On December 13, the FSA published a press release announcing that Thomas Ammann, a former investment banker and FSA Approved Person at Mizuho International plc, had been sentenced to 2 years and 8 months imprisonment for two counts of insider dealing and two counts of encouraging insider dealing. The press release stated that Mr Ammann received profits of several hundred thousand dollars through insider dealing relating to the acquisition of Océ by Canon, who were being advised by MIP at the time. The FSA makes no criticism of Mizuho International plc.
On December 11, the Serious Fraud Office (the SFO) published a press release stating that three men had been arrested and interviewed in relation to its investigation into the manipulation of LIBOR. Although the three men have not been charged with wrongdoing, the move is being reported as indicative of a shift of focus in the LIBOR investigation away from institutions and onto individuals, as well as a shift of focus away from banks and onto brokers.
On December 10, ESMA published a formal request it had received from the European Commission for technical advice on the observable effects of the Short Selling Regulation since its coming into force on November 1, 2012.
Amongst the specific questions ESMA has been asked to answer are:
1. To what extent any temporary restrictions and bans imposed by competent authorities on short selling have had any positive effects;
2. To what extent the thresholds set for notification to national regulators and public disclosure are appropriate; and
3. Whether the exemption for market makers allows for liquidity provision without undue circumvention.
The European Commission is obliged to report on the issues above to the European Parliament and the Council by June 30, 2013. It has asked ESMA to deliver its technical advice by May 31, 2013. Market participants can expect ESMA to launch a consultation shortly, with a deadline for responses sometime in the spring of 2013.
On December 10, the Bank of England (the Bank) and the Federal Deposit Insurance Corporation (the FDIC) published a joint paper entitled ‘Resolving Globally Active, Systemically Important, Financial Institutions’ (G-SIFIs). The joint paper sets out the strategies that the Bank and the FDIC have designed to enable large and complex cross-border firms to be resolved without threatening financial stability or putting public funds at risk. The paper builds on the work of the Financial Stability Board, and focuses on the application of “top-down” resolution strategies whereby a single resolution authority applies its powers at parent company level.
In the UK, this will involve the use of the powers under the Banking Act 2009 and those that are anticipated to be provided by the European Union Recovery and Resolution Directive and the Financial Services Bill, and will involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency.
On November 27, HSBC Bank, acting as trustee for a Real Estate Mortgage Investment Conduit Trust, filed suit against DB Structured Products, Inc., a Deutsche Bank affiliate, in the federal district court for the Southern District of New York. The complaint alleges that DB Structured Products breached its contractual duties by failing to properly review the mortgage loans underlying an RMBS securitization and by failing to buy back allegedly defective loans. HSBC, which alleges that over 90 percent of the underlying mortgage loans did not comply with underwriting guidelines, seeks rescissory damages or alternatively compensatory damages, and failing the award of damages, specific performance requiring the repurchase of allegedly defected loans. Complaint.
On December 6, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York denied Bank of America and U.S. Bancorp’s motions to dismiss a suit by the Policemen’s Annuity and Benefit Fund of the City of Chicago. Plaintiff brought claims against Bank of America and U.S. Bancorp for breach of contract, breach of the implied covenant of good faith and fair dealing, and the Trust Indenture of 1939, alleging that defendants failed to protect investors in their role as trustees for RMBS issued by Washington Mutual. Plaintiff alleges that Bank of America and Bancorp failed to take certain actions required by the pooling and servicing agreements, including taking possession of loan files, reviewing those files to ensure they were complete, or requiring Washington Mutual to repurchase or fix defective loans. The court limited plaintiff’s ability to pursue claims only to trusts in which it had purchased certificates or on behalf of purchasers of certificates whose certificates are backed by the loan group that back plaintiff’s certificates or whose certificates are cross-collateralized by loan groups that back plaintiff’s certificates. Decision.
On December 6, Judge Mariana Pfaelzer of the United States District Court for the Central District of California dismissed in part claims brought by several insurance companies, including Minnesota Life Insurance Company, in connection with the purchase of $114 million in RMBS issued by Countrywide. Although the court denied Countrywide’s motion to dismiss the fraud claim against it, the court dismissed plaintiffs’ negligent misrepresentation claim and claims under various Minnesota consumer protection statutes. The court granted Bank of America’s motion to dismiss in its entirety, holding that plaintiffs had not sufficiently alleged successor liability against Bank of America. Decision.
China 20/20 is a monthly Orrick newsletter which covers legal and regulatory developments in China. To view the latest edition, please click here.
On December 10, FINRA issued Regulatory Notice 12-55, which provides regulatory guidance in the form of a FAQ regarding customer suitability issues under FINRA Rule 2111. The amendments to the FAQ address the scope of the terms “customer” and “investment strategy.” FINRA Notice.
On December 13, Moody’s released its methodology for U.S. stand-alone housing bond programs secured by credit enhanced mortgages. Moody’s Report.
On December 13, S&P released its methodology for pre-insolvency structural protections in Europe. S&P Report.
On December 12, Fitch published criteria for rating financial institutions above the sovereign. Fitch Report.
On December 11, Fitch updated its criteria for analyzing financing and leasing companies. Fitch Report.
On December 11, Moody’s released its U.S. manufactured housing loan ABS surveillance methodology. Moody’s Report.
On December 11, Moody’s released its methodology for mortgage insurers. Moody’s Report.
On December 10, S&P released its methodology for Mexican trade receivables ABS transactions. S&P Report.