Orrick Takes Lead In Successful Effort To Obtain Jurisdictional Discovery In RMBS Litigation

On May 2, 2011, a federal court in the District of Massachusetts ruled that the defendants in a suit brought by Cambridge Place Investment Management, Inc. (“CPIM”) had a “colorable claim” of federal jurisdiction and were therefore entitled to jurisdictional discovery. CPIM originally brought suit in Massachusetts state court against several underwriters, issuers and depositors of RMBS. After defendants removed the case to federal court, CPIM moved to remand the case back to state court. Simultaneous with defendants’ opposition to CPIM’s remand motion, defendants jointly moved the court for leave to take jurisdictional discovery to support their argument that diversity jurisdiction exists because the alleged assignment of claims by numerous foreign entities to CPIM was collusive and for the purpose of destroying diversity jurisdiction. The magistrate judge to whom the motions were assigned issued a report and recommendation in December 2010 denying jurisdictional discovery and remanding the action to state court. After subsequent briefing, District Court Judge Nathanial M. Gorton rejected the report and recommendation, finding that the ultimate question of diversity jurisdiction could be decided only after jurisdictional discovery was concluded. Orrick, Herrington & Sutcliffe LLP, representing Barclays, took the lead in briefing and arguing the motion for jurisdictional discovery on behalf of all of the defendants in the case. Decision.

Plaintiffs Ask Judge Crotty to Reconsider His Denial of Leave to File Amended Complaint in Barclays RMBS Litigation

On February 4, 2011, plaintiffs in In re Barclays Bank PLC Securities Litigation (S.D.N.Y.) filed a motion asking Judge Crotty to reconsider his January 5, 2011 order which rmbss’ claims against defendants without granting leave to amend. Plaintiffs assert claims under Sections 11, 12(a) and 15 of the Securities Act on behalf of a putative class of investors who acquired Barclays’s preferred securities between 2006 and 2008 pursuant or traceable to registration statements and prospectuses that plaintiffs allege did not properly account for or adequately disclose Barclay’s liabilities and risks related to RMBS and other CDOs. Judge Crotty previously granted the defendants’ motion to dismiss the relevant claims on the grounds that plaintiffs failed to adequately allege that the defendants did not honestly believe their estimates of the RMBS and CDO liabilities or that any of the lead plaintiffs had purchased the relevant securities prior to Barclays’s “adequate disclosure” of the risks in August 2008. In their motion to reconsider, plaintiffs seek leave to amend their consolidated complaint and reinstate certain claims by adding allegations that the defendants did not believe their disclosures on the value of the liabilities and adding two new plaintiffs who allegedly purchased the relevant securities prior to the August 2008 disclosures. Motion and Proposed Amended Complaint. Jan. 5 Decision.

Market Developments

On October 28, the House Committee on Oversight and Government Reform, chaired by Rep. Henry Waxman (D. Cal.), sent a letter to the nine major banks which are the recipients of Treasury’s $125 billion investment seeking broad ranging compensation information on all personnel, including total compensation and average compensation paid or projected to be paid from 2006-2008, as well as the number of employees paid more than $500,000 and individual salary and bonus breakdowns for the ten highest paid employees.  The letter states that the committee “questions the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of bonuses”. For more information about this ongoing investigation, contact Mike Delikat, Adam Goldberg, Mike Madigan or Howard Altarescu.

Barclays announced today plans to raise up to £7.3 billion, without government aid, from existing and new investors as part of its plan to achieve the new higher capital targets set by the UK Financial Services Authority.  Barclays Press Release.

On October 22, the Bankruptcy Court for the Southern District of New York approved bidding procedures to auction Lehman Brothers Holdings Inc.’s Investment Management Division (including Neuberger Berman) and a portion of its private equity business.  The proposed purchaser is IMD Parent LLC (jointly controlled by Bain Capital Partners and Hellman & Friedman), which is entitled to certain break up fees and expense reimbursement in the event they are not the winning bidder. The estimated net purchase price is $1.75 billion.  Bids are due on December 1with an auction for qualified bidders scheduled to occur on December 3. The sale hearing is scheduled for December 22. Orrick Client Alert.

 Orrick’s Creditors’ Rights & Bankruptcy Group has prepared a user’s guide to investments held in distressed financial institutions and broker-dealers, which summarizes the current investment landscape.  Investments Held in Distressed Financial Institutions and Stockbrokers: A User’s Guide