President Obama signed the Jumpstart Our Business Startups Act (the “Act”) into law on April 5. The Act includes many provisions intended to facilitate capital raising and reduce regulatory burdens for certain types of issuers, but does little for the asset-backed securities market, which continues to grapple with the Dodd-Frank Act and related regulations and the looming specter of Reg AB II.
ABS issuers, underwriters and investors, however, will be interested in the sections of the Act that amend the exempt offering provisions of the Securities Act of 1933 (the “Securities Act”) and direct the Securities and Exchange Commission (the “SEC”) to revise regulations to permit general solicitation and advertising in connection with offerings that are exempt from registration under the Securities Act. Click here to read more.
On March 30, the SEC issued final rules adopting exemptions for certain security-based swaps under the Securities Act (other than the Section 17(a) anti-fraud provisions), the Securities Exchange Act, and the Trust Indenture Act. Exempt security-based swaps must be issued by certain clearing agencies and satisfy certain conditions. The final rules are effective April 16. Final Rules.
On January 20, the SEC amended Rule 146 under Section 18 of the Securities Act to designate certain securities listed on BATS Exchange, Inc. as covered securities which are exempt from state law registration requirements. The amendment will be effective 30 days from the date of publication in the Federal Register. Final Rule.
On December 21, pursuant to Section 413(a) of the Dodd-Frank Act, the SEC amended several rules under the Securities Act, the Investment Company Act, and the Investment Advisers Act to exclude the value of an individual’s home from net worth calculations used to determine whether such individual qualifies as an accredited investor. The amendments also: (i) clarify the treatment of loans secured by a primary residence for purposes of this new net worth calculation and (ii) permit individuals who qualified as accredited investors under the prior definition of accredited investor to use the previous net worth standard for certain follow-on investments. The amendments will be effective on February 27. SEC Release. SEC Final Rule.
On December 20, 2011, Judge S. Arthur Spiegel of the Southern District of Ohio granted the plaintiffs’ motion to remand and denied Morgan Stanley’s motion to transfer to the Southern District of New York an RMBS suit based on the alleged failure to disclose claimed departures from underwriting guidelines. The court found that related-to bankruptcy jurisdiction did not exist given that Defendants had not filed indemnification claims in the bankruptcy of the sole bankrupt originator prior to the bar date. Plaintiffs, which include the Western and Southern Life Insurance Company, bring claims under Section 11 of the Securities Act and Ohio securities blue sky laws. Decision.
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.
On August 9, 2011, the National Credit Union Administration Board (“NCUA”) sued Goldman Sachs in federal court in Los Angeles over Goldman’s sale of mortgage-backed securities to credit unions. NCUA claims that Goldman misrepresented the quality of the loans backing the securities in its offering documents. It also claims that the loans did not satisfy the underwriting guidelines Goldman included in its offering documents. The Complaint cites the Financial Crisis Inquiry Commission Report issued in January 2011 in support of its claims that mortgage loan originators disregarded prudent underwriting practices and securitizers like Goldman did not perform sufficient due diligence, leaving investors without access to critical information about the loans. NCUA alleges claims under Sections 11 and 12(a)(2) of the ’33 Act, Sections 25401 and 25501 of the California Corporate Securities Law of 1968, and Section 17-12a509 of the Kansas Uniform Securities Act. NCUA seeks more than $491 million in damages. NCUA has brought four actions against other RMBS issuers since June 20, 2011. Complaint.
On July 28, 2011, several institutional investors filed a complaint against Countrywide Financial, Bank of America, several former Countrywide officers, and KPMG in the Federal District Court for the Central District of California. Plaintiffs allege that Defendants made false and misleading statements regarding the quality of loans originated by Countrywide, which allegedly inflated the value of Plaintiffs’ Countrywide securities, in violation of Sections 10(b), 20(a), and 20A of the Exchange Act and Sections 11, 12(a)(2), and 15 of the Securities Act. Plaintiffs opted out of the recently-settled class action against Countrywide to pursue their own claims. Complaint.
On July 20, the House Financial Services Committee approved H.R. 1539, the “Asset-Backed Market Stabilization Act of 2011″, to repeal Section 939G of the Dodd-Frank Act. The repeal of Section 939G would reinstate Rule 436(g) of the Securities Act under which NRSROs are excluded from being treated as experts subject to expert liability when credit ratings are included in registration statements under the Securities Act. HFSC Release.HFSC Act.
On February 10, 2011, the Second Circuit Court of Appeals vacated ad remanded the dismissal of an action against the Blackstone Group that alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act in connection with Blackstone’s Registration Statement and Prospectus filed as part of its IPO. Plaintiffs had alleged that Blackstone violated the Securities Act when it failed to disclose the likely impact on its real estate investment private equity businesses from the decline in the residential mortgage market and certain other publicly-disclosed events concerning two of its equity investments. In reinstating the claims, the Second Circuit emphasized that public knowledge of the events did not excuse Blackstone from making disclosures about them because Item 303 of Regulation S-K requires issuers to disclose how such events might be reasonably expected to materially affect an issuer’s business. The Second Circuit also emphasized that materiality had to be assessed qualitatively, and that a material impact on one segment of Blackstone’s operations could require disclosure even if quantitatively immaterial to Blackstone as a whole. Appeal.
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