Orrick's Financial Industry Week In Review - September 10, 2012

by Orrick, Herrington & Sutcliffe LLP
Contact

Financial Industry Developments
 

Increase in Fannie Mae and Freddie Mac Guarantee Fees

On August 31, the FHFA announced that it has directed Fannie Mae and Freddie Mac to raise guarantee fees on single family mortgages by an average of 10 basis points.  For loans exchanged for mortgage-backed securities, the increases will be effective with settlements starting December 1.  For loans sold for cash, the increases will be effective with commitments starting November 1.  FHFA Release.  

SEC Risk Alert on Pay-to-Play and MSRB

On August 31, the SEC issued an alert on compliance with MSRB Rule G-37, which limits political contributions by municipal securities professionals to campaigns of public officials of issuers with whom they are doing or seek to do business.  The SEC’s concerns include: (i) compliance with the rule’s ban on doing business with a municipal issuer within two years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals; (ii) possible recordkeeping violations; (iii) failure to file accurate and complete forms with regulators; and (iv) inadequate supervision.  SEC Release.  SEC Risk Alert.

European Commission Consultation on Benchmarks and Market Indices

On September 5, the European Commission launched a consultation inviting stakeholders to comment on possible new rules for the production and use of indices servicing as benchmarks in financial contracts.  The consultation covers all benchmarks, including commodities and real estate price indices, in addition to interest rate benchmarks such as LIBOR.  The consultation will run through November 15.  EC Release. EC Consultation.

Rating Agency Developments
 

On September 5, S&P released its methodology for U.S. and Canadian CMBS.  S&P Report. 

On September 5, S&P released its CMBS global property evaluation methodology.  S&P Report. 

On September 5, DBRS released its criteria for holding companies and their subsidiaries.  DBRS Report.

On August 31, DBRS released its solar power project criteria.  DBRS Report.

Note: Free registration is required for rating agency releases and reports

Asset Management
 

FINRA Rule Requiring Filing of Private Placement Offering Documents

On September 5, the SEC approved new FINRA rule 5123 requiring each member firm that sells an issuer’s securities in a private placement to file with FINRA a copy of any private placement memorandum, term sheet or other offering document within 15 days of the date of sale.  The rule exempts some private placements sold solely to qualified purchasers, institutional purchasers and other sophisticated investors.  The rule becomes effective on December 3.  FINRA Notice and Rule.

RMBS Litigation
 

Second Circuit Permits Expansive Class Standing for RMBS Purchasers

On September 6, 2012, the United States Court of Appeals for the Second Circuit reversed the dismissal of RMBS claims against Goldman Sachs and related entities based on lack of standing and failure to state a claim.  The court addressed a named plaintiff’s standing to assert class claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 based on mortgage-backed securities from offerings or tranches it did not purchase.  Reversing the district court’s decision, the Second Circuit held that plaintiffs have standing to represent classes of investors who purchased mortgage-backed securities from different tranches than those purchased by the named plaintiff, or even under different prospectus supplements, as long as the securities were backed by mortgages originated by the same lenders and the claims are based on “similar or identical misrepresentations in the Offering Documents.”  The court also held that the plaintiff had adequately pled a decline in the value of the securities, despite the absence of any allegation that the relevant trusts had defaulted on any distribution of principal or interest.  Decision.

WaMu Settles RMBS Suit for $26 Million

On September 4, 2012, named plaintiffs Doral Bank of Puerto Rico, Policeman’s Annuity Benefit Fund of the City of Chicago and Boilermakers National Annuity Trust moved for approval of a $26 million settlement with Washington Mutual in an action for alleged violations of Sections 11, 12, and 15 of the Securities Act.  Plaintiffs brought the class action against specific WaMu divisions alleging that RMBS offering documents contained material misstatements about the underwriting quality of the underlying loans.  Plaintiffs originally sought more than $550 million in the suit.  Motion.

German Bank Sues Goldman Sachs and Citigroup for a Total of $210 Million

On September 5, 2012, German bank IKB Deutsche Industriebank AG filed summonses with notice against Goldman Sachs and Citigroup in the Supreme Court of the State of New York, New York County claiming $210 million in losses.  In two separate actions, the bank alleges that Goldman Sachs and Citigroup provided offering materials that misrepresented or omitted material information about the originators’ underwriting practices, the transfer of loans to the relevant trusts, and the ability of the trusts to recoup interest and principal on the loans.  IKB asserted claims for fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, rescission, restitution, and mutual mistake.  Goldman Sachs Complaint.  CitiGroup Complaint.

