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Supreme Court rejects banks over FDIC lawsuit

Posted On: Jan. 9, 2017 11:12 AM CST

Supreme Court rejects banks over FDIC lawsuit

(Reuters) — The U.S. Supreme Court on Monday declined to hear a bid by banks to avoid a Federal Deposit Insurance Corp. lawsuit over the 2009 collapse of Alabama's Colonial BancGroup Inc.

The justices left in place a May 2016 ruling by the New York-based 2nd U.S. Circuit Court of Appeals that found that the FDIC did not wait too long to sue Credit Suisse Group A.G., First Horizon National Corp., Royal Bank of Scotland Group P.L.C., Wells Fargo & Co. and seven other banks for selling or underwriting toxic mortgage securities that Colonial bought.

Colonial, based in Montgomery, Alabama, went into FDIC receivership in August 2009 after struggling from losses tied to mortgage securities and an aggressive foray into Florida.

Three years later, the FDIC sued the 11 banks, stating that they violated federal securities law by selling $388 million in toxic debt to Colonial in 2007. It said the lawsuit was timely because it had three years from the start of the receivership to sue.

A lower court judge threw out the case, accepting the banks' argument that the clock ran out in 2010, three years after Colonial bought its securities. But in the reversal, the appeals court found that the U.S. Congress intended that an "extender statute" giving the FDIC more time to pursue some legal claims covered the Colonial case.