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

MOTION in Limine No. 11 on GSE SEC Filings and Ryan GSE Exhibits. Document

S.D.N.Y.April 16, 2015

quinn emanuel trial lawyers | new york 51 Madison Avenue, 22nd Floor, New York, New York 10010-1601 | TEL (212) 849-7000 | FAX (212) 849-7100 quinn emanuel urquhart & sullivan, llp LOS ANGELES | SAN FRANCISCO | SILICON VALLEY | CHICAGO | WASHINGTON, DC | HOUSTON | LONDON | TOKYO | MANNHEIM | MOSCOW | HAMB URG | PARIS | MUNICH | SYDNEY | HONG KONG | BRUSSELS Motion in Limine No. 11 January 30, 2015 VIA ELECTRONIC MAIL The Honorable Denise L. Cote United States District Judge Daniel Patrick Moynihan United States Courthouse 500 Pearl Street, Room 1610 New York, NY 10007-1312 Re: FHFA v. Nomura Holding America, Inc., et al., No 11 Civ. 6201 (S.D.N.Y.) (DLC) Dear Judge Cote: FHFA respectfully moves in limine for an order excluding from trial any documents, testimony, and argument related to the GSEs’ public financial statements and accounting, including (1) GSE publicly-filed financial statements (listed on Nomura’s exhibit list as Nomura Exs. 31-103); (2) GSE earnings call transcripts (Nomura Exs. 599, 632-33, 680, 726, 753, 785, and 788); and (3) internal GSE documents relied upon by Defendants’ proffered expert, Steven G. Ryan, in his Expert Report (the “Ryan Report”), listed as Nomura Exs. 171, 706, 756, 790, 843, 846, 857, 861, 869, 880, 900, 909, and 1099 (items (1)-(3), collectively, the “GSE Exhibits”); as well as (4) the additional exhibits to the Ryan Report listed as Exs. 943-52 (the “Ryan Report Exhibits”). 1 For the reasons stated below, the GSE Exhibits and Ryan Report Exhibits, and any testimony or argument based thereon, should be excluded pursuant to Federal Rules of Evidence 402 and 403. I. THE RYAN REPORT EXHIBITS AND THE GSE EXHIBITS RELIED UPON BY MR. RYAN SHOULD BE EXCLUDED Defendants proffered expert witness, Steven G. Ryan, relied on certain of the GSE Exhibits to support his proposed testimony and to create the Ryan Report Exhibits. On December 19, 2014, FHFA moved to exclude Mr. Ryan’s opinion as an improper and unsupported loss causation opinion. See Pl.’s Daubert Mot. to Exclude Stephen G. Ryan (the “Ryan Motion”), Dkt. No. 1037. FHFA’s motion addresses, among other things, Mr. Ryan’s heavy reliance on the GSE Exhibits—which include general statements regarding massive portfolios of securities—to make conclusions about purported specific causes of loss in the seven At-Issue Certificates, none of which are actually analyzed or discussed in the GSE Exhibits. See Ryan Motion; Pl.’s Reply in Supp. of Daubert Mot. to Exclude Stephen G. Ryan (Dkt. No. 1091). While Mr. Ryan purports to apply accounting principles to divine the GSEs’ apparent 1 Exhibit A contains a list of Nomura’s proposed exhibits Plaintiff seeks to exclude. Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 1 of 8 Motion in Limine No. 11 2 beliefs regarding the cause of losses, his opinions are an untested, novel, and unreliable form of loss causation opinion unsupported by any independent analysis of any of the At-Issue Certificates. See Ryan Motion, passim. Even if the Court were to credit Defendants’ interesting assertion that Mr. Ryan does not offer a loss causation opinion, Defendants offer no other basis for its admission, despite having the opportunity to do so. See Defs.’ Opp’n to Ryan Motion, (Dkt. No. 1175), passim. Accordingly, the GSE Exhibits relied upon by Mr. Ryan should be excluded as irrelevant and prejudicial, just like Mr. Ryan’s opinion itself. E.g., Travelers Indem. Co. v. Northrop Grumman Corp., 2014 WL 464769, at *5-6 (S.D.N.Y. Jan. 28, 2014) (excluding under Rules 402 and 403 expert opinions as to collateral and irrelevant issues); Arista Records LLC v. Lime Grp. LLC, 2011 WL 1674796, at *18-19 (S.D.N.Y. May 2, 2011) (excluding damages-related expert opinion as irrelevant and prejudicial, where defendants admitted they were not offering the those opinions from the expert). II. THE OTHER GSE EXHIBITS SHOULD BE EXCLUDED AS IRRELEVANT AND PURSUANT TO RULE 403 The other GSE Exhibits on Nomura’s proposed exhibit list also should be excluded, based on lack of relevance and because their admission at trial will cause undue delay and burden. A. The GSE Exhibits Are Not Relevant to Falsity Nothing in the GSE Exhibits relates specifically to any of the At-Issue Certificates, much less the specific alleged misrepresentations in the offering documents for such securities. The GSE Exhibits consist of public financial statements, earnings call transcripts, and certain internal documents related to impairment accounting generally. These generic documents are entirely irrelevant to the question of whether Defendants made “untrue statement[s]” in the offering materials for the At-Issue Certificates. 15 U.S.C. § 77l(a)(2); D.C. Code § 31-5606.05(a)(1)(B). B. The GSE Exhibits Are Not Relevant to Materiality “Materiality is ‘an objective standard,’ determined with reference to a reasonable ‘PLS trader’—not a reasonable GSE, or a reasonable PLS trader with plaintiff’s idiosyncratic regulatory restrictions and purchasing goals.” FHFA v. Nomura Holding Am., Inc., 2014 WL 7229361, at *3 (S.D.N.Y. Dec. 18, 2014) (quoting FHFA v. UBS Am. Inc. (“UBS III”), 2013 WL 3284118, at *13, *23 (S.D.N.Y. June 28, 2013)). Using the appropriate, objective standard, FHFA must show that Defendants’ misrepresentations “considered together and in context, would affect the total mix of information and thereby mislead a reasonable investor regarding the nature of the securities offered.” In re WorldCom, Inc. Sec. Litig., 346 F. Supp. 2d 628, 658 (S.D.N.Y. 2004) (quoting Halperin v. eBanker Usa.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002)). Whether a misrepresentation is “material” turns on what a reasonable investor would consider material when purchasing a PLS certificate. See 15 U.S.C. § 77l(a)(2); UBS III, 2013 WL 3284118, at *23 (citing Rombach v. Chang, 355 F.3d 164, 172 n.7 (2d Cir. 2004)). The GSE Exhibits include broad, general disclosures and do not relate to what even the GSEs considered material when purchasing a PLS certificate—much less to what a reasonable Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 2 of 8 Motion in Limine No. 11 3 PLS investor would consider material. Furthermore, as this Court recently explained, there is “no reason the GSEs’ motivations in purchasing the Certificates are relevant here,” because “[e]very seller and buyer of a security should be held to the same standard and shoulder the same burdens under the law.” 2 FHFA v. Nomura Holding Am., 2014 WL 7229361, at *4. Accordingly, the GSE Exhibits are equally irrelevant to the issue of materiality. C. The GSE Exhibits Should Be Excluded Pursuant to Rule 403 The Court “may exclude [even] relevant evidence if its probative value is substantially outweighed by a danger of . . . undue delay [or] wasting time.” Fed. R. Evid. 403. Given the voluminous size and number of the GSE Exhibits and their lack of relevance to any of the issues before the Court at trial, the danger of undue delay and wasting time under Rule 403 far outweighs any probative value. Accordingly, even if the documents were relevant on certain grounds—and they are not—they should still be excluded from trial under Rule 403. See United Brands Co. v. M.V. Isla Plasa, 1994 WL 114825, at *9 n.2 (S.D.N.Y. Mar. 31, 1994) (excluding evidence from a bench trial on the ground of burden to the court); SEC