Month: January 2012

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 23, 2012

On January 18, Fitch updated its short-term rating criteria for non-financial corporates. Fitch Release. Fitch Report.

On January 17, S&P requested comment on proposed changes to methodologies and assumptions used to rate fully and partially credit-enhanced multiseller ABCP conduits. Comments must be submitted by March 31. S&P Release.

On January 17, S&P requested comment on its European SME CLO methodology and assumptions. Comments are due by February 24. S&P Release.

*Note: Free registration is required for all Fitch and S&P reports.

FHA Increases Lender Indemnification and Performance Standards

On January 20, the FHA announced a final rule to: (i) revise the process by which the FHA requires lenders to indemnify HUD for insurance claims on mortgages that do not meet the agency’s guidelines and (ii) require all lenders with authority to insure mortgages on HUD’s behalf to meet stricter performance standards. In a separate Federal Register notice, the FHA will propose to reduce the maximum allowable seller concession to reflect public comments to a proposal published on July 15, 2010. The new proposal will have a 30 day comment period. FHA Release. Final Rule.

Sealink Funding Sues Morgan Stanley for RMBS Losses

On January 20, 2012, Sealink Funding Ltd. filed a complaint in New York state court against several Morgan Stanley entities in connection with certificates in 11 RMBS offerings allegedly purchased by Sealink during 2006 and 2007 for approximately $556 million. Sealink alleges that Morgan Stanley made misrepresentations about its due diligence regarding the mortgage loans underlying the certificates and the underwriting guidelines used by the originators of those loans. Sealink asserts claims for common law fraud, fraudulent inducement, and negligent misrepresentation, and seeks rescission and damages. Complaint.

John Hancock Sues JP Morgan Over RMBS

On January 20, 2012, John Hancock Life Insurance Co. filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities and individuals seeking to recover for losses allegedly incurred on certificates John Hancock purchased in 21 separate RMBS offerings from JPMorgan, Bear Stearns, and Washington Mutual Inc. John Hancock alleges that the defendants made misrepresentations concerning the quality of the mortgage loans underlying the certificates and failed to perform adequate due diligence. The complaint alleges violations of the Securities Act of 1933, common law fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement, and seeks rescission and damages. Complaint.

Dexia Sues JPMorgan for RMBS Losses

On January 19, 2012, Dexia SA/NV and related entities filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities in connection with certificates in 53 RMBS offerings that Dexia allegedly purchased from JPMorgan, Bear Stearns, and Washington Mutual for approximately $1.7 billion. Dexia alleges that the defendants created, issued, and sold RMBS based on loans that the defendants knew to be of poor quality, made false and misleading representations about those loans to investors, and exerted undue pressure on credit rating agencies. Dexia asserts claims for negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement, and seeks rescission and damages. Complaint.

SEC No-Action Letter on the Registration of Affiliates of Registered Advisers

On January 18, the SEC Division of Investment Management issued a No-Action Letter in response to a request from the American Bar Association Subcommittee on Hedge Funds, exempting from registration under the Investment Advisers Act of 1940 certain control affiliates of SEC registered advisers, subject to the fulfillment of certain conditions. The No-Action Letter also confirms prior SEC staff guidance from 2005, which provides a registration exemption to special purpose vehicles created by registered advisers. SEC No-Action Letter.

M&T Bank Corp Settles CDO Suit Against Deutsche Bank for $55 Million

In a January 17, 2012 press release and 8-K reporting its financial results for the fourth quarter, M&T Bank Corp announced the settlement of a 2008 lawsuit against Deutsche Bank Securities and other entities. The suit, filed in the Supreme Court for the State of New York, alleged that Deutsche Bank made misrepresentations when marketing an $82 million investment of the Gemstone CDO VII, underpinned by subprime home loans. M&T Bank Corp reports that it received $55 million from the settlement. Current Report.