On August 19, the SEC and the CFTC requested comments for a study to assist in determining whether stable value contracts fall within the definition of a swap and, if so, whether exempting these contracts from the swap definition is appropriate and in the public interest. Comments must be received by 30 days after publication in the Federal Register. SEC Release.
Month: August 2011
SEC Final Rule on Suspension of Duty to File
On August 17, the SEC issued a final rule setting forth thresholds for suspension of the reporting obligations for ABS issuers in connection with Section 942(a) of the Dodd-Frank Act, which eliminated the automatic suspension of duty to file under Section 15(d) of the Exchange Act. As adopted, the rule provides that the duty to file reports by an issuer of a registered offering is suspended if there are no ABS outstanding and the issuer has filed all required reports for the three most recent fiscal years or if, at the beginning of a semi-annual fiscal period (other than in the year the registration statement became effective or a shelf takedown occurred), all ABS are held by affiliates of the depositor. The final rule will be effective 30 days after publication in the Federal Register. SEC Final Rule.
National City Corp. To Pay $168 Million To NY Pension Fund To Settle Claims of Mortgage Loan Fraud
National City Corp., a financial holding company based in Cleveland, agreed to settle a class action brought by the New York State Common Retirement Fund and other purchasers of National City common stock for allegedly misrepresenting the quality of mortgage loans backing its RMBS. The suit, filed in 2008, alleged that National City mischaracterized as prime approximately $10 billion in subprime loans, and misrepresented the loans’ quality and performance. Plaintiff alleged violations of Sections 10(b) and 20(a) of the ’34 Act and Sections 11 and 15 of the ’33 Act. National City will pay $168 million to the class. The settlement, announced on August 8, 2011, must still be approved by U.S. District Judge Solomon Oliver of the Northern District of Ohio. Press Release.
Federal Court In California Finds Countrywide RMBS Suit Time-Barred
Judge Mariana Pfaelzer of the Central District of California ruled on August 10, 2011 that claims asserted by Stichting Pensioenfonds ABP on August 18, 2010 and in an amended complaint on February 14, 2011 were barred by the applicable statutes of limitations and repose. ABP had argued its claims under Sections 11, 12(a)(2) and 15 of the ’33 Act were tolled by a class action in California state court against Countrywide on the same securitizations. Judge Pfaelzer held American Pipe class action tolling only applies where an earlier class plaintiff had standing as to the specific tranche. ABP was given leave to amend its complaint to allege tranche-specific tolling for its Section 11, 12(a)(2), and 15 claims. Judge Pfaelzer further held that plaintiff was on inquiry notice as of early 2008 about the allegations of fraud at Countrywide. She therefore dismissed ABP’s remaining claims, under Sections 10(b) and 20(a) of the ’34 Act, Sections 25400 and 25500 of the California Corporations Code, and state law fraud and aiding and abetting, based on the relevant statutes of limitations and repose, without leave to amend. Order.
National Credit Union Administration Sues Goldman Sachs Over Sale of MBS
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.
Delaware AG Joins New York AG In Challenging $8.5 Billion Bank Of America Settlement
Delaware Attorney General Joseph “Beau” Biden III moved on August 9 for leave to intervene in the court proceeding brought to approve Bank of America’s $8.5 billion settlement with holders of Countrywide Financial Corp.’s mortgage-backed securities. The Delaware AG challenges the fairness of the settlement, expressing concerns about the impact of the proposed settlement on the rights of the Delaware state pension funds. Motion.
AIG Sues Bank Of America Over Alleged Fraud In RMBS
On August 8, 2011, American International Group sued Bank of America Corp., Countrywide Financial Corp., and Merrill Lynch & Co. in New York state court, claiming that between 2005 and 2007 the defendants fraudulently induced AIG to invest in 350 residential mortgage-backed securities at a cost of $28 billion. AIG claims that the defendants did not engage in prudent underwriting practices, and ignored mischaracterizations made by borrowers about income and employment. The AIG complaint cited a forensic investigation done of the securitizations before the suit was filed, alleging that 40% of loans sampled were improperly evaluated on the risk metrics the defendants included in their offering materials. AIG alleges violations of Sections 11, 12(a)(2), and 15 of the ’33 Act, and state law claims of fraudulent inducement, aiding and abetting fraudulent inducement, negligent misrepresentation, and vicarious and successor liability. AIG seeks $10 billion in compensatory damages, among other remedies. Complaint.
Derivatives Month in Review
Click here to view highlights regarding important legal, regulatory and other newsworthy developments in the area of derivatives.
Important Guidance Given on Person-to-Person Lending Platforms
On July 7, 2011, the U.S. Government Accountability Office (“GAO”) published an important report, as mandated by Section 989F of the Dodd-Frank Act, addressing the major person-to-person (“P2P”) lending platforms and the potential regulatory challenges the platforms could face as the industry continues to grow. To view a complete summary of the report, please click here.
Rating Agency Developments
On August 12, Fitch updated its core corporate criteria reports. Fitch Release.
On August 11, Fitch updated its criteria for rating insurance-linked securities. Fitch Release.
On August 11, Fitch updated its criteria for rating SPV currency swap obligations in structured finance transactions. Fitch Release.
On August 11, Fitch updated its criteria for rating repackaged senior structured finance notes. Fitch Release.
On August 10, Fitch updated its assumptions used in assessing the credit risk of residential mortgage loan pools in various regions. Fitch Portuguese Release. Fitch Italian Release. Fitch German Release. Fitch European Release.
On August 10, Fitch updated its corporate and project finance CDO rating criteria. Fitch Release.
On August 10, Fitch published its Asia-Pacific (APAC) RMBS criteria and updated its Australian RMBS rating criteria as an addendum to this report. The APAC RMBS framework will replace the Australian Residential Mortgage Default Criteria (dated April 2008) and the Criteria for Rating Japanese RMBS (dated November 2001). Fitch Release (APAC RMBS). Fitch Release (Australian RMBS).
On August 10, Fitch published its global criteria for lenders’ mortgage insurance in RMBS transactions. Fitch Release.
On August 10, Fitch published its APAC consumer ABS rating criteria. Fitch Release.
On August 10, Fitch updated its U.S. water and sewer revenue bond rating criteria. Fitch Release.
On August 9, Fitch updated its structured finance rating caps criteria. Fitch Release.
On August 5, Fitch updated its rating criteria for toll roads, bridges, and tunnels. Fitch Release.
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