v. Morelli, 1993 WL 603275, at *2 (S.D.N.Y. Dec. 21, 1993) (excluding evidence from a bench trial on the ground of undue delay). FHFA thus requests the exclusion of documents, testimony, and argument at trial related to the GSEs’ public financial statements and accounting, including the GSE Exhibits and the Ryan Report Exhibits. Respectfully submitted, /s/ Philippe Z. Selendy_ Philippe Z. Selendy cc: All Counsel of Record 2 This Court’s prior holding also supports FHFA’s Motion in Limine No. 8, which seeks to exclude pre- purchase materiality testimony and documents. Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 3 of 8 Exhibit A Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 4 of 8 Proposed Exhibit No. Description 31 Fannie Mae 10-Q March 31, 2004, dated May 10, 2004 32 Fannie Mae 10-Q June 30, 2004, dated August 9, 2004 33 Fannie Mae 10-Q Form 12b-25 Sept 30, 2004, dated November 15, 2004 34 Fannie Mae 10-Q Form 12b-25 March 31, 2005, dated May 11, 2005 35 Freddie Mac Annual Report 2004, dated June 14, 2005 36 Fannie Mae 10-Q Form 12b-25 June 30, 2005, dated August 9, 2005 37 Fannie Mae 10-Q Form 12b-25 Sept. 30, 2005, dated November 10, 2005 38 Fannie Mae 10-Q Form 12b-25 March 31, 2006, dated May 9, 2006 39 Freddie Mac Annual Report 2005, dated June 28, 2006 40 Fannie Mae 10-Q Form 12b-25 June 30, 2006, dated August 9, 2006 41 Fannie Mae 10-Q Form 12b-25 Sept. 30, 2006, dated November 8, 2006 42 Fannie Mae 10-K 2004, dated December 6, 2006 43 Freddie Mac Annual Report 2006, dated March 23, 2007 44 Fannie Mae 10-K 2005, dated May 2, 2007 45 Fannie Mae 10-K 2006, dated August 16, 2007 46 Fannie Mae 10-Q March 31, 2007, dated November 9, 2007 47 Fannie Mae 10-Q June 30, 2007, dated November 9, 2007 48 Fannie Mae 10-Q Sept. 30, 2007, dated November 9, 2007 49 Fannie Mae 10-K 2007, dated February 27, 2008 50 Freddie Mac Annual Report 2007, dated February 28, 2008 51 Fannie Mae 10-Q March 31, 2008, dated May 6, 2008 52 Freddie Mac 10-Q June 30, 2008, dated August 6, 2008 53 Fannie Mae 10-Q June 30, 2008, dated August 8, 2008 54 Fannie Mae 10-Q Sept. 30, 2008, dated November 10, 2008 55 Freddie Mac 10-Q Sept. 30, 2008, dated November 14, 2008 56 Fannie Mae 10-K 2008, dated February 26, 2009 57 Freddie Mac 10-K 2008, dated March 11, 2009 58 Fannie Mae 10-Q March 31, 2009, dated May 8, 2009 59 Freddie Mac 10-Q March 31, 2009, dated May 12, 2009 60 Fannie Mae 10-Q June 30, 2009, dated August 6, 2009 61 Freddie Mac 10-Q June 30, 2009, dated August 7, 2009 62 Fannie Mae 10-Q Sept. 30, 2009, dated November 5, 2009 63 Freddie Mac 10-Q Sept. 30, 2009, dated November 6, 2009 64 Freddie Mac 10-K 2009, dated February 24, 2010 65 Fannie Mae 10-K 2009, dated February 26, 2010 66 Freddie Mac 10-Q March 31, 2010, dated May 5, 2010 67 Fannie Mae 10-Q March 31, 2010, dated May 10, 2010 68 Fannie Mae 10-Q June 30, 2010, dated August 5, 2010 GSE Exhibits and Ryan Report Exhibits Proposed by Nomura Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 5 of 8 69 Freddie Mac 10-Q June 30, 2010, dated August 9, 2010 70 Freddie Mac 10-Q Sept. 30, 2010, dated November 3, 2010 71 Fannie Mae 10-Q Sept. 30, 2010, dated November 5, 2010 72 Freddie Mac 10-K 2010, dated February 24, 2011 73 Fannie Mae 10-K 2010, dated February 24, 2011 74 Freddie Mac 10-Q March 31, 2011, dated May 4, 2011 75 Fannie Mae 10-Q March 31, 2011, dated May 6, 2011 76 Fannie Mae 10-Q June 30, 2011, dated August 5, 2011 77 Freddie Mac 10-Q June 30, 2011, dated August 8, 2011 78 Freddie Mac 10-Q Sept. 30, 2011, dated November 3, 2011 79 Fannie Mae 10-Q Sept. 30, 2011, dated November 8, 2011 80 Fannie Mae 10-K 2011, dated February 29, 2012 81 Freddie Mac 10-K 2011, dated February 29, 2012 82 Freddie Mac 10-Q March 31, 2012, dated May 3, 2012 