Federal Housing Finance Agency v. Nomura Holding America, Inc.

Nomura Holding America Inc. (defendant) was a sponsor and underwriter for the offering of residential mortgage-backed securities (RMBS). In the offering documents, Nomura stated that the loans supporting the securitization of the RMBS “were originated generally in accordance with the underwriting criteria.” Prior to the issuance of the public documents, Nomura reviewed a non-random sample of the “riskiest” 40 percent of the supporting loans. Nomura identified the “riskiest” loans based on a few factors. None of these factors, however, considered whether the loans complied with the underwriting criteria. Further, an audit revealed several red flags regarding the loans’ compliance with these underwriting guidelines. Nomura, however, did not make any attempt to fix its underwriting procedures. The Federal Housing Finance Agency (FHFA) (plaintiff) sued Nomura for violating § 12(a)(2) of the Securities Act of 1933, alleging, among other things, that the underwriting guidelines contained material misstatements. Nomura asserted the reasonable-care defense, arguing that it did not know about the falsehoods, despite exercising reasonable care regarding its offering. The district court granted FHFA’s motion for summary judgment. Nomura appealed, arguing that its care could not be unreasonable as a matter of law, because it followed the industry standard in conducting due diligence.