgage loans into residential mortgage-backed securities (“RMBS”). It sold these RMBS for tens of billions of dollars to investors. In marketing and selling its RMBS, Credit Suisse made numerous representations about the quality and characteristics of the underlying loans. These representations were made to RMBS investors and potential investors, ratings agencies and others. As described below, in the diligence process, Credit Suisse repeatedly received information indicating that many of the loans reviewed did not conform to the representation that would be made by Credit Suisse to investors about the loans to be securitized. … II. Credit Suisse’s Representation to Investors [4] In connection with its RMBS offerings on principal transactions, Credit Suisse made representations about the loans it securitized. Those representations often varied from securitization to securitization. Credit Suisse made representations that, among other things: 1. The loans were originated generally in accordance with applicable underwriting guidelines, with exceptions to those guidelines being made when sufficient compensating factors were demonstrated by a prospective borrower. 2. For each loan, a determination had been made by the originator that the borrower had the ability to repay the monthly obligations on the loan and other debts. 3. Beginning in early 2006, Credit Suisse modified its representation in certain offering documents to state that each Correspondent loan was “in fact” originated in accordance with Credit Suisse’s underwriting guidelines or guidelines that did not vary materially from such guidelines and that Credit Suisse “employed…certain quality assurance procedures designed” to ensure that such loans were originated in accordance with the underwriting guidelines. 4. Each loan had been originated in compliance with all federal, state and local laws and regulations, including all predatory and abusive lending laws. 5. For each loan, the adequacy of the mortgaged property as security for repayment generally had been determined by an appraisal in accordance with pre-established appraisal procedure guidelines for appraisals established by or acceptable by the originator. 6. The loans had various characteristics, including certain loan-to-value (LTV) ratios disclosed to the trustee in Mortgage Loan Schedules for each loan. The distribution of these LTVs in five-to-ten percent bands was also included in prospectus supplements. Other characteristics, such as borrower FICO scores, were disclosed as well. Credit Suisse represented to the trustee that these characteristics about the loans were complete, true and correct for the loans as of the cut-off date for the securitization. 7. None of the loans had a loan-to value ratio or, with respect to second lien mortgages, a combined loan-to-value ratio, in excess of 100 (i.e., none of the loans were “underwater”). 8. Credit Suisse ‘will not include any mortgage loan in [the RMBS] if anything had come to [its] attention that would cause it to believe that the representations and warranties of a seller will not be accurate and complete in all material respects in respect of the related mortgage loan’. [5] Credit Suisse also represented that if it later learned that any loan RMBS breached its representations in a material respect, it would cure the breach or repurchase or substitute that loan from the RMBS. [6] In various marketing materials, Credit Suisse made additional representations about the loans it securitized into RMBS, and its process for reviewing loans before it selected them to securitization. In these marketing materials, Credit Suisse told investors and others, among other things: 1. Credit Suisse conducted a ‘rigorous due diligence process’ for reviewing loans; 2. All final loan decisions were made by Credit Suisse senior underwriters, not third-party contractors. 3. Credit Suisse conducted ‘quality control’ reviews on its loans after purchasing or originating them. [7] As Credit Suisse employees discussed internally, Credit Suisse made these representations in order to ‘convince investors and insurers that [its] disciplined approach to underwriting [its] multi-layered origination process, and an eligibility matrix that utilize[d] a more layered risk of performance will result in an acceptable level of delinquencies for [its] products’. … III Credit Suisse's RMBS Business [8] …The senior traders reported that a number of the loans had gone delinquent or into foreclosure within a few months after Credit Suisse sold the RMBS to investors. The Co-Head of the Structured Products Group responded, ‘of course we would like higher quality loans. That’s never been the identity of our conduit, and we’re becoming less and less competitive in that space”
“I figure I could just capitulate… and keep buying all [these] crappy loans, but that would be suicide. And we still have almost$2.5 B of conduit garbage to still distribute. [9] In October 2005, Credit Suisse’s Head of Credit and Underwriting wrote to two senior Credit Suisse traders and others, ‘we are selling and securitizing loans with missing docs all the time through the other desks’ (Missing documents included borrower credit reports, verifications of borrower income and assets, property appraisals and legal compliance documents such as HUD-1 statements and Truth in Lending Act disclosures.) The Head of Credit and Underwriting continued: ‘it only becomes an issue when we are asked to repurchase the loan or we receive a complaint from a customer’. [10] In April 2007, Credit Suisse’s Co-Head of Transaction Management wrote to the Head of Credit and Underwriting and two senior traders that loans with potential defects ‘pile up in inventory and they won’t be put back to originators (we are disproportionately the originator) So my theory is: we own the risk, 1 way or another, I don’t want to securitize the loans that are obviously Section 32 cost, Georgia Fair Lending disasters with unlimited assignee