On February 1, 2011, the Appellate Division of the Supreme Court of the State of New York dismissed MBIA Insurance Corp’s claim for breach of contract against Merrill Lynch concerning 11 credit default swap contracts on four CDOs whose collateral consisted largely of RMBS. MBIA alleged that it was induced to provide credit protection on the CDOs based on misrepresentations as to the quality of the CDOs’ collateral, the degree of credit protection on the insured tranches, the credit ratings of the insured tranches, and the default rates for comparable CDOs. MBIA originally brought a variety of claims sounding in fraud, negligent misrepresentation, breach of contract, and a breach of the covenant of good faith and fair dealing, and sought rescission of the CDS contracts and money damages. The trail court dismissed all but the breach of contract claim, which the Appellate Division has now unanimously dismissed on appeal. First Department Decision. New York County Supreme Court Decision.
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Proposed CFTC Regulations Under Dodd-Frank Could Jeopardize Swaps with ERISA Plans
The CFTC recently proposed rules under the Dodd-Frank Act that create significant uncertainty for employee benefit plans subject to ERISA, and other “Special Entities” (as defined in Dodd-Frank and explained further in the link below) entering into swap transactions. Employee benefit plans subject to ERISA (and investment vehicles into which such plans invest) regularly engage in swap transactions to hedge against market risks. Swaps also help defined benefit pension plan sponsors reduce volatility and make funding obligations more predictable. Click here to read more.
CFTC Proposes Rules on Swap Data Recordkeeping and Reporting
On December 8 and 9, the CFTC proposed rules required under the Dodd-Frank Act prescribing standards for swap data recordkeeping and reporting for swap data repositories, derivatives clearing organizations, designated contract markets, swap execution facilities, swap dealers, major swap participants and other swap counterparties. Comments must be received on or before February 7, 2011. CFTC December 8 Proposed Rule. CFTC December 9 Proposed Rule.