California Federal Court Holds That Class Plaintiffs May Only Sue Over Certificates In Tranches That They Purchased

On May 5, 2011, Judge Pfaelzer of the U.S. District Court of Central District of California held that putative class representatives in an action asserting claims under the federal Securities Act of 1933 in connection with 14 offerings of RMBS only had standing to pursue claims for purchases of certificates in those tranches for which they had purchased certificates. In so doing, the Court rejected plaintiffs’ argument that they could bring class claims on behalf of all purchasers of certificates in a particular offering, including investors who purchased certificates in different tranches from those purchased by the class representatives. Judge Pfaelzer also held that issuer Defendants who entered into a firm commitment underwriting arrangement and “did not pass title directly to the Plaintiffs” did not qualify as statutory sellers for purposes of Section 12(a)(2) of the Securities Act, and thus could not be held liable under that provision. Order.

Mass. Mutual Life Insurance Files New RMBS Complaint

On May 23, 2011, Massachusetts Mutual Life Insurance Co. (“MassMutual”) filed a complaint in the U.S. District Court for the District of Massachusetts, alleging violations of the Massachusetts Uniform Securities Act in connection with MassMutual’s purchase of $13 million in RMBS from HSBC and its subsidiaries. MassMutual alleges that in marketing the sale of the RMBS, defendants misrepresented that the underlying loans were prudently underwritten and had certain characteristics, including specific loan-to-value ratios and owner-occupancy statistics. Complaint.

California Appellate Court Reinstates Class Action On Behalf of RMBS Purchasers

On May 18, 2011, the California Court of Appeal, Second Appellate District, reversed an earlier Superior Court decision to dismiss the securities class action suit against Countrywide Financial Corp. and other defendants allegedly involved in the sale of RMBS between 2005 and 2007. Although the complaint alleges only claims under the federal Securities Act of 1933, the state court found that the state court has concurrent jurisdiction over the securities class action because the RMBS at issue are not “covered securities” under SLUSA. Decision.

Countrywide Moves to Centralize 12 Securities Actions

On May 24, 2011, Countrywide Financial Corporation and related entities moved the Judicial Panel on Multidistrict Litigation for an order centralizing twelve actions that allege that Countrywide made material misstatements and omissions to investors in connection with equity, debt, and mortgage-backed securities for consolidated or coordinated proceedings before Judge Mariana Pfaelzer of the Central District of California. In its motion, Countrywide asserts that the actions share common factual allegations, making them appropriate for centralization. Countrywide further argues that the twelve actions should be centralized before Judge Pfaelzer because she is “intimately familiar” with the factual and legal issues presented in these litigations from presiding over nine Countrywide-related actions for the past three years. Notice. Memo.

SEC Issues Final Whistleblower Rules Under Dodd-Frank: Incentives and Protections

On May 25, 2011, the SEC released its proposed final rules for whistleblowers, as required by the Dodd-Frank Act. The SEC‘s 305-page release addresses and resolves numerous issues raised in the rulemaking process. This Alert focuses on two issues of particular significance to our clients: (i) defining which individuals qualify as “whistleblowers” protected from retaliation under Dodd Frank, and (ii) whether the SEC requires employees to first comply with a corporation’s internal compliance policies before “blowing” the whistle externally. Click here to read more.

Council of the European Union Adopts Rules for AIFM

On May 27, the Council of the European Union adopted a directive to establish common requirements for the authorization and supervision of alternative investment fund managers (AIFM) and provide a coherent approach to risk management and the impact thereof on investors and markets in the European Union (EU). Key features of the directive include: (i) minimum capital requirements; (ii) requiring an AIFM to appoint independent depositories to ensure that a fund’s assets are appropriately protected; (iii) authorizing member states to establish leverage limits and requiring AIFM using leverage on a systematic basis to disclose aggregate leverage to their member state regulatory authority; (iv) authorization requirements for non-EU funds, managed by either EU AIFM or AIFM based outside of the EU; and (v) authorizing member states to exempt AIFM from compliance with the directive, though not from minimum registration and reporting requirements, if they have managed assets below €100 million, if they use leverage, or below €500 million, if they do not. Publication in the Official Journal is expected in mid-June. Council Press Release.

Rating Agency Developments

On May 25, Moody’s updated its approach to rating tobacco settlement revenues securitizations. Moody’s Methodology.

On May 24, Fitch published updated criteria for rating U.S. auto lease ABS. Fitch Release.

On May 24, Fitch revised its criteria for moral obligation backed bonds, a non-legislatively binding mechanism provided by a governmental entity to support debt separately secured by a pledged revenue stream. Fitch Release. Fitch Report.

On May 23, Moody’s published updated criteria for rating U.S. auto-loan ABS. Moody’s Release.

On May 23, Moody’s announced that its revised methodology for money market fund ratings (published on March 10, 2011) is now effective. Moody’s Release. Moody’s Methodology.

On May 20, Fitch released its franchise loan ABS surveillance criteria. Fitch Release.

Note: Free registration is required for Fitch and Moody’s releases and reports.

MSRB Optional Disclosure of Pre-Sale Documents to EMMA

On May 23, MSRB announced that municipal securities issuers may provide pre-sale documents for new bond issues directly to the public through the Electronic Municipal Market Access (EMMA) system. Issuers and other obligated persons may also voluntarily provide information concerning the timing and accounting standard used to prepare annual financials. Voluntary submissions will not relieve issuers from any submission obligations under MSRB rules. MSRB Release.

MSRB Proposed Rule on Municipal Advisor Supervision

On May 25, MSRB proposed Rule G-44 requiring municipal advisors to adopt internal supervisory systems to ensure compliance with applicable MSRB and SEC rules. The proposed rule would establish minimum requirements for such systems, including the manner in which municipal advisory activities will be monitored and supervised. Comments must be submitted by June 24. MSRB Release. Proposed Rule.