liability and criminal sanctions. But I am inclined to securitize loans that are close calls or marginally non-compliant and take the risk that we’ll have to repurchase if we can’t put them back, rather than adding to sludge in inventory. I think when we review the first month report, we’ll see how it shakes out in actual practice’. One of the senior traders responded, ‘agree’. … IV. Credit Suisse’s Credit and Compliance Review of Bulk Loans … [15] Credit Suisse told investors and rating agencies that it used a propriety risk analysis model in its sampling process to identify high-risk loans in Bulk pools. The purpose of this model was to flag these high-risk loans for inclusion in due diligence samples. In many instances, however, Credit Suisse excluded loans that its own model has flagged as high risk from its samples. Through this practice, Credit Suisse approved some of these flagged loans without any credit or compliance due diligence review. Credit Suisse did not disclose this practice to investors. Examples: [16] 1. In December 2006, Credit Suisse bid on a Bulk pool of approximately 10,000 loans originated by Countrywide Home Loans (“Countrywide”). Before the bid, the senior Credit Suisse trader bidding on the pool wrote in an email, ‘amazing that 8% of the pool is already delinquent after 10 months, when a large part of it is Jumbo A!!!’. He stated that the pool was ‘obviously plugged with the worst paper’. The senior trader then bid to purchase this pool and, when he was informed that Credit Suisse was the winning bidder, wrote in an email, ‘I’m ecstatic’ with this trade. [17] Credit Suisse selected fewer than 10 percent of these loans for due diligence review. Reports from Credit Suisse’s due diligence vendors showed that approximately 85 percent of the loans in this sample violated Countrywide’s underwriting guidelines and/or applicable law. These loans included, for example, loans whose borrowers had debt-to-income ratios that were more than 10 percent higher than the amount allowed by underwriting guidelines; loans that were missing appraisal documents and loans flagged for ‘potential fraud’. The Credit Suisse due diligence manager overseeing this review reported that Credit Suisse’s vendor ‘has found a number of guideline exceptions (fico score exceptions LTV [loan-to-value] exceptions, Program exceptions) [.] However, I am not rejecting for these items’. The Co- Head of Credit Suisse’s Transaction Management department wrote to the due diligence manager ‘thanks for working thru this mess. If it helps, it looks like we will make a killing on this trade’. [18] Credit Suisse securitized over half of these loans into various RMBS it then sold to investors. Credit Suisse additionally securitized an additional$1.5 billion worth of unsampled – and therefore unreviewed – loans from this pool into various RMBS it then sold to investors. [19] In October 2005, Credit Suisse bid on a Bulk pool of approximately 4000 loans from Wells Fargo Bank. Credit Suisse’s risk analysis model flagged approximately 2900 loans in the pool for heightened due diligence due to their risks. Among other things, Credit Suisse’s risk analysis model estimated that approximately 2000 loans in this pool had a greater-than-5 percent likelihood that the borrowers would miss three or more monthly payments in a row within their first twelve months and flagged these loans for heightened due diligence. Credit Suisse represented to ratings agencies. ‘To choose the sample from the Wells pool, the loans first were run through our propriety due diligence sampling model, which identifies loans for review based on credit characteristics, compliance (via location of subject loan) and soft market/fraud areas. Those chosen for full credit and compliance review consisted generally of those loans which the model found displaying the most risky characteristics’. [20] But Credit Suisse wrote to Wells Fargo that ‘We are working to reduce this due diligence sample” and “We have worked to reduce this sample further’ and sent its vendor a list of over 1,500 loans – over 58 percent of its sample – with the instructions ‘REMOVE from sample’. Over 2,900 of the loans in this pool were flagged by its model, but Credit Suisse excluded approximately 60 percent from the due diligence sample it sent to its vendor. Credit Suisse’s Head of Credit and Underwriting wrote in an email that these removed loans ‘would not receive a credit, compliance, and in-file appraisal review [.]’…. V. Credit Suisse’s Credit and Compliance Review of Conduit Loans [22] Credit Suisse did not review Conduit loans in the same way that it reviewed Bulk loans. Instead of using Bulk due diligence vendors, Credit Suisse contracted with different third-party vendors known as “fulfillment centres” to conduct this review. CS designed the Conduit such that these fulfilment centres had the ability and authority to approve loans for purchase. When fulfillment centres approved loans, Credit or Underwriting employees rarely reviewed the loans or the approvals. Credit Suisse represented to investors, ratings agencies and others that ‘Credit Suisse senior underwriters make loan decisions, not contracted due diligence firms’. For Conduit loans, these representations were false. As Credit Suisse employees discussed in internal emails, the loan review and approval process for Conduit loans was “virtually unmonitored”
