On Sept. 2, the Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac, sued 17 financial institutions for a total of $196 billion, alleging material misstatements and omissions in the registration statements and prospectuses by which the defendants sold, as sponsors and underwriters, residential mortgage-backed securities to the two agencies. Conservatively, this litigation represents the most aggressive attempt by federal authorities to litigate financial claims since the savings and loan crisis of the 1980s, and it will undoubtedly prove to be the Full Employment Act of 2011 for the New York securities bar.

In overview, the suits seek damages ranging from $33 billion (in the case of JPMorgan Chase) to a paltry $549 million (in the case of General Electric). Perhaps surprisingly, none of the actions assert any statutory fraud-based claim (and especially not a Rule 10b-5 claim). Instead, they rely on Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “’33 Act”) and then add negligence-based claims under the Virginia and District of Columbia Blue Sky Statutes. Finally, some attempt a “Hail Mary” pass, alleging assorted negligent misrepresentation, aiding and abetting, and common law fraud claims.1 Never has the ’33 Act seemed so important (maybe, this semester I can actually induce students to read it).

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