Orrick's Financial Industry Week in Review - February 13, 2012

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Financial Industry Developments

State AGs and Federal Regulators Settlement with Mortgage Servicers

On February 9, U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan and a coalition of forty-nine state attorneys general announced a $25 billion joint federal-state settlement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc. (formerly GMAC) (the nation's five largest mortgage servicers, controlling approximately 60% of the mortgage servicing market), related to claims of alleged mortgage abuses and fraud, and an agreement related to standards for mortgage servicing in the future. Click here to read more.

Fed Agreement in Principle with Banking Organizations Regarding Monetary Sanctions

On February 9, the Fed announced its agreement in principle with five banks on $766.5 million in monetary sanctions against the banks for unsafe and unsound processes and practices in residential mortgage loan servicing and foreclosure processing. The sanctions are issued in conjunction with, and included in, the settlement agreement among the banks, state attorneys general, and the Department of Justice, also dated February 9. Under the Fed's agreement, the banks will be required to pay the amount of the sanctions not used within two years to provide borrower assistance or remediation, or to provide funding for housing counseling. Fed Release.

MSRB Request for Comment on Bondholder Consent Proposal

On February 7, the MSRB requested comments on a draft proposal on the circumstances under which municipal bond underwriters would violate their duty to deal fairly by consenting to certain amendments to bond authorizing documents. The proposal would describe circumstances where an underwriter's consent to an amendment would violate Rule G-17's requirements that brokers, dealers, and municipal securities dealers deal fairly with all persons in the conduct of their municipal securities activities. Comments must be submitted by March 6. MSRB Release. Draft Proposal.

 

Rating Agency Developments

 

On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

 

Asset Management

 

CFTC Amendments to Registration and Compliance Obligations

On February 9, pursuant to Title IV and Title VII of the Dodd-Frank Act, the CFTC adopted final amendments to Part 4 of the CFTC's regulations that: (i) rescind the exemption from registration provided in Section 4.13(a)(4); (ii) rescind relief from the certification requirement for annual reports provided to operators of certain pools offered only to qualified eligible persons under Section 4.7(b)(3); (iii) modify the criteria for claiming relief under Section 4.5; and (iv) require annual filing of notices claiming exemptive relief under a number of sections of the CFTC's regulations. In addition, the final rules includes new risk disclosure requirements for commodity pool operators and commodity trading advisors. The final rules will become effective 60 days from publication in the Federal Register, except for amendments to Section 4.27, which will become effective on July 2. CFTC Release. CFTC Final Rules.

CFTC Proposed Amendments to Investment Company Reporting Requirements

On February 9, the CFTC proposed to amend reporting requirements for investment companies registered under the Investment Company Act of 1940, the advisers of which would be required to register with the CFTC as commodity pool operators pursuant to amendments adopted by the CFTC to Section 4.5. Comments must be submitted within 60 days after publication in the Federal Register. CFTC Release. CFTC Proposed Rules.

FINRA Proposed Amendments To Reporting of Mixed Capacity OTC Trades

On February 8, FINRA requested comment on a proposal to amend FINRA trade reporting rules relating over-the-counter trades in equity securities that are executed by a member firm in a mixed trading capacity (e.g., a single trade execution by a firm as principal and agent). Comments must be submitted by March 26. FINRA Notice.

SEC Authorizes FINRA to Collect SARs from Member Firms

On January 26, pursuant to the Financial Crimes Enforcement Network regulations, the SEC issued a letter to FINRA authorizing FINRA staff to ask for suspicious activity reports (SARs) and SAR information from member firms in certain circumstances. The SEC also issued a letter to chief executive officers of all SEC-registered FINRA member firms requesting that they make SARs and supporting documentation available to FINRA. FINRA Notice.

 

Recent Orrick Alerts

 

State AGs and Federal Regulators Settlement with Mortgage Servicers

On February 9, U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan and a coalition of forty-nine state attorneys general announced a $25 billion joint federal-state settlement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc. (formerly GMAC) (the nation's five largest mortgage servicers, controlling approximately 60% of the mortgage servicing market), related to claims of alleged mortgage abuses and fraud, and an agreement related to standards for mortgage servicing in the future. Click here to read more.