83 Fannie Mae 10-Q March 31, 2012, dated May 9, 2012 84 Freddie Mac 10-Q June 30, 2012, dated August 7, 2012 85 Fannie Mae 10-Q June 30, 2012, dated August 8, 2012 86 Freddie Mac 10-Q Sept. 30, 2012, dated November 6, 2012 87 Fannie Mae 10-Q Sept. 30, 2012, dated November 7, 2012 88 Freddie Mac 10-K 2012, dated February 28, 2013 89 Fannie Mae 10-K 2012, dated April 2, 2013 90 Freddie Mac 10-Q March 31, 2013, dated May 8, 2013 91 Fannie Mae 10-Q March 31, 2013, dated May 9, 2013 92 Freddie Mac 10-Q June 30, 2013, dated August 7, 2013 93 Fannie Mae 10-Q June 30, 2013, dated August 8, 2013 94 Freddie Mac 10-Q Sept. 30, 2013, dated November 7, 2013 95 Fannie Mae 10-Q Sept. 30, 2013, dated November 7, 2013 96 Fannie Mae 10-K 2013, dated February 21, 2014 97 Freddie Mac 10-K 2013, dated February 27, 2014 98 Freddie Mac 10-Q March 31, 2014, dated May 8, 2014 99 Fannie Mae 10-Q March 31, 2014, dated May 8, 2014 100 Freddie Mac 10-Q June 30, 2014, dated August 7, 2014 101 Fannie Mae 10-Q June 30, 2014, dated August 7, 2014 102 Freddie Mac 10-Q Sept. 30, 2014, dated November 6, 2014 103 Fannie Mae 10-Q Sept. 30, 2014, dated November 6, 2014 171 Memorandum from Rachel Jadao, Joe Athy and Melissa Ballenger, dated September 30, 2004 599 Freddie Mac Q1 2007 Earnings Call Transcript, dated June 14, 2007 632 Fannie Mae Q4 2006 Earnings Call Transcript, dated August 16, 2007 633 Fannie Mae FY 2006 Earnings Call Transcript, dated August 16, 2007 680 Q3 2007 Freddie Mac Earnings Conference Call, dated November 20, 2007 706 Email from Michael Lynch, dated January 11, 2008 [and attachments] Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 6 of 8 726 Q4 2007 Freddie Mac Earnings Conference Call, dated February 28, 2008 727 Analysis of Freddie Mac's Asset-Backed Securities Portfolio, dated February 28, 2008 753 Fannie Mae Q1 2008 Earnings Call Transcript, dated May 6, 2008 756 Email from Bruce Wood, dated May 7, 2008 [and attachment] 785 FRE - Q2 2008 Freddie Mac Earnings Conference Call, dated August 6, 2008 788 Investor Q&A - Q2'08 10-Q Earnings Call, dated August 7, 2008 790 Email from Brian Hansen, dated August 13, 2008 [and attachments] 843 Accounting Policy for Other-Than-Temporary Impairment of Debt Securities, dated June 30, 2009 846 Memorandum from Jack Myers, Tracy Abruzzo, Nick Makrigiorgos and Deepak Chokhani, dated July 7, 2009 857 Information Related to Security Impairments, dated September 3, 2009 861 Impairments Overview: Investments & Capital Markets - Investment Accounting, dated September 24, 2009 869 Email from Brian Hansen, dated February 19, 2010 [and attachment] 880 Memorandum from Jack Myers and Nick Makrigiorgos, dated April 29, 2010 900 Email from Anna Zuckerman, dated February 17, 2011 [and attachment] 909 Spreadsheet titled Summary of Alt-A and Subprime Securities as of 6/30/2011, dated June 30, 2011 943 Appendix A to the Expert Report of Stephen Ryan, dated July 9, 2014 944 Appendix C to the Expert Report of Stephen Ryan, dated July 9, 2014 945 Exhibit 1 to the Expert Report of Stephen Ryan, dated July 9, 2014 946 Exhibit 2A to the Expert Report of Stephen Ryan, dated July 9, 2014 947 Exhibit 2B to the Expert Report of Stephen Ryan, dated July 9, 2014 948 Exhibit 2C to the Expert Report of Stephen Ryan, dated July 9, 2014 949 Exhibit 3A to the Expert Report of Stephen Ryan, dated July 9, 2014 950 Exhibit 3B to the Expert Report of Stephen Ryan, dated July 9, 2014 951 Exhibit 4A to the Expert Report of Stephen Ryan, dated July 9, 2014 Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 7 of 8 952 Exhibit 4B to the Expert Report of Stephen Ryan, dated July 9, 2014 1099 Spreadsheet bearing production number FHFA19028552 Case 1:11-cv-06201-DLC Document 1626 Filed 04/16/15 Page 8 of 8