CIFG Assurance North America, Inc. (CIFG) filed a summons with notice against Goldman, Sachs & Co. (Goldman) in New York State Supreme Court on December 4, 2012. CIFG alleges that Goldman fraudulently induced CIFG to provide a financial guaranty insurance policy on a credit default swap in connection with the Fortius II CDO. CIFG alleges that Goldman did not disclose that the CDO manager, Aladdin Capital Management, was acting at Goldman’s behest to include in the CDO particular collateral, including RMBS that Goldman wanted to sell. CIFG asserts claims for fraud and for material misrepresentation in the inducement of an insurance contract. It is seeking reimbursement of the nearly $34 million dollars it allegedly paid under the policy it issued when the Fortius II CDO failed. Summons.
Tag Archives: CDO
FINRA Fines Citigroup $35 Million for Violation of FINRA and SEC Rules
On May 22, 2012, the Financial Industry Regulatory Authority (“FINRA”) fined Citigroup $35 million for alleged rule violations, including providing investors with inaccurate information in connection with several RMBS offerings. Citigroup consented to the $35 million fine, but neither admitted nor denied FINRA’s findings. FINRA found that between January of 2006 and October of 2007, Citigroup posted inaccurate performance data and static pool information on its website after receiving information indicating that the data was incorrect. The agency further found that the errors in the information were significant enough potentially to have affected prospective investors’ assessments of six subprime and Alt-A RMBS offerings. Additionally, the organization found that Citigroup failed to maintain required books and records and failed to supervise the pricing of certain CDO securities, violating, among other things, SEC Rules 17(a)-3(a)(8) and 17a-4. AWC Letter.
Court Denies Goldman Sachs’s Motion to Dismiss in Case Arising out of Abacus CDO
On April 24, 2012, New York State Court Judge Barbara Kapnick denied a motion brought by Goldman Sachs Group Inc. (“Goldman Sachs”) to dismiss an action brought by ACA Financial Guaranty Corp. (“ACA”) arising out of ACA’s provision of financial guaranty insurance wrapping the Abacus 2007-ACI CDO issued by Goldman Sachs. ACA alleged that Goldman Sachs misrepresented material facts about the economic interest of the hedge fund Paulson & Co. Inc. (“Paulson”), an investor in the CDO. According to ACA, Paulson, which participated in the selection of the portfolio of mortgage loans backing the CDO, was represented to be a long investor but in fact took a short position against the deal. Judge Kapnick found ACA’s allegations sufficient to state a claim that Goldman Sachs fraudulently concealed the information about Paulson’s position and thus fraudulently induced ACA to insure the CDO. Order.
Second Circuit Upholds Dismissal of $37 Million CDO Suit Against Goldman Sachs
On April 19, 2012, the United States Court of Appeals for the Second Circuit affirmed a lower court’s dismissal of a lawsuit brought by Landesbank Baden-Wurttemberg (“Landesbank”) lawsuit against Goldman Sachs & Co. (“Goldman Sachs.”) Landesbank asserted claims for fraud, negligent misrepresentation, and unjust enrichment, alleging that Goldman Sachs misstated the quality of the mortgages underlying the collateral that backed a CDO and secretly took a position to profit from the CDO’s failure. In affirming the lower court, the Second Circuit determined that Landesbank failed to allege a specific motive for Goldman to commit fraud and failed to allege the existence of any special relationship between Goldman and Landesbank sufficient to support a negligent misrepresentation claim. Order.
Rating Agency Developments
On March 9, Fitch updated its dual-party pay criteria for long-term ratings on letter of credit-supported U.S. public finance bonds. Fitch Report.
On March 9, Fitch announced that senior secured ratings of corporate property bonds issued by EMEA REITs or property investment companies (PICs) could attract an additional single notch above their senior unsecured ratings. Fitch Release.
On March 9, S&P gave advance notice of proposed CDO criteria changes for securitizations backed predominantly by emerging market corporate debt. S&P Release.
On March 8, S&P released its methodology for rating U.S. and Canadian stand-along and large loan CMBS. S&P Report.
On March 6, S&P requested comments by June 6 on revised methodology and assumptions for rating U.S. local governments. S&P Report.
On March 5, Fitch updated its non-U.S. public sector entities criteria. Fitch Report.
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Rating Agency Developments – Week of February 13, 2012
On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.
On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.
On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.
On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.
On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.
On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.
On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.
On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.
Loreley Financing Sues Citigroup Over CDO Investments
On January 24, 2012, several Loreley Financing Ltd. entities filed a complaint in New York state court against several Citigroup affiliates over nearly $1 billion in CDO investments backed by subprime mortgages, purchased in 2006 and 2007. Loreley alleges that Citigroup knowingly misrepresented the quality of the mortgage loans in order to transfer risk from its balance sheet. Loreley further accuses Citigroup of concealing the role of Magnetar in designing certain CDOs. Loreley asserts claims for common law fraud, rescission of contract, fraudulent conveyance, and unjust enrichment, and seeks rescission, disgorgement, injunctive relief, and damages. Complaint.
Rating Agency Developments – Week of January 17, 2012
On January 11, Fitch updated its U.S. equipment lease and loan rating criteria. Fitch Release.
On January 11, Moody’s updated its approach for monitoring CPDO transactions. Moody’s Release.
On January 9, DBRS proposed methodology for CLOs and CDOs of large corporate credit and requested comments by January 27. DBRS Release.
On January 9, DBRS proposed cash flow assumptions for corporate CLOs and CDOs backed by other corporate debt and requested comments by January 27. DBRS Release.
On January 9, DBRS released its unified interest rate model for U.S. and European structured credit. DBRS Release.
On January 9, DBRS proposed methodology for surveillance Canadian CLOs and CDOs backed by debt of large corporations and requested comments by January 27. DBRS Release.
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Rating Agency Developments – Week of January 9, 2012
On December 28, S&P updated its methodology for analyzing corporate profitability when determining issuer credit ratings for global corporate issuers. S&P Release.
On December 27, S&P issued an advance notice of criteria change for its methodology for rating second-lien U.S. RMBS transactions. S&P Release.
On December 22, S&P released its outlook assumptions for the U.S. residential mortgage market. S&P Release.
On December 20, S&P updated its project finance construction and operations counterparty methodology. S&P Release.
On December 19, DBRS released its methodology for rating global structured finance CDO restructurings. DBRS Release.
On December 19, DBRS released its unified interest rate model for global structured finance CDO restructurings. DBRS Release.
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Rating Agency Developments
On December 2, Moody’s updated its approach to rating fleet lease-backed ABS. Moody’s Report.
On December 1, Fitch released its surveillance criteria for U.S. CRE CDOs and CMBS large loan floating-rate transactions (floating-rate CMBS pools which have up to 50 loans remaining). Fitch Release.
On December 1, S&P requested comments on its methodology for rating U.S. public finance long-term municipal pools. S&P Release.
On November 29, S&P released definitions and related analytic practices for covenant and payment provisions in U.S. public finance revenue obligations. S&P Release.
On November 29, S&P released its rating approach for U.S. public finance obligations with multiple revenue streams. S&P Release.
On November 29, S&P revised its methodology for rating U.S. ABS auto lease securitizations. S&P Release.
On November 29, Fitch published updated criteria for rating linkages in nonbank financial subsidiary relationships. Fitch Release.
On November 21, S&P released a request for comments on a proposed expansion to its methodology and assumptions for assessing derivative obligations and certain amendments to other aspects of counterparty and supporting party risk criteria. S&P Release.
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