Irish Financial Firm Sues UBS Alleging RMBS Misrepresentations

On September 5, 2012 Sealink Funding Limited filed a summons with notice against UBS AG in the Supreme Court for the State of New York for allegedly misrepresenting the nature of nearly $160 million worth of RMBS securities.  Sealink alleges misrepresentations and omissions regarding underwriting standards, transfers of loans to the trusts, loan-to-value ratios, owner-occupied status, and credit ratings.  The causes of action are for fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, declaratory judgment, rescission, restitution, and mutual mistake.  Summons with Notice.

Israel’s Largest Bank Sues Morgan Stanley for $281 Million

On August 29, 2012, Bank Hapoalim B.M. filed a summons with notice for a case against Morgan Stanley and related entities in the Supreme Court of New York for allegedly making knowing misrepresentations and omissions in offering materials concerning the loans pooled into $140 million worth of RMBS issued between September 2006 and June 2007 in eight RMBS securitizations.  The causes of action are for fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, declaratory judgment, breach of contract, rescissory damages, and violations of the Securities Act of 1933.  Summons with Notice.

European Financial Industry Developments
 

FSA Publishes a Guidance Consultation on the Risks to Customers from Financial Incentives

On 5 September 2012, the FSA published a guidance consultation on the risks to customers from financial incentives (GC 12/11).

GC 12/11 includes proposed guidance for firms on:

  • incentive scheme features that increase the risk of mis-selling; and
  • managing the risks and governance of incentive schemes.

The publication of GC 12/11 marks the launch of what the FSA is calling its initiative to outlaw flawed sales bonuses that encourage mis-selling and was accompanied by the publication of a speech by Martin Wheatley (Managing Director, FSA and chief executive officer designate, FCA) entitled ‘The incentivisation of sales staff – are consumers getting a fair deal?’.  In his speech Mr. Wheatley explained that the FSA’s initiative – in which he would be taking a lead role – was aimed at ensuring that financial institutions view their customers as people to be served, as opposed to people “to sell to”.

The FSA invites firms to respond to GC 12/11 by 31 October 2012.

FSA Consults on Proposals to Change Client Money and Custody Assets Regime

On 6 September 2012, the FSA published a consultation and discussion paper proposing changes to the client money and custody assets regime for firms undertaking investment business.  The paper is split into three parts:

  1. A consultation on changes to the FSA’s client assets regime to bring them into line with EMIR’s segregation and portability requirements.
  2. The introduction of proposals to permit investment firms to operate multiple client money pools that will be legally and operationally separate.
  3. An overview of the FSA’s review of its client assets regime, focusing on ways to improve the regime in the event that an investment firm becomes insolvent.

The proposed introduction of client money sub-pools is considered by the FSA to potentially be the most radical change in the client assets regime in over two decades.

The deadline for comments on Part I is 16 October 2012, with comments on Parts II and III required by 30 November 2012.  The FSA anticipates the publication of a feedback statement on Part I during December 2012, with feedback on Parts II and III to be provided in the first half of 2013

European Commission Consults on the Regulation of Benchmarks and Market Indices

On 5 September 2012, the European Commission published a consultation document seeking views on issues relating to a possible framework for the regulation of the use and production of indices serving as benchmarks in financial and other contracts.  The consultation follows the recent revelations regarding the alleged manipulation of the LIBOR and EURIBOR benchmarks.

The Commission has requested views on the following points:

  • Information on indices and benchmarks – their definition, their purposes, the methodology behind their production and the persons who produce them.
  • Governance and transparency issues concerning the calculation of benchmarks, including data usage and persons contributing such data.
  • The use and purposes of benchmarks.
  • The ways in which private and public bodies provide benchmarks.
  • The potential impact of regulating benchmarks, including the international issues that will need to be considered.

 The Commission has requested comments on the consultation by 15 November 2012.

Council of the European Union Publishes Compromise Proposals on MiFID, MiFIR and MAR

The Presidency of the Council of the European Union has published compromise proposals on the: 

  • MiFID II Directive (dated 31 August 2012);
  • MiFIR Regulation (dated 31 August 2012); and
  • The proposed regulation on insider dealing and market manipulation (MAR) (dated 3 September 2012).

These compromise proposals are marked up to show the changes made as against the previous versions.

 

Written by:

Orrick, Herrington & Sutcliffe LLP
Contact
more
less

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.