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Fraud Claim Against M&T Bank Revived

In August, 2011, CIFG Assurance North America, Inc., filed a lawsuit in New York State Supreme Court against Goldman Sachs and M&T Bank Corp., alleging “fraud and breach of contract arising from numerous and systematic misrepresentations and material omissions made by the Defendants in connection with the securitization of a portfolio of approximately 6,204 residential mortgage loans. CIFG is the financial guaranty insurer of approximately $275 million of securities issued in connection with that securitization.”

A majority of the bad loans were made by M&T, then packaged by Goldman Sachs and sold, with CIFG acting as the insurer.

CIFG claims they were duped in 2007—during the buildup to the mortgage crisis—when Goldman Sachs violated its own underwriting guidelines and the warranties it made about the loans, according to the lawsuit.

“Likewise, a review of loans originated by M&T Bank reveals widespread breaches of M&T Bank’s representations and warranties. Consistent with the findings from this sample, the Loans in the asset pool—most of which should never have been made in the first place, let alone sold and packaged into a securitization—have been defaulting at staggering rates, with delinquencies beginning prior to closing of the Securitization and increasing rapidly thereafter,” the suit contended.

CIFG was seeking compensation for the hundreds of millions of dollars it may be liable for due to being misled by the defendants in 2007. The plaintiffs wanted Goldman Sachs and M&T to repurchase all the breaching loans, award of damages, court costs, etc., and further relief.

Then, in 2012, New York State Supreme Court Justice O. Peter Sherwood dismissed some of the claims against Goldman Sachs, although not the claims for breach of contract. His decision also dismissed all claims against M&T.

Now, the New York New York State Supreme Court’s Appellate Division, First Department, has reversed that decision, finding that CIFG did due diligence by using an outside consultant to analyze the loans at the time of the transaction. The five-judge panel unanimously concluded that: “There is a question of fact as to whether plaintiff reasonably relied on defendants’ representations.”

The court’s ruling also revives the claims of fraud against M&T. CIFG lawyer Michael Vogel says, “We’re very pleased with the decision, and we look forward to proving our case.”

At press time, M&T had not responded to Artvoice’s request for comment.

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