On August 25, the national financial regulators of France, Italy, and Spain extended restrictions on short selling stock introduced on August 11. France’s restrictions have been extended to November 11 while Italy and Spain have extended their restrictions to September 30. The ban enacted by Belgium’s financial regulator on August 11 continues to remain in effect indefinitely. France Release. Italy Release. Spain Release. Belgium Release.
Month: August 2011
Countrywide RMBS Suits Consolidated
On August 15, 2011, the United States Judicial Panel on Multidistrict Litigation consolidated in the Central District of California eight actions pending against Countrywide Financial Corp. alleging that Countrywide misrepresented origination practices for, and the credit quality of, mortgage loans that it originated from 2004–2007 in connection with the sale of RMBS. Decision.
Allstate Sues Goldman Sachs in New York State Court
On August 15, 2011, Allstate Insurance Co. filed suit against Goldman Sachs in the Supreme Court of New York, alleging that Goldman committed common law fraud, fraudulent inducement, and negligent misrepresentation in connection with the sale of $123 million in RMBS purchased by Allstate and underwritten by Goldman over the course of five securitizations. Allstate’s complaint relies on the results of several government investigations into the financial crisis, including the U.S. Senate Permanent Subcommittee on Investigation’s April 2011 report entitled “Wall Street and the Financial Crisis” and the Financial Crisis Inquiry Commission’s January 2011 report. Complaint.
SDNY Grants Class Certification to Investors in RMBS Suit Against Credit Suisse
Judge Paul A. Crotty in the U.S. District Court for the Southern District of New York certified a class of investors in a $2.4 billion suit against Credit Suisse for alleged misrepresentations in connection with the sale of RMBS. Credit Suisse argued that no class should be certified because several investors were sophisticated, had large claims against Credit Suisse, and could therefore bring individual claims. The court found, however, that “sophistication and size of certain class members are not bars . . . .” The court also rejected Credit Suisse’s argument that the proposed class was in conflict given its members’ investments in different tranches of RMBS, and that the wide availability of sufficient information about the RMBS collateral meant that the investors’ degree of knowledge regarding the falsity of the alleged misrepresentations should be determined on an individualized basis. The investors are suing under Sections 11, 12, and 15 of the Securities Act. Decision.
Knights of Columbus Seek Damages from Bank of New York Mellon
On August 16, 2011, the Knights of Columbus amended their complaint against Bank of New York Mellon in New York state court to seek damages from BNY Mellon as trustee of 18 RMBS trusts serviced by Countrywide Financial Corp. In an initial complaint filed in May, the Knights of Columbus sought an accounting for the 18 trusts. Alleging that information obtained after the filing of that complaint demonstrates that BNY Mellon has violated its contractual and other obligations, the amended complaint seeks to preserve plaintiff’s claims against BNY Mellon for breach of contract, breach of fiduciary duty, negligence, and unfair trade practices to the extent that those claims survive Bank of America’s proposed $8.5 billion settlement of Countrywide Financial Corp. representations and warranties claims. Complaint.
Institutional Investors Question AIG’s Motion to Intervene in Proposed BofA Settlement
On August 15, 2011, the institutional investors that negotiated the proposed $8.5 billion settlement with Bank of America regarding representations and warranties claims against Countrywide Financial Corp. filed a response to AIG’s motion to intervene and oppose the settlement. The institutional investors did not object to AIG’s intervention, but urged the court to carefully scrutinize AIG’s objection, pointing to AIG’s failure to disclose a simultaneously filed individual securities lawsuit against BofA as evidence that AIG is improperly attempting to advance its own interests ahead of those of other certificate holders. Investors’ Response.
Dodd-Frank’s SEC Whistleblower Rules Take Effect
On August 12, 2011, the SEC’s Dodd-Frank whistleblower rules became effective, establishing the procedures for whistleblowers reporting violations to the SEC under section 922 of the Dodd-Frank Act to receive a bounty of between 10 and 30 percent of sanctions the SEC collects in successful actions resulting in sanctions of over $1 million. For a complete summary of the updates, please click here.
Massachusetts First to Regulate Use of Expert Network Services
In what appears to be the first attempt to oversee expert network firms, the Massachusetts Securities Division has passed regulations to prevent such firms from dealing insider information. The move makes Massachusetts the first state to weigh in on concerns that consultants hired by investment advisers, whether directly or through expert networks, obtain confidential insider information under the guise of consulting arrangements. Please click here for a complete summary of the regulations.
SEC Re-Proposes Shelf Eligibility Conditions for Asset-Backed Securities and Solicits Additional Comment on Proposed Asset-Level Information Requirements
In April 2010, the Securities and Exchange Commission (“SEC”) proposed “Regulation AB II,” a series of new and amended rules that, if adopted, would substantially revise the offering process, disclosure and reporting requirements for publicly-issued asset-backed securities (“ABS”) and impose new disclosure standards for privately-issued structured finance products.
At an open meeting on July 26, 2011, the SEC re-proposed certain of its Regulation AB II rule proposals in light of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and comments received on its original rule proposals. Specifically, the SEC re-proposed rules relating to the eligibility criteria for shelf registrations of ABS and related filing deadlines for transaction agreements, and solicited additional comment on its proposal to require asset-level information about pool assets. The deadline for comments on the re-proposed rules is October 4, 2011.
Please click here to access our complete update, which includes a brief overview of relevant portions of the original proposals, as well as an overview of the re-proposed rules and request for additional comment.
Rating Agency Developments
On August 16, S&P requested comment on project finance construction and operations counterparty methodology. S&P Release.
On August 16, S&P updated its defeasance criteria for U.S. CMBS transactions. S&P Release.
On August 15 and 16, Fitch released reports on: (i) recovery ratings for financial institutions; (ii) securities firms; (iii) bank holding companies; (iv) financial institutions; (v) market value structures; (vi) U.S. closed-end funds; (vii) infrastructure and project finance; (viii) bond funds; (ix) APAC CMBS; (x) prepaid energy transactions; (xi) U.S. residential mortgage Re-REMICs; (xii) U.S. RMBS; (xiii) Prime RMBS loan loss models; (xiv) state housing finance agencies – single family mortgage program; (xv) state revolving fund and municipal loan pools; and (xvi) Japan CMBS surveillance.
On August 12, DBRS published a guide regarding its legal criteria for European structured finance transactions. DBRS Release.