On January 24, 2011, a group of institutional investors represented by Bernstein Litowitz, including Dexia Holdings Inc., TIAA-CREF Life Insurance Co., and New York Life Insurance Co., filed a case in New York State Court accusing Countrywide Financial Corp. (now an affiliate of Bank of America) and several executives of selling RMBS backed by materially false statements and omissions made knowingly or recklessly. Plaintiffs seek compensatory and/or rescissionary damages for fraud and negligent misrepresentation, statutory damages under the Securities Act, and punitive damages for common-law fraud. Complaint
On January 20, 2011, the First Circuit Court of Appeals partially affirmed and partially reversed a District Court decision in a putative class action brought against eight RMBS trusts, their underwriters, the depositor and its officers. The court affirmed the dismissal of all claims related to those trusts whose certificates had not been purchased by any of the named plaintiffs, holding that plaintiffs thereby lacked standing to sue. The court affirmed the dismissal of claims relating to appraisal practices as inadequately pled. The court also affirmed the dismissal of claims relating to credit ratings, holding that such ratings were inactionable opinions. However, the court vacated the dismissal of claims relating to the lending banks’ underwriting practices, holding that plaintiffs’ allegation of defendants’ wholesale abandonment of underwriting standards was sufficient to defeat the motion to dismiss. Decision
On January 27, Fitch updated its global criteria for rating dealer floorplan ABS. Fitch Release.
On January 25, Fitch updated its criteria for rating U.S. equipment lease and loan transactions. Fitch Release.
On January 24, S&P requested comments on its proposed changes to its bond insurance criteria. Comments must be submitted by March 25. S&P Release.
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On January 19, the SEC approved a proposal by the NYSE to establish a 12-month pilot program to create a bond trading license for member organizations that plan to trade only debt securities, and establish a new class of NYSE market participants called Bond Liquidity Providers. SEC Release.
On January 27, the Financial Crisis Inquiry Commission issued a report on the causes of the financial and economic crisis, concluding that the financial crisis was avoidable and was due to: (i) widespread failures in financial regulation and supervision, (ii) failures of corporate governance and risk management at many systemically important financial institutions, (iii) a combination of excessive borrowing, risky investments, and lack of transparency, (iv) a lack of preparation by the government, (v) a systemic breakdown in accountability and ethics, (vi) lowered mortgage-lending standards, (vii) lack of oversight of over-the-counter derivatives, and (viii) failures of rating agencies. FCIC Release. FCIC Report.
On January 26, the SEC proposed a rule that would implement Sections 404 and 406 of the Dodd-Frank Act by requiring registered advisers to hedge funds and other private funds to periodically report information to the Financial Stability Oversight Counsel to use in monitoring risk to the U.S. financial system. Comments to the proposed rule must be submitted within 60 days of publication in the Federal Register. SEC Release.
On January 25, the SEC proposed amendments to its rules to conform the definition of “accredited investor” to the requirements of the Dodd-Frank Act. The proposals would exclude the value of an individual’s primary residence when calculating net worth and clarify the treatment of indebtedness secured by the residence in the net worth calculation. SEC Release. SEC Proposed Rule.
On January 21, the SEC submitted to Congress a study on investment advisers and broker-dealers, as required under Section 913 of the Dodd-Frank Act. The SEC recommended that it adopt and implement a uniform fiduciary standard of conduct for investment advisers and broker-dealers, no less stringent than the standards applied to investment advisers under the Advisers Act, when those financial professionals provide personalized investment advice about securities to retail investors. SEC Release. SEC Staff Study.
On January 25, the SEC adopted rules on shareholder approval of executive compensation and golden parachute compensation as required under the Dodd-Frank Act. Under the new rules, companies must hold say-on-pay votes at least once every three years beginning with the first shareholders’ meeting on or after January 21, and “frequency” votes at least once every six years to decide how often say-on-pay votes will occur. Reporting companies with a float of less than $75 million are exempt from the rules requiring say-on-pay and frequency votes until January 21, 2013. The rules also require companies to provide additional disclosure regarding golden parachute compensation arrangements in connection with mergers. SEC Release. SEC Rule.
On January 11, 2011, the California Court of Appeals denied rescission as a remedy in a California blue sky law claim where the plaintiffs were not in privity of contract with defendant. Defendant, a former employee of the plaintiffs, had advised plaintiffs to purchase the security at issue. The Appeals Court held that rescission was unavailable because defendant did not sell the plaintiffs the security nor did she receive any money in connection with the sale of the security. Decision.