‘we make these underwritings exceptions and then we have liability down the road when the loans go bad and people point out that we violated our own guidelines…. The fulfillment process is a joke’. … VI. Credit Suisse’s Valuation Review of Loans [29] Credit Suisse reported property values in its offering documents, as part of a ratio called the loan-to-value (LTV) ratio. This ratio reflected the size of a loan compared to the ‘value’ of the underlying property. For purchase transactions, the “value” was established by using the lower of the appraisal or the purchase price at the time of origination. For refinance transactions, the value was established by an appraisal. … [32] During this period, Credit Suisse employees were aware that the LTVs may have been calculated using appraisals with values that were inflated, and that Credit Suisse’s approach could lead to the acceptance of inflated appraisals. As Credit Suisse’s Head of Credit and Underwriting wrote in a November 2006 email ‘originators can get away with potential appraisal inflation as long as it stays within 15%’. [33] Credit Suisse employees expressed concern that loans with inflated appraisals were being approved as within its tolerance. For example, in August 2006, Credit Suisse’s Head of Credit and Underwriting emailed two CS senior traders in connection with loans Credit Suisse was buying from Accredited Home Lenders. He wrote, ‘20+% of their loans have value issues >20% off – that is unheard of. [Accredited] is acknowledging that their values are inflated. There should be a 0% variance from an originator[’s] standpoint. [Accredited] is saying that [it] knows and is okay with [its] values being off by up to 15%. Some would say this is predatory and criminal. How would investors react if we say that 20% of the pool have values off by 15%? If we are comfortable buying these loans, we should be comfortable telling investors.’ [34] From May 2005 through 2007, Credit Suisse received reports from vendors that it might have been acquiring and securitizing loans with inflated appraisals. During this period, despite those reports, Credit Suisse chose to continue to apply for a 10-15 percent tolerance. In early 2007, Credit Suisse’s Head of Credit and Underwriting wrote an email proposing to tighten Credit Suisse’s variance ‘tolerances’ to 10 percent for loans with LTVs below 75, and to 5 percent for loans with LTVs above 75, to ‘address the issues of inflated appraisal values and one of the issues that create the high severity numbers we are seeing today’
“L30’s case in relation to the RMBS Misconduct takes as its starting-point the admissions made in the SOF”, or in oral closing its description of the SoF as being of “foundational significance”) and because its status was hotly in issue. L30 says that it follows that the RMBS Misconduct which it alleges “plainly did not happen accidentally”
“’In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system,… Deutsche Bank knowingly and intentionally securitized loans originated based on unsupported and fraudulent appraisals. Deutsche Bank knew that mortgage originators were ‘giving' appraisers the value they want[ed]’ and expecting the resulting appraisals to meet the originators' desired value, regardless of the actual value of the property. Deutsche Bank concealed its knowledge of pervasive and consistent appraisal fraud, instead representing to investors home valuation metrics based on appraisals it knew to be fraudulent. Deutsche Bank misrepresented to investors the value of the properties securing the loans securitized in its RMBS and concealed from investors that it knew that the value of the properties securing the loans was far below the value reflected by the originator's appraisal…. Deutsche Bank will also provide$4.1 billion in the form of relief to aid consumers harmed by its unlawful conduct.”
“On18 January 2017 , the US Department of Justice (“DOJ”) and CSUSA entered into a settlement (the “DOJ Settlement” - enclosed), in which CSUSA acknowledged the facts set out in a statement annexed to the DOJ Settlement at Annex 1 (the “Statement of Facts”) The Statement of Facts sets out representations made by CSUSA to its RMBS investors in respect of the Covered Conduct, and facts which demonstrate that CSUSA knew at the time those representations were made that they were false, and therefore fraudulent (the “RMBS Fraud”). Put simply, CSUSA was (i) packaging residential mortgages in RMBS and selling those securities to investors, and (ii) knowingly making false representations about the quality and characteristics of those mortgage loans to RMBS investors. This was a systematic and serious fraud conducted by the bank. The relationship between the DOJ Settlement and the Magnolia Notes Seven of the Credit Suisse originated RMBS included in Annex 3 to the DOJ Settlement as the subject of RMBS Fraud admissions were subsequently included in the Magnolia Notes’ reference portfolio. The Magnolia Notes therefore included as part of its reference portfolio the very RMBSs to which Credit Suisse’s RMBS Fraud in part related. The fact that these seven RMBS were known by CSUSA to have been the subject of its now admitted fraudulent activities was not disclosed in the Series Memorandum for the Magnolia Notes, nor was it otherwise disclosed to Loreley 30 or its investment advisor, IKB Credit Asset Management GmbH (“IKB-CAM”) which dealt with Credit Suisse in relation to the Magnolia Notes on behalf of Loreley 30. The admission by CSUSA of the facts set out in the Statement of Facts is incontrovertible evidence that the Defendants knew at the time the Magnolia Notes were being arranged and marketed that it was not conducting itself honestly in relation to the underlying subject matter of the transactions (namely the pooling, structuring, arranging, formation, packaging, marketing, underwriting, sale or issuance of the RMBS listed in Annex 3 and included within the Magnolia Notes reference portfolio). There can be no question that the RMBS Fraud (which CSUSA has admitted was knowingly dishonest) was known to the [Credit Suisse Structured Credit Group] and to the corporate entities used to carry out the business of the [Credit Suisse Structured Credit Group]. Moreover, the Defendants could only have procured the necessary AAA rating for the Magnolia Notes from S&P and Moody’s by concealing its RMBS Fraud from the credit ratings agencies and without that, Loreley 30 would not have purchased the Magnolia Notes. Loreley 30’s Claim In brief outline, we summarise below