On December 18, Deutsche Bank was dismissed from an RMBS action brought by the New Jersey Carpenters Health Fund regarding certificates backed by RALI and HarborView trusts. Judge Harold Baer of the United States District Court for the Southern District of New York granted in part and denied in part defendants’ motion to reconsider their motions to dismiss in light of the Second Circuit’s 2013 decision that claims brought under Section 13 of the Exchange Act are not subject to equitable tolling of the statute of limitations by a prior class action complaint. The court dismissed claims with respect to two HarborView trusts and all claims against Deutsche Bank securities as untimely because plaintiffs could no longer rely on equitable tolling. Claims against Citigroup and Goldman Sachs remain in the case. Decision.
Exchange Act
SEC Published Fee Rate Advisory #2 For Fiscal Year 2014
On October 31, the SEC announced that the fees paid under Section 31 of the Exchange Act will remain at their current rate until 60 days after the enactment of a regular appropriation for the SEC. The SEC is currently operating under a continuing resolution until January 15, 2014. Release.
SEC Extension of Temporary Registration of Municipal Advisors
On December 21, the SEC extended interim final temporary Rule 15Ba2-6T, providing for temporary registration of municipal advisors under the Exchange Act, from December 31, 2011 to September 30, 2012. SEC Rule.
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures
On October 27, the SEC ordered FINRA to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. The order was made in connection with alleged violations of Section 17(a) of the Exchange Act and Rule 17a-1, namely the alteration of certain records prior to submission to SEC inspection staff. SEC Release. SEC Order.
Several Institutional Investors Sue Countrywide In California Federal Court Over Misstatements Regarding Loan Quality
On July 28, 2011, several institutional investors filed a complaint against Countrywide Financial, Bank of America, several former Countrywide officers, and KPMG in the Federal District Court for the Central District of California. Plaintiffs allege that Defendants made false and misleading statements regarding the quality of loans originated by Countrywide, which allegedly inflated the value of Plaintiffs’ Countrywide securities, in violation of Sections 10(b), 20(a), and 20A of the Exchange Act and Sections 11, 12(a)(2), and 15 of the Securities Act. Plaintiffs opted out of the recently-settled class action against Countrywide to pursue their own claims. Complaint.
SEC Rule on Filing Requirements for Dually-Registered Clearing Agencies
On July 7, the SEC adopted an interim final rule to amend Rule 19b-4 under the Exchange Act which expands the list of categories that qualify for summary effectiveness under Section 19(b)(3)(A) of the Exchange Act to include any matter effecting a change in an existing service of an SEC-registered clearing agency that primarily affects its futures clearing operations with respect to non-security futures and does not significantly affect any securities clearing operations of the clearing agency or the rights or obligations of the clearing agency or persons using such servicer. Comments must be submitted by September 15. SEC Rule.
SEC Guidance, Relief, and Exemptions for Security-Based Swaps
On July 1, the SEC clarified which securities laws will apply to security-based swaps starting July 16, the effective date of Title VII of the Dodd-Frank Act. The SEC approved an order granting temporary relief and interpretive guidance clarifying that a substantial number of the Exchange Act requirements applicable to securities will not apply to security-based swaps when the revised definition of “security” goes into effect on July 16. Comments on the order must be submitted by July 15. The SEC also approved an interim final rule giving exemptions from the Securities Act, Trust Indenture Act, and other federal securities laws to allow certain security-based swaps to continue to trade and be cleared as they have before the enactment of the Dodd-Frank Act. Comments on the interim final rule must be submitted 45 days after it is posted on the website. SEC Release. Exemptive Order. Interim Final Rule.
Plaintiffs Seeks Approval of $70 Million Settlement in Investor Class Action Against Credit Suisse
On March 10, 2011, lead plaintiffs in an investor class action against Credit Suisse Group AG and related individual defendants filed an unopposed motion in the US District Court for the Southern District of New York asking Judge Marrero to preliminarily approve a $70 million settlement in that action on behalf of all defendants. The investors had sued Credit Suisse for claims under Sections 10(b) and 20(a) of the Exchange Act, alleging that Credit Suisse had inflated its stock price by falsely representing to investors that the firm was successful in limiting the risk and losses of its RMBS and CDOs from the subprime and credit crises because it had exceptional risk management practices and internal controls. The proposed settlement class includes all purchasers of Credit Suisse American Depository Shares on the NYSE and all US residents who purchased Credit Suisse common stock on the Swiss Stock Exchange from February 15, 2007 through April 14, 2008 who have not otherwise timely opted out of the class. Notice. Settlement Agreement. Second Amended Class Complaint.
New Countrywide Stockholder Suit
On March 10, 2011, several Countrywide stockholders filed a complaint against Countrywide Financial Corp., several of its former senior executives, and Countrywide’s independent auditor in the US District Court for the Central District of California. Plaintiffs, who previously opted out of a similar class action, allege that Defendants misled investors concerning the risks and quality of Countrywide’s loan portfolio, the sufficiency of its underwriting guidelines and internal controls, and Countrywide’s financial condition, all of which inflated Countrywide’s stock price and caused plaintiffs to suffer a loss. They assert claims against all defendants for violations of Sections 10(b) and 18 of the Exchange Act, SEC Rule 10b-5, and common law fraud. They also assert claims for violations of Section 20(a) of the Exchange Act against the individual defendants and for negligent misrepresentation against Countrywide and the individual defendants. Complaint.
Judge Certifies Class in Lawsuit Against Dynex Capital for Over $630 Million in Mortgage-Backed Securities
On March 7, 2011, Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York certified a class of plaintiffs bringing claims under Section 10(b) and 20(a) of the Exchange Act against Dynex Capital, Inc. on the basis that Dynex Capital allegedly made material misstatements and omissions regarding underwriting standards, market conditions, loss reserves, and delinquencies in connection with the sale of bonds that are MBS collateralized by pools of mobile home loans. Judge Baer certified the class to include all purchasers of two MBS, even though the lead plaintiff purchased from only one tranche of one MBS. Unlike several other federal district judges, Judge Baer certified the class for purchasers of both MBS even though individual plaintiffs who purchased other tranches have different repayment rights and damages. Judge Baer also rejected Dynex Capital’s argument that the element of reliance was not sufficiently pled on the basis that the fraud-on-the-market doctrine does not apply because the market for the bonds at issue was inefficient. In finding that an efficient market existed, the court noted that trading volume of these MBS securities was sufficient , market makers for these securities existed, and there was sufficient price reaction to the disclosure of material information concerning these securities. Decision.