U.S. District Court Grants Summary Judgment in a Ruling That Reinforces California Law in Favor of Life Settlements

On February 6, 2012, in Hartford Life & Annuity Ins. Co. v. Doris Barnes Family 2008 Irrevocable Trust, et al., the United States District Court for the Central District of California granted summary judgment on behalf of the Doris Barnes Family 2008 Irrevocable Trust and against Hartford Life and Annuity Insurance Company on all of Hartford's claims, including a claim that the policy at issue was void for lack of insurable interest and claims for fraud, fraudulent inducement, negligent misrepresentation, and conspiracy. Click here to read more.

Proposed Treasury Regulations Implementing the Foreign Account Tax Compliance Act ("FATCA")

On February 8, 2012, the IRS announced the release of proposed regulations for the next phase of implementing FATCA, which targets noncompliance by U.S. taxpayers using foreign accounts. Concurrently with the issuance of the proposed regulations, the United States, France, Germany, Italy, Spain, and the United Kingdom issued a joint statement outlining a potential intergovernmental framework for FATCA. Under the framework, much of the information required by FATCA would be collected directly by foreign governments and shared with the United States pursuant to existing bilateral tax treaties. Such an approach, if adopted, could eliminate withholding obligations and the requirement to enter into a separate disclosure compliance agreement for foreign financial institutions ("FFIs") organized in partner countries. Click here to read more.

 

RMBS Litigation

 

RMBS Suits Against Deutsche Bank Dismissed

On February 7, 2012, Judge Jed Rakoff of the Southern District of New York dismissed claims against Deutsche Bank that had been brought by Dexia SA and Teachers Insurance & Annuity Association arising out of the purchase of $1.3 billion in RMBS. Judge Rakoff issued a preliminary order finding that plaintiffs' complaint did not meet the pleading requirement that claims of fraud must be pled with particularity. In its order, the Court distinguished between claims in connection with loans sponsored Deutsche Bank, which were dismissed without prejudice, and claims in connection with loans not sponsored by Deutsche Bank, which the Court dismissed with prejudice. Judge Rakoff stated that a more formal written opinion will be forthcoming. Order.

Sealink Brings RMBS Suit Against RBS

On February 2, 2012, Sealink Funding Ltd. filed a summons with notice against The Royal Bank of Scotland Group ("RBS"). Sealink's allegations arise from the alleged sale by RBS of $90 million in RMBS to certain Sealink. Sealink alleges that the offering materials issued in connection with the RMBS contained material misrepresentations and omissions regarding the underwriting standards used to issue the underlying mortgage loans, the validity of the assignments of the mortgage loans into certain trusts, the legal validity of the trusts themselves, and statistical characteristics of the mortgage loans underlying the RMBS, including the loan-to-value ratios and combined loan-to-value ratios, as well as the percentage of owner-occupied properties. Summons.

Wells Fargo Settles RMBS Suit by Union Central Life Insurance Co.

On February 8, 2012, Wells Fargo Bank N.A. settled a lawsuit brought against it by Union Central Life Insurance Co.  Union Life had alleged that Wells Fargo had misstated the underwriting and due diligence standards used to issue the loans that were pooled and securitized. The claims against Wells Fargo totaled approximately $43 million. Complaint.  The settlement was announced during a case status conference before Judge George B. Daniels of the Southern District of New York. 

Bank of America Wins Dismissal of Allstate Lawsuit

On February 3, 2012, Judge Mariana Pfaelzer of the Central District of California dismissed Bank of America from litigation brought by Allstate Insurance Company and its affiliates arising out of Allstate's purchases of RMBS issued by Countrywide Financial Corporation. Allstate argued that Bank of America could face liability arising out of its acquisition of Countrywide because that acquisition amounted to an actual or constructive fraudulent transfer.  Alternatively, Allstate asserted that Bank of America was liable under successor and vicarious liability theories. Judge Pfaelzer determined that Allstate failed to plead that Bank of America's acquisition lacked reasonably equivalent consideration or was made with fraudulent intent. Judge Pfaelzer also found that Bank of America had not agreed to assume Countrywide's liabilities, and that the acquisition of Countrywide was not a de facto merger such that Bank of America could face successor liability. Order.

 

Published In: Civil Procedure Updates, Finance & Banking Updates, Residential Real Estate Updates, Securities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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