the principal basis on which these claims arise. Fraudulent misrepresentation Loreley 30 purchased the Magnolia Notes in reliance upon representations made by CS Europe and/or CSI and/or CSUSA relating to the quality and characteristics of the RMBS securities that comprised the Magnolia Notes’ reference portfolio. In particular, in putting forward the transaction that was structured and arranged the relevant Credit Suisse Defendants made implied representations including (among other matters and in broad summary) that: (i) They had no reason to believe that the reference portfolio would contain any RMBS that was known by Credit Suisse to contain underlying loans that failed to conform with the relevant offer documents or underwriting criteria; (ii) In respect of any RMBS contained in the reference portfolio that Credit Suisse had itself structured or distributed, Credit Suisse had acted honestly in structuring and distributing the RMBS and was not engaged in the practice of knowingly securitising loans that failed to conform with offer documents or underwriting criteria; (iii) In respect of the ratings of both the Magnolia Notes, and the RMBS contained in the reference portfolio for which Credit Suisse had itself procured ratings, that Credit Suisse had acted honestly in procuring the relevant ratings from the credit rating agencies”
“Postponement of limitation period in case of fraud, concealment or mistake (1) …where in the case of any action for which a period of limitation is prescribed by this Act, either - (a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the [claimant’s] right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the [claimant] has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”
“I accept [the] submission that there is nothing in the authorities which requires the Court … to confine its attention to the case as pleaded by the claimant. Normally of course one would expect the claim as found to reflect the claimant’s pleaded allegations, but one can envisage a case where the pleading contains allegations that are not pursued or turn out not to be well-founded, but where the judge nevertheless finds there to have been a fraud. It seems wrong in principle, and a distraction, to ask when the claimant discovered allegations which in the end went nowhere: the question is when he discovered the essential facts of the fraud found proved by the Court.”
“Where the defendant has deceived the claimant into entering into a transaction by telling more than one lie, what happens if the claimant discovers that one lie is untrue but does not then bring a claim, and then some years later discovers that a second lie is untrue?”
“L30 is content to proceed on the assumption that L30 either knew or could with reasonable diligence have known of (i) public material in all proceedings in the United States which CS relies upon and (ii) the contents of the FCIC and Levin reports (and their exhibited materials). This renders redundant (and will avoid the Court needing to embark on) any factual enquiry into whether any such claim/report in the public domain actually came to the attention of a particular Loreley director... L30 is content to proceed on the basis that, at all material times, KfW and L30 were reasonably attentive as to whether the Loreley companies may have potential claims against the banks which sold CDOs in respect of the Rhineland portfolio, including the Magnolia Notes. Therefore, if there had been material in the public domain from the US claims/reports which would have enabled L30 to bring its fraud claim, it can be assumed that such material would have come to the attention of L30 for the purpose of considering a potential claim against CS.”
“the New York Times noted in a September 26, 2010, article, ―[b]ecause these loan samples were provided to the Wall Street investment banks that commissioned them, they could see throughout 2006 and into 2007 that the mortgages they were financing and selling to investors were becoming increasingly sketchy.”
“a host of financial institutions that originated, sold, and securitized billions of dollars in high risk, poor quality home loans that inundated U.S. financial markets. Many of the resulting securities ultimately plummeted in value, leaving banks and investors with huge losses that helped send the economy into a downward spiral. These lenders were not the victims of the financial crisis; the high risk loans they issued were the fuel that ignited the financial crisis…. Two case studies, … illustrate a variety of troubling practices that raise conflicts of interest and other concerns involving RMBS, CDO, CDS, and ABX related financial instruments that contributed to the financial crisis.”
“Whereas the Parties anticipate litigation… against the Arranging Banks, Managers, Magnetar and others … in connection with the CDOs… (the “CDO Litigation Project”)… Whereas this agreement confirms that the parties and the undersigned counsel have already been in communication regarding the Anticipated Actions and the CDO-Litigation Project …”
“The Clayton trending reports described at paragraph 86 above, and summarized by the FCIC, have also documented that Credit Suisse routinely ‘waived’ into loan groups mortgage loans that did not comply with underwriting guidelines and without adequate consideration of compensating factors…. internal Clayton documents show that, contrary to Defendants' representations, a startlingly high percentage of loans reviewed by Clayton for Credit Suisse were defective, but were nonetheless included by the Defendants in loan groups sold to investors. According to a trending report made public in September 2010, Clayton found that 32 percent of the 56,300 loans that it reviewed for Defendants received the worst possible grade, i.e., they failed to conform to standards. Id. at 167. Credit Suisse ‘waived’ into its groups one-third of those toxic loans that Clayton had identified as being outside the guidelines.”
