On February 24, the MSRB requested comments on a draft rule and amendments that would govern the activities of municipal securities dealers that principally act as intermediaries on transactions between dealers (known as broker’s brokers). The proposed rule would define and establish the basic duties of a broker’s broker. Comments must be submitted by April 21. MSRB Release. MSRB Request for Comment.
Month: February 2011
Making Home Affordable Supplemental Directive
On February 17, Treasury issued a Supplemental Directive under the Making Home Affordable Program which: (i) provides guidance relating to servicer internal quality assurance and (ii) revises guidance relating to the Dodd-Frank Certification and income verification. The Supplemental Directive will be effective on May 1. MHA Release. Supplemental Directive.
Fed Rule on Mortgage Escrow Accounts
On February 23, the Fed issued a final rule under Reg Z (TILA) which, pursuant to the Dodd-Frank Act, increases the APR threshold used to determine whether a mortgage lender is required to establish an escrow account for taxes and insurance for first-lien “jumbo” mortgage loans. The Fed also proposed a rule under Reg Z (TILA) that would expand the minimum mandatory escrow period for first-lien mortgage loans from one to five years and would implement new disclosure requirements contained in the Dodd-Frank Act. Comments on the proposed rule must be submitted within 60 days after publication in the Federal Register. Fed Release. Fed Final Rule. Fed Proposed Rule.
Allstate Sues JP Morgan, WaMu and Bear Stearns Over Sale of RMBS
On February 16, 2011, several Allstate Insurance entities filed a complaint against a number of JP Morgan, Washington Mutual and Bear Stearns entities and certain Washington Mutual directors and officers in the Southern District of New York. Plaintiffs allege that defendants misrepresented the quality of the loans underlying over $757 million in RMBS they sold to Allstate. Allstate is represented by the Quinn Emanuel firm. Complaint.
Massachusetts Mutual Sues Deutsche Bank Over $125 Million in RMBS
On February 16, 2011, Massachusetts Mutual Life Insurance Company filed a complaint in the Massachusetts federal District Court alleging that various Deutsche Bank entities and certain of their officers violated Massachusetts’s blue sky laws by misrepresenting characteristics of the loans backing $125 million in RMBS sold to Massachusetts Mutual in 11 different offerings. Massachusetts Mutual alleges that it lacked access to the loan files, making the defendants its exclusive source of information regarding the loans. Massachusetts Mutual is represented by the Quinn Emanuel firm. Complaint.
Second Circuit Reverses Lower Court’s Grant of Dismissal in a Securities Case Against the Blackstone Group
On February 10, 2011, the Second Circuit Court of Appeals vacated ad remanded the dismissal of an action against the Blackstone Group that alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act in connection with Blackstone’s Registration Statement and Prospectus filed as part of its IPO. Plaintiffs had alleged that Blackstone violated the Securities Act when it failed to disclose the likely impact on its real estate investment private equity businesses from the decline in the residential mortgage market and certain other publicly-disclosed events concerning two of its equity investments. In reinstating the claims, the Second Circuit emphasized that public knowledge of the events did not excuse Blackstone from making disclosures about them because Item 303 of Regulation S-K requires issuers to disclose how such events might be reasonably expected to materially affect an issuer’s business. The Second Circuit also emphasized that materiality had to be assessed qualitatively, and that a material impact on one segment of Blackstone’s operations could require disclosure even if quantitatively immaterial to Blackstone as a whole. Appeal.
SEC Files Complaint for Securities Fraud Against Former IndyMac Bank CFO
On February 11, 2011, the SEC filed a complaint in the Central District of California against IndyMac’s former Chief Financial Officer, S. Blair Abernathy, alleging violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act in connection with six IndyMac RMBS offerings in 2007 and several other public securities filings in 2008 on behalf of IndyMac Bancorp, Inc. The complaint alleges that, in 2007, Abernathy received monthly reports indicating that 12%-18% of IndyMac Bank’s loans contained misrepresentations, but that he failed to take reasonable steps to ensure that IndyMac’s RMBS offering documents included adequate disclosures in light of that information. It also alleges that Abernathy was negligent in failing to adequately disclose to investors the deteriorating financial condition of IndyMac Bancorp once he became its CFO in 2008. Complaint.
Rating Agency Developments
On February 16, S&P updated its principles of credit ratings which it applies to ratings of all issuers and issues rated by S&P. S&P Release.
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House Hearing on Housing Market Recovery
On February 16, the House Committee on Financial Services held a hearing on government barriers to housing market recovery.
Senate Hearing on Dodd-Frank Implementation
On February 17, the Senate Banking Committee held a hearing on the progress and implementation of the Dodd-Frank Act, including testimony by Fed Chairman Bernanke, FDIC Chairman Bair, FDIC Chairman Shapiro, SEC Chairman Gensler, and CFTC Chairman Walsh.