On August 31, the SEC issued a Concept Release to seek public comment on interpretations of Section 3(c)(5)(C) of the Investment Company Act and its use by REITs in acquiring mortgages and mortgage-related instruments. Click here to read more.
Orrick Alert
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.
Dodd-Frank’s SEC Whistleblower Rules Take Effect
On August 12, 2011, the SEC’s Dodd-Frank whistleblower rules became effective, establishing the procedures for whistleblowers reporting violations to the SEC under section 922 of the Dodd-Frank Act to receive a bounty of between 10 and 30 percent of sanctions the SEC collects in successful actions resulting in sanctions of over $1 million. For a complete summary of the updates, please click here.
Massachusetts First to Regulate Use of Expert Network Services
In what appears to be the first attempt to oversee expert network firms, the Massachusetts Securities Division has passed regulations to prevent such firms from dealing insider information. The move makes Massachusetts the first state to weigh in on concerns that consultants hired by investment advisers, whether directly or through expert networks, obtain confidential insider information under the guise of consulting arrangements. Please click here for a complete summary of the regulations.
SEC Re-Proposes Shelf Eligibility Conditions for Asset-Backed Securities and Solicits Additional Comment on Proposed Asset-Level Information Requirements
In April 2010, the Securities and Exchange Commission (“SEC”) proposed “Regulation AB II,” a series of new and amended rules that, if adopted, would substantially revise the offering process, disclosure and reporting requirements for publicly-issued asset-backed securities (“ABS”) and impose new disclosure standards for privately-issued structured finance products.
At an open meeting on July 26, 2011, the SEC re-proposed certain of its Regulation AB II rule proposals in light of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and comments received on its original rule proposals. Specifically, the SEC re-proposed rules relating to the eligibility criteria for shelf registrations of ABS and related filing deadlines for transaction agreements, and solicited additional comment on its proposal to require asset-level information about pool assets. The deadline for comments on the re-proposed rules is October 4, 2011.
Please click here to access our complete update, which includes a brief overview of relevant portions of the original proposals, as well as an overview of the re-proposed rules and request for additional comment.
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.
UK Supreme Court Confirms the Validity of the ‘Flip’ Clause
In its ruling on July 27 in the matter of Belmont Park Investments PTY Ltd v BNY Corporate Trustee Services Lte & Anor [2011] UKSC 38 the Supreme Court of the United Kingdom has dismissed the appeal by Lehman Brothers Special Finance Inc. For a complete summary of the ruling, please click here.