“In order to meet Plaintiffs’ investment criteria, Certificates had to have an investment rating of at least BBB– and at least 77% (or at certain times, more) of Plaintiffs’ investment portfolio was required to have a rating of A or higher. As explained above, the investment ratings of the Certificates were a direct product of Defendants’ misrepresentations concerning the loan pool.”
“All of Plaintiffs’ Certificates received investment grade ratings at issuance as a result of the Issuer Defendants’ misrepresentations concerning the credit risk of the underlying loan pools. The vast majority of the Certificates have since been downgraded to junk status.”
“even though the reports from Clayton gave notice to Defendants that on average 32% of the sampled loans did not comply with underwriting guidelines or possess compensating factors, Defendants failed to conduct any additional review of the loans not yet sampled. In other words, even though they knew that the un-sampled set would contain approximately the same proportion of bad loans (as such is the purpose of sampling), Defendants ignored this obvious defect, and instead, placed all of the un-sampled loans into the Securitizations as well.”
“because of the substantial overlap in high-level personnel, the knowledge of each entity with an overlap can be attributed to the others with which it overlaps: a director, officer, or high-level employee does not forget what he knows about the operations of an entity when he changes hats to work for its affiliates.”
“Q. Everything in (a) you knew in 2012, didn’t you, because it’s what the Clayton report said? A. Yes. Q. So you could have alleged that in 2012; yes? A. (Pause) Yes.”; Q. So you could have alleged that in 2012; yes? ii) Mr Bulgrin was asked about the use to which the knowledge contained in the IKB complaint could have been put: “Q. So would you accept that the IKB complaint contained allegations of fraud pleaded on a similar basis to the claims that numerous Loreley SPVs had brought against Deutsche Bank? A. At least in part. Q. Yes, and would you accept that the IKB complaint contained material which could be used to allege fraud against Credit Suisse in relation to the Magnolia notes? A. Yes…. Q. Would you accept that Kasowitz could easily have replicated the approach taken in the IKB complaint in putting together a claim against Credit Suisse in relation to the Magnolia notes? A. Copy and paste, yes, Kasowitz could have or Meister Seelig or any kind of law firm, could have copy and pasted what you showed me in the IKB complaint and write it in their own complaint …”; iii) Indeed looked at at the RMBS level, Mr Bulgrin seemed to regard a claim at this stage as obvious: “Q. … you would have thought there was sufficient linkage [to bring a claim] if Loreley 30 had invested directly in the RMBS rather than in the CDO; yes? A. Had a JPC invested in the same RMBS it would have struck me, the same RMBS in the same manner, and just the RMBS, it would have struck me odd not to bring a claim or being advised that not to bring a claim against Credit Suisse.”
“It did not occur to me that there was any sufficient linkage to merit any further follow-up between (i) IKB's action concerned with RMBS and (ii) any claim that the SPCs might have in relation to CDOs.”
“In determining whether there has been an express representation, and to what effect, the court has to consider what a reasonable person would have understood from the words used in the context in which they were used. In determining what, if any, implied representation has been made, the court has to perform a similar task, except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context.”
“Where there is no express misrepresentation, the first question to ask is whether there has been any implied misrepresentation at all and, as with any other type of contract, the essential issue is whether in all the circumstances relating to the entering into of the contract of guarantee or indemnity, including in particular (a) the nature of the contract between the beneficiary and the principal debtor, (b) the conduct of the beneficiary and (c) express representations made by him to the surety, it has been impliedly represented to the surety that there exists some state of facts different from the truth. In evaluating the extent of the beneficiary’s conduct a helpful test is whether, having regard to the beneficiary’s conduct in such circumstances, a reasonable potential surety would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it.”
“The present case appears to be the first in which Colman J's test has been considered by the Court of Appeal. We do think it is a helpful test, in relation to the existence of an implied representation, to consider whether a reasonable representee would naturally assume that the true state of facts did not exist and that, if it did, he would necessarily have been informed of it. To that extent we would approve the dictum …. but that is not to water down the requirement that there must be clear words or clear conduct of the representor from which the relevant representation can be implied.”
“The general principle that there is no obligation to speak within the context of negotiations for an ordinary commercial contract (though qualified by the well known special principles relating to contracts uberrimae fidei, fraud, undue influence, fiduciary duty, etc.) is one of the foundations of our law of contract, and must have been the basis of many decisions over the years. There are countless cases in which one party to a contract has in the course of negotiations failed to disclose a fact known to him which the other party would have regarded as highly material, if it had been revealed. However, ordinarily in the absence of misrepresentation, our law leaves that other party entirely without remedy.”
