Federal Housing Finance Agency v. Nomura Holding America, Inc.
Second Circuit
873 F.3d 85 (2017)
Nomura Holding America, Inc. (defendant) sponsored and underwrote residential mortgage-backed securities, representing in the offering documents that the underlying loans were originated generally in accordance with stated underwriting criteria. Before issuing the offering documents, Nomura reviewed only a non-random sample of the riskiest 40 percent of loans, using factors that never actually assessed compliance with the underwriting criteria, and an internal audit turned up red flags about that compliance that Nomura never acted on. The Federal Housing Finance Agency (plaintiff) sued Nomura under section 12(a)(2) of the Securities Act, alleging material misstatements about the underwriting; Nomura raised the reasonable-care defense, arguing it followed industry-standard due diligence, and the district court granted FHFA summary judgment.
Whether an underwriter that conducted due diligence unrelated to the loans' actual compliance with its own stated underwriting criteria can establish, as a matter of law, that it exercised reasonable care sufficient to avoid securities liability.