A federal judge in California gutted the SEC’s case against the former CEO and former CFO of IndyMac Bank by granting partial summary judgment against the SEC and eliminating most of the claims. S.E.C. v. Perry, No. CV 11-1309 (C.D. Cal. May 21, 2012). (Transcript) The SEC had alleged that in 2008, IndyMac’s former CEO Michael W. Perry and former CFO A. Scott Keys participated in filing false and misleading disclosures in SEC filings. (Complaint) The SEC claimed that even as Perry and Keys were receiving information regarding IndyMac’s rapidly deteriorating financial condition, the two executives made misleading statements and omissions regarding the bank’s liquidity, capital-raising needs and activities, and capital ratio, which the SEC alleged was an important indication of the bank’s soundness. Despite the breadth of the SEC’s allegations, U.S. District Judge Manuel Real of the Central District of California granted the defendants’ motion for partial summary judgment, leaving few issues for trial. READ MORE
Month: May 2012
What’s Up with HERA’s Statute of Limitations?
On May 4, 2012, the Southern District of New York denied in part, and granted in part UBS’s motion to dismiss the Federal Housing Finance Agency’s (“FHFA”) federal securities and state law misrepresentation claims stemming from pre-2008 securitizations. This opinion is noteworthy because of its analysis regarding the Housing and Economic Recovery Act of 2008’s impact on the relevant statute of limitations.
In July 2011, FHFA, as Fannie Mae’s (“Fannie”) and Freddie Mac’s (“Freddie) federal conservator, sued UBS regarding $6.4 billion in residential mortgage-backed securities purchased by the two government sponsored entities between September of 2005 and August 2007. FHFA alleged that UBS violated, inter alia, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“33 Act”) by preparing and distributing offering documents which contained material misrepresentations regarding the securities underlying mortgage loans. READ MORE
Monoline Insurer Hoist with its Own Petard
A common claim alleged by monoline insurers is that RMBS sponsors fraudulently induced them to provide the insurance by misrepresenting the quality of loans and underwriting. As the story invariably goes, the insurer only discovered that it was defrauded after its vendor reviewed a sample of several hundred loan files, and was shocked to find that most loans, usually alleged to be somewhere between 75% to 95% of the sample, breached representations and warranties. On May 4, a New York court turned these types of post-loss file reviews against the insurer in CIFG Assur. N.A., Inc. v. Goldman Sachs & Co., Index No. 652286/2011 (N.Y. Sup. Ct.). Here, the court found that the very same file sampling and review easily could have been done – and legally should have been done – in the insurers’ due diligence. The insurer’s failure to conduct adequate due diligence when it issued its policy required dismissal of its fraud claim for lack of reasonable reliance. READ MORE
And the Whistle Blows…
The SEC came under scrutiny, including from U.S. Senator Charles Grassley, following an April 25, 2012 front page article in the Wall Street Journal which reported that the Agency had inadvertently revealed the identity of a whistleblower during an inquiry into his former employer.
The investigation involved Pipeline Trading Systems LLC, which runs stock trading platforms under its new name, Aritas Securities LLC. According to the article, an SEC Staff Attorney showed a notebook belonging to the whistleblower to a Pipeline executive during an interview. The executive recognized the handwriting regarding trades, meetings, and phone calls. Pipeline settled with the SEC on October 24, 2011. READ MORE