“the concealment of dry rot by Mr Azzam was a knowingly false representation that Flat C did not suffer from dry rot”; ii) Spice Girls Ltd v Aprilia World Service BV [2002] EMLR 27 at [34] participation in a photoshoot implied a representation that “SGL did not know and had no reasonable grounds to believe at or before the time of entry into the agreement that any of the Spice Girls had an existing declared intention to leave the group during the minimum term of the Agreement”; iii) HIH Casualty v Chase Manhattan Bank [2003] 1 CLC 358 at [15] per Lord Bingham: “each party will assume the honesty and good faith of the other; absent such an assumption they would not deal”; iv) Man v Freightliner[2005] EWHC 2347 (Comm) at [78]-[79]. From a number of meetings was spelt out a representation that accounts had been prepared honestly; v) IFE Fund: in supplying information about a transaction, the bank was acting in good faith and not knowingly putting forward information likely to mislead; vi) Graiseley Properties v Barclays Bank[2013] EWCA Civ 1372 [27]-]28]: it was arguable that in proposing the use of LIBOR the banks impliedly represented that their own participation in the setting of the rate was an honest one; vii) UBS v KWL[2014] EWHC 3615 (Comm) at [740], [747]: the bank impliedly represented that it believed in the honesty of the counterparty and that it did not know that the transaction was tainted by bribery and conflict of interest; viii) PAG [132] the Court of Appeal held that by proffering a swap transaction linked to LIBOR it was a “comparatively elementary representation” that “RBS itself was not manipulating and did not intend to manipulate LIBOR”; ix) Marme Inversiones 2007 v Natwest Markets[2019] EWHC 366 (Comm) at [158]: following PAG in holding that there was an implied representation that “RBS was not itself manipulating, and did not intend to manipulate or attempt to manipulate, EURIBOR.”
“Q. … there was nothing in that information barrier that would have prevented somebody in the RMBS Group of Credit Suisse from discussing the sorts of problems, the types of problems, that were being encountered with someone from the CDO Group, would there? A. You’ve got to be kidding me, sir, that would be a tip. … Barred by insider trading rules in the United Kingdom and in the United States for, you know, a generation now.”
“[it] is not to say that such an investor would have been expected to read the offering documents”
“The essence of these representations is that CS was unaware of any conduct on its part which tainted the credit quality of the Notes or the .. CS RMBS or which otherwise undermined the reliance which could be placed by an investor in L30’s position on the credit ratings ascribed both to the Notes and the .. CS RMBS.”
“RBS was undoubtedly proposing the swap transactions with their reference to LIBOR as transactions which PAG could and should consider as fulfillment of the obligations contained in the loan contracts”
“(a) On any given date up to and including the date of each of the swaps: LIBOR represented the interest rate as defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11 am on that date … (b) RBS had no reason to believe that on any given date LIBOR represented anything other than the interest rate defined by the BBA, being the average rate at which an individual contributory panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11 am on that date … (c) RBS had not made false or misleading LIBOR submissions to the BBA and/or had not engaged in the practice of attempting to manipulate LIBOR such that it represented a different rate from that defined by the BBA …”
“CS impliedly represented that L30, as a prospective investor, would be able to make an informed determination of the value and credit quality of the Reference Obligations.”
“Asset Backed Securities Market: The Reference Obligations will consist of asset backed securities, which are subject to a variety of risks that may adversely affect creditworthiness and/or performance of the Issuer and that could adversely affect demand for the Notes generally. Each prospective investor must make its own independent determination of the value and credit quality of the Reference Obligations.”
“Risky Investment: Investing in the Notes involves substantial risks and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the merits of an investment in the Notes. The Notes will not be principal protected and investors in the Notes are exposed to full loss of principal. Only prospective investors who can withstand the loss of their entire investment should buy the Notes.”
“In preparing, approving and supplying the draft Series Memoranda, CS impliedly represented that it was acting in good faith, that is, not knowingly putting forward information in the draft Series Memoranda that was likely to mislead.”
“How was the reference to RMBS which CS had ‘structured, arranged, underwritten, issued, marketed or sold’ (which features in each of the Category C ... Representations) somehow said to be conveyed implicitly? How would the reasonable observer have picked up, from the mere offer of sale of the Notes, that CS was making representations covering all of these highly specific roles/activities and not merely some or other of them?”
