Month: August 2011

Delaware Supreme Court Reverses Dismissal of RMBS Suit Against Morgan Stanley

In an en banc decision, the Delaware Supreme Court reinstated a suit by mortgage loan servicer Central Mortgage Co. (“CMC”) against Morgan Stanley for breach of contract and breach of the implied covenant of good faith and fair dealing. CMC had purchased from Morgan Stanley mortgages that CMC alleges became delinquent. Then-Vice Chancellor Strine of the Delaware Court of Chancery found that CMC had failed to follow the notice requirements in the parties’ Master Agreement to provide Morgan Stanley with sixty days notice to attempt to cure the alleged breaches of that contract. The court held that CMC’s complaint sufficiently pleaded compliance with the notice provision, and factual issues remained as to the adequacy of the notice. The court also held that CMC’s claim for breach of the implied covenant of good faith and fair dealing did not duplicate its breach of contract claims because, it found, CMC pleaded various additional facts that provide a separate basis for the former claim. Decision.

RMBS Insurer Sues Goldman in New York State Court

CIFG Assurance North America Inc. (“CIFG”) filed suit in New York Supreme Court against Goldman Sachs and affiliated entities, and M&T Bank, the originator of the majority of the loans that backed approximately $277 million of RMBS insured by CIFG. CIFG asserts claims for fraudulent inducements and breach of contracts, alleging that Goldman misrepresented or omitted important details concerning the mortgages, including Goldman’s alleged plan to offload its own exposure of these RMBS to the investors. In addition to seeking damages, CIFG has demanded that Goldman and M&T cure or repurchase the allegedly defective loans. Complaint.

New York Court Grants Investors’ Petitions to Intervene In Proposed $8.5 Billion Bank Of America Settlement

On August 19, 2011, New York Supreme Court Judge Barbara Kapnick granted the petitions to intervene by various investors, including Walnut Place LLC and affiliates, various pension funds, several Federal Home Loan Banks, and several insurance companies, in the proposed $8.5 billion settlement agreement between Bank of New York Mellon, as Trustee on behalf of holders of Countrywide Financial Corp.’s mortgage-backed securities, and Bank of America. As a result of this decision, these intervening entities will now participate in the settlement proceedings. New York Attorney General Eric Schneiderman’s motion to intervene is still pending. Decision.

Treasury Issues Regulations with Respect to Assignments of Derivative Contracts

On July 21, Treasury issued temporary and proposed regulations under Section 1001 of the Internal Revenue Code providing that assignments of derivative contracts by dealers to other dealers or clearinghouses are not taxable events if they meet certain criteria, expanding the circumstances allowing dealers to transfer their derivatives positions to clearinghouses or other dealers without a recognition event. Click here to read more.

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

On August 4, the Commodity Futures Trading Commission issued final rules implementing its whistleblower program under Section 748 of the Dodd-Frank Act. These rules will take effect sixty days after their publication in the Federal Register, scheduled for August 25, and will be found at 17 C.F.R. Part 165. Click here for the complete summary.

Application Deadline Extended for NY Fed Reverse Repo Counterparties

On August 22, the New York Fed extended the deadline for applications by banks and savings associations to be an eligible counterparty for reverse repurchase transactions with the New York Fed. Applications must be submitted by September 9. NY Fed Release.

Fed Proposed Phase-In Period for SLHC Regulatory Reports

On August 22, the Fed proposed: (i) a two-year phase-in period for most savings and loan holding companies to file Fed regulatory reports and (ii) an exemption for certain SLHCs from filing initial Fed regulatory reports. Comments on the proposal must be submitted by November 1. Fed Release. Request For Comment.

MSRB Proposed Rule on Supervision of Municipal Advisory Activities

On August 22, the MSRB filed with the SEC proposed Rule G-44, which would require municipal advisors to establish and maintain systems to supervise the municipal advisory activities of associated persons to ensure compliance with MSRB and SEC rules. The MSRB also proposed amendments to Rule G-8 with respect to books and records and Rule G-9 with respect to preservation of records to correspond with the new rule requirements. MSRB Release.

MSRB Proposed Rule on Fiduciary Duty for Municipal Advisors

On August 23, the MSRB filed with the SEC proposed Rule G-36 and interpretive guidance on the fiduciary duty owed by municipal advisors to state and local government as well as other municipal entity clients. Under the proposed rule and related guidance, municipal advisors would be required to: (i) act in the municipal entity’s best interest; (ii) provide written disclosure of certain conflicts of interest; and (iii) receive written consent for any such conflicts from authorized government officials. The proposed rule is expected to take effect on the effective date of the SEC’s definition of the term “municipal advisor” under the Exchange Act, or at a later date as approved by the SEC. MSRB Release.