On March 17, 2011, the Second Circuit Court of Appeals affirmed a district court’s dismissal of plaintiff Louisiana Municipal Police Employees Retirement System’s derivative action on behalf of American International Group (“AIG”) and certain of its current and former directors and officers for breaches of fiduciary duty, waste of corporate assets, unjust enrichment and contribution, as well as violations of the Securities and Exchange Act Sections 20(a) and 10(b). Plaintiff’s Complaint alleged that current and former AIG directors and officers failed to properly oversee the company’s credit default swap transactions, particularly as they related to RMBS-backed CDOs, and made misstatements concerning the company’s financial health and risk management. The Second Circuit panel affirmed the trial court’s dismissal of the case for failure to make a demand on AIG’s Board, finding that plaintiffs had not met the burden for demonstrating demand futility, and noting that “directors are entitled to a presumption that they were faithful to their fiduciary duties.” 2nd Circuit Order. SDNY Order.
On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the “fraudulent restructuring” of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA’s structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary). The move, which occurred in February 2009, was approved by the then-New York Superintendent of Insurance. The plaintiffs’ complaint alleges that the restructuring rendered MBIA Insurance insolvent, was intended to defraud creditors, and was an abuse of corporate form. On appeal, plaintiffs argue that the intermediate appellate court’s holding that their complaint was an improper collateral attack on the Superintendent’s regulatory approval is wrong because they had no opportunity to be heard before the Superintendent gave the approval, because New York insurance law does not bar their claims under the Debtor and Creditor Law, and because the intermediate appellate court improperly shifted the burden to plaintiffs in considering MBIA’s motion to dismiss. Brief.
On March 15, 2011, Woodmen of the World Life Insurance Society, a participant in a securities lending trust formed by U.S. Bancorp, filed a complaint against U.S. Bancorp, and several affiliated individuals and entities, in Delaware Chancery Court. Defendants allegedly were responsible for the investment and oversight of the cash the trust received as collateral from persons borrowing securities placed into the trust by the plaintiff. The complaint alleges, inter alia, that the defendants wrongfully invested the cash collateral in commercial paper issued by SIVs that were backed by mortgage-backed securities, and then hid information from plaintiff about the risks of the investments they had made with the cash collateral. The complaint also alleges that, through a variety of actions, the defendants placed the financial interests of U.S. Bancorp and its affiliates over the interests of the plaintiff. The Complaint asserts claims for breach of fiduciary duty and aiding and abetting breaches of fiduciary duty and seeks money damages in an unspecified amount. Redacted Complaint.
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On March 23, S&P issued a request for comment on proposed changes to its covered bond criteria for assessing counterparty and supporting party risk. Comments must be submitted by May 4. S&P Release.
On March 21, Fitch updated its criteria for stressing interest rate risk in structured finance transactions. The criteria have been extended to transaction cash flows indexed to interest reference rates for Australian Dollars, New Zealand Dollars, Korean Won, Singapore Dollars, Taiwanese Dollars, Indian Rupee, and South African Rand. Fitch Release.
On March 18, Fitch updated its methodology for rating debt of Native American gaming issuers. Fitch Release.
On March 21 and 22, DBRS updated its methodologies in several areas, including: Canadian Residential Mortgage Servicer Evaluations, Canadian Mutual Fund Companies, Canadian Mortgage Insurance Companies, and Canadian Covered Bonds. DBRS Methodologies.
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On March 17, the U.K. Financial Services Authority published its Prudential Risk Outlook, which sets out its assessment of macroeconomic and financial trends as a context for its regulation and supervision of firms. FSA Release.
On March 25, ISDA issued a request for proposals to establish a Commodity OTC Derivatives Trade Repository that would: (i) meet all current and future regulations governing repositories and (ii) provide a structure to rapidly report and provide timely access to information to applicable regulators. Proposals from interested providers must be submitted by April 25. ISDA Release.
On March 23, the MSRB announced that, beginning May 23, it will accept from municipal issuers voluntary submissions of preliminary official statements and other related pre-sale documents, official statements and advance refunding documents, information relating to the preparation and submission of audited financial statements and hyperlinks to other disclosure information available from the issuer. Disclosures submitted to the MSRB will be made available on the EMMA web portal. MSRB Release.
On March 29, the FDIC will meet to consider an NPR to implement Section 941 of the Dodd-Frank Act, which addresses the regulation of credit risk retention. The meeting will be webcast live, and made available on-demand approximately one week after the event. On March 30, the SEC will also hold an Open Meeting to consider proposing joint rules regarding credit risk retention. FDIC Release. FDIC Webcast. SEC Release. SEC Webcast.