“I think it is clear that the essential honesty of the accounts was fundamental to the discussions between the parties. Dr. Schubert said that MN would have withdrawn from the negotiations immediately if it had discovered that Mr. Ellis had been deliberately manipulating ERF’s books in any material respect, and one can well see why.” iv) UBS v KWL[2014] EWHC 3615 (Comm) . In this case Males J held that UBS had impliedly represented that it had no knowledge that a putative transaction was tainted by dishonesty. Males J held at [785] that reliance was established. L30 says that he made no finding that the representee had any conscious awareness of the representation and that the judge held that reliance was satisfied by asking what the representee would have done had it known the true state of affairs: “I have no doubt that Depfa relied on both misrepresentations in entering into the Depfa Back Swaps. If it had been told that UBS knew that the intermediary advising KWL was dishonest or that the transaction which UBS had already concluded was tainted by a conflict of interest affecting that intermediary, it would have had nothing to do with this proposed deal. I accept the evidence of the Depfa witnesses to this effect.” v) IFE v Goldman Sachs International[2006] EWHC 2887 (Comm) , was one of the cases where it was held that the implied representations as alleged were not made. The court then considered the situation had such representations been made. On this the claimant’s witness (Mr Mitjavile) accepted in his evidence that he did not understand the bank to have made any representations on which he could rely; but that had he known the true position, he would not have proceeded with the transaction. Toulson J at [78]-[81] left the contingent issue of reliance (which did not arise on his findings) unresolved. The issue was, however, addressed obiter by Waller LJ on appeal. At [28] Waller LJ stated: “I am very doubtful whether [Goldman Sachs] would succeed simply on the issue of inducement by reference to Mr Mitjavile’s evidence. It is true he said he did not rely on any representation and that may be relevant to whether there was misrepresentation, but if there was a misrepresentation what one would then have to ask is what would have occurred if the misrepresentation had [not] been corrected.”
“where the evidence is that, had the claimant known the true position, he would have acted differently, that in itself demonstrates that the fraudulent misrepresentation, which by definition does not reveal the true position, “was actively present to the mind” of the victim of the fraud to a sufficient extent to establish inducement.”
“may not be sufficient, either. If it were, a claimant who gave no thought to any representation, or did not understand it to have been made, might be entitled to recover.”
“Unless one understands the representation is being made, it is difficult to see how it can be said to have been relied upon.” ii) Innovatorone at [906]: “In so far as the Claimants were alleging implied representations it was incumbent on them to prove that such representations were understood to have been made since otherwise there could be no reliance.”
“The case before me is very different from Leeds (and indeed PAG and Marme). The conduct, and the representations to be implied therefrom, as pleaded at para 63 of the GPOC (albeit at some length) are both in fact relatively simple. They are not to be spelled out from a complex web of communications. And while in Leeds it was to be assumed that the implied representations have been made out, it cannot be denied that the whole context was one where the implied representations might have been difficult to establish and indeed were positively rejected in PAG and Marme.”
“on the facts as found it is clear that all concerned (the waiter, the respondent and his companions) proceeded on the basis that an ordinary customer would pay his bill before leaving. The waiter would not have accepted the order or served the meal had there not been the implied representation. a clear invocation of the [counterfactual of truth]. The analysis appears to proceed at least at some points on the basis that there is a "conscious thought"/counterfactual of truth dichotomy, rather than the more nuanced approach I was attempting to convey in Leeds. Later in the judgment he considered that if (as I saw it) one viewed Ray as a case of awareness, in the sense of quasi-automatic awareness, it offered a parallel for the VW purchasers. That analogy might well be seen as apt based on the much simpler factual background,”
“while the claimant could readily say that had he known of the dry rot etc he would not have purchased, it is hard to see how he could have been ‘consciously aware’ of the representation as distinct from making an assumption.”
“The law must be careful not to run ahead of popular morality by stigmatising as fraudulent every trivial act designed to make buildings or goods more readily saleable, even if a highly scrupulous person might consider it dishonest. But it is to my mind quite a different matter for an intending vendor to hide so sinister and menacing a defect as active dry rot. The case is fairly comparable, in my view, with the concealment of cracks indicating the settlement of foundations, considered in Ridge v Crawley …, and, in the Court of Appeal …. There the plaintiff relied on a combination of words and conduct, but I believe it to be the law that conduct alone can constitute a fraudulent misrepresentation (see Horsfall v Thomas (1862) 1 H & C 90 and Smith v Hughes (1871) LR 6 QB 597). In my judgment the concealment of dry rot by Mr Azzam was a knowingly false representation that Flat C did not suffer from dry rot, which was intended to deceive purchasers, and did deceive the plaintiffs to their detriment. I am satisfied that the plaintiffs would not have entered into a contract or accepted the lease had they known there was dry rot inside Flat C.”
“I think it is clear that the essential honesty of the accounts was fundamental to the discussions between the parties. Dr. Schubert said that MN would have withdrawn from the negotiations immediately if it had discovered that Mr. Ellis had been deliberately manipulating ERF’s books in any material respect, and one can well see why.”
“I have no doubt that Depfa relied on both misrepresentations in entering into the Depfa Back Swaps. If it had been told that UBS knew that the intermediary advising KWL was dishonest or that the transaction which UBS had already concluded was tainted by a conflict of interest affecting that intermediary, it would have had nothing to do with this proposed deal. I accept the evidence of the Depfa witnesses to this effect.”
