Orrick's Financial Industry Week in Review

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Rating Agency Developments

On April 28, Moody's released a request for comment on proposed changes to its global credit card ABS rating approach.  Comments must be submitted by June 9.  Moody's Report.

On April 22, Moody's released its methodology for rating obligations with variable promisesMoody's Report.

On April 22, Kroll released its RMBS rating methodology for assessing Non-QM RiskKroll Report

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

RMBS and Other Securities Litigation

New Jersey Federal Judge Partially Dismisses Claims Against RMBS Trustee

On April 23, Judge William J. Martini of the U.S. District Court for the District of New Jersey granted in part U.S. Bank's motion to dismiss investor VNB Realty, Inc.'s claims against the bank as trustee of two RMBS trusts.  VNB alleges that U.S. Bank knew of wrongdoing in the trusts, including robo-signing and flawed underwriting practices by loan originators, but did not notify investors due to a conflict of interest.  The court dismissed claims alleging breach of the duty of loyalty and breach of fiduciary duty as intrinsically part of VNB's negligence claim.  The court also dismissed plaintiff's breach of contract claim and its related claim for breach of the implied covenant of good faith and fair dealing for failure to identify any specific duty that was allegedly breached.  The court denied, however, the Trustee's motion to dismiss the entire complaint based on the "no-action" clauses in the applicable Pooling and Servicing Agreements, based on its conclusion that demand would be futile because the plaintiff effectively would have been asking the Trustee to sue itself.  The court also permitted claims alleging negligence and violations of the Trust Indenture Act to proceed.  Decision.    

Suit Against Morgan Stanley Dismissed for Lack of Standing

On April 17, Justice Eileen Bransten of the Supreme Court of the State of New York dismissed all claims in a suit brought by investment vehicle Sealink Funding Ltd. in connection with RMBS purchased from Morgan Stanley.  Sealink acquired the certificates at issue from Sachsen LP Europe Plc and brought claims for fraud, fraudulent inducement, and aiding and abetting fraud.  Sealink alleges misstatements by Morgan Stanley regarding the due diligence and underwriting performed on the mortgages underlying the securities, misstatements of loan-to-value and debt-to-income ratios and misstatements concerning the risks of RMBS generally.  The court held that under governing English law, Sachsen's tort claims could only be transferred to Sealink by explicit reference in the agreements transferring the securities.  Finding no such transfer provision, the court dismissed Sealink's claims.  Decision.    

New York Court Permits Aiding and Abetting Claims Against UBS Parent Company to Proceed

On April 17, Justice Marcy Friedman of the Supreme Court of the State of New York dismissed most claims in a suit against UBS AG and its subsidiaries arising out of RMBS purchases by plaintiff Deutsche Zentral-Genossenschaftsbank AG (DZ Bank).  Following her prior decisions, Justice Friedman allowed fraud claims to proceed but dismissed plaintiff's claims for fraudulent concealment, negligent misrepresentation, rescission based on mutual mistake, and punitive damages.  The court allowed claims alleging aiding and abetting by parent companies UBS and UBS Americas Inc. to proceed based on allegations that the defendants shared high-level personnel.  Decision.    

UBS Settles RMBS Lawsuit

On April 21, Union Central Life Insurance Co., Ameritas Life Insurance Corp. and Acacia Life Insurance Company, on the one hand, and UBS AG, UBS Securities LLC and Mortgage Asset Securitization Transactions, Inc., (collectively, UBS), on the other, filed a motion in the United States District Court for the Southern District of New York seeking voluntary dismissal based on the fact that they had reached a settlement.  The settled action related to alleged misstatements by UBS relating to RMBS sold to the three insurance company plaintiffs.  The settlement agreement was reached on March 5, 2014, and the parties now seek, in addition to voluntary dismissal, a bar order relating to UBS.  The terms of the settlement were not disclosed.  Motion

European Financial Industry Developments

 

Draft Regulatory Technical Standards on Supplementary Prospectuses Published

The European Commission has published a draft of regulatory technical standards on the issue of secondary prospectuses which, minor drafting amendments aside, match those published by the European Securities and Markets Authority in December 2013.

Currently, under article 16(1) of the European Prospectus Directive, a supplemental prospectus must be issued if any new factor arises (or a material inaccuracy in a prospectus is detected) between the approval of a prospectus and the closing of the offer or commencement of trading of the relevant securities to which it relates.  The draft regulatory technical standards set out the specific triggers for and contents of supplementary prospectuses.

Having now cleared the European Commission, the next step is for the regulations to be put before the European Parliament and Council for their consideration prior to their eventual enactment.  Draft Regulatory Technical Standards.   

UK Government Backs "Transparency & Trust" Paper Recommendations

The UK government has published a response paper largely in agreement with the controversial "Transparency & Trust" discussion paper published by its Business, Innovation and Skills Department in July 2013.

The chief tenet of the response paper is that the transparency of UK company ownership should be increased through the introduction of a central registry of company beneficial ownership.  Under the proposed new rules, companies would be required to obtain and maintain details of their beneficial owners and provide this information to the registrar of companies. Except for residential addresses, this information will be available to the public. A beneficial owner will be defined as any person who ultimately holds at least 25 percent of a company's shares or voting rights or who otherwise exercises control over the management of a company.

Other significant proposals in the paper include a ban on corporate directors (with certain exceptions) and a tightening of the directors' disqualification regime.

The government intends to introduce and implement the necessary legislation as soon as it is feasible.  Government Paper.   

The Italy Regulatory Update

The Italy Regulatory Update is a quarterly newsletter which summarizes the main Italian and