“Subparagraph or row (35), the reference there is to subparagraph (68) below, but that chiefly concerns Mr Sack’s evidence in cross−examination on what he thought the email meant. That is of course irrelevant to Mr Vibert’s knowledge.”
“FYI... this is indicative of what we spend our time on every day here in the field. We tell our investors that we do 100% due diligence on LBL, but then when we have a competent QC firm do an underwriting review, they flag all kinds of errors that our fullfillment centers did not catch….Our fullfillment process is broken.”
“Messrs Sacco, Nordyk and Sack graphically corroborated the serious and systemic flaws within Credit Suisse’s RMBS business, their awareness of it and the failure by Credit Suisse so take any or certainly any meaningful steps to remedy those failures. The upshot: such serious and systemic misrepresentation of RMBS credit risk to investors and rating agencies to the knowledge of Credit Suisse is beyond serious argument and certainly proved on the balance of probabilities.”
“I’m going to suggest to you, Mr O’Driscoll, that you have exaggerated the degree of separation of the CDO and RMBS groups within Credit Suisse at the time … And in those circumstances, …, I suggest it’s likely that you did know about the statement of facts issues or at least some of them by the time of the .. transaction.”
“Due to Mr Daniel’s failure to give evidence, the prima facie case against them [sic] is unanswered and is made out; and/or an adverse inference should be drawn against them [sic] that they [sic] knew of the falsity and re liable for fraud as L30 alleges.”
“(1) Without prejudice to Regulations 24 and 25, a prospectus shall contain all information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading, is necessary to enable investors to make an informed assessment of - (a) the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of any guarantor, and (b) the rights attaching to such securities.” ii) Paragraph 3(2) of Schedule 1 provides that (among others) the following persons are responsible for the contents of a prospectus: “… (d) if the case involves an offer of securities to the public, the offeror of the securities, if this is not the issuer; (e) if the case involves the admission to trading of securities, the person seeking admission, if this is not the issuer; … (f) each person not falling within any of the preceding provisions of this subparagraph who has authorised the contents of the prospectus.” iii) Section 41 of IFCMPA provides as follows: “Subject to sections 42 and 43, the following persons shall be liable to pay compensation to all persons who acquire any securities on the faith of a prospectus for the loss or damage they may have sustained by reason of— (a) any untrue statement included therein, or (b) any omission of information required by EU prospectus law to be contained in the prospectus, namely— … (ii) the offeror of securities to which the prospectus relates, (iii) every person who has sought the admission of the securities to which the prospectus relates to trading on a regulated market, … ”
“[11] Conspiracy being a tort of primary liability, the question what constitute unlawful means cannot depend on whether their use would give rise to a different cause of action independent of conspiracy. The real test is whether there is a just cause or excuse for combining to use unlawful means. That depends on (i) the nature of the unlawfulness, and (ii) its relationship with the resultant damage to the claimant. This was the position reached by the House of Lords in Revenue and Customs Comrs v Total Network SL[2008] 2 All ER 413 ,[2008] 1 AC 1174 . The Appellate Committee held that a criminal offence could be a sufficient unlawful means for the purpose of the law of conspiracy, provided that it was objectively directed against the claimant, even if the predominant purpose was not to injure him. … [15] The reasoning in Total Network leaves open the question how far the same considerations apply to non-criminal acts, such as breaches of civil statutory duties, or torts actionable at the suit of third parties, or breaches of contract or fiduciary duty. These are liable to raise more complex problems. Compliance with the criminal law is a universal obligation. By comparison, legal duties in tort or equity will commonly and contractual duties will always be specific to particular relationships. The character of these relationships may vary widely from case to case. They do not lend themselves so readily to the formulation of a general rule. Breaches of civil statutory duties give rise to yet other difficulties. Their relevance may depend on the purpose of the relevant statutory provision, which may or may not be consistent with its deployment as an element in the tort of conspiracy. For present purposes it is unnecessary to say anything more about unlawful means of these kinds.”
“Compliance Review Verify loan complies with all applicable laws”
“Credit Suisse represented to investors, ratings agencies, and others, that “Credit Suisse senior underwriters make final loan decisions, not contracted due diligence firms.”
“the FCs were performing a very complicated and difficult job with real scope for human error.”
“When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“Due to Ms Baird’s failure to give evidence, the prima facie case against him is unanswered and is made out; and/or an adverse inference should be drawn against him …”
“No assurance can be given that the value of the mortgaged property has remained or will remain at the level that existed on the appraisal or sales date. If residential real estate values overall or in a particular geographic area decline, the LTV ratios might not be a reliable indicator of the rates of delinquencies, foreclosures and losses that could occur…”
“Each prospective investor must make its own independent determination of the value and credit quality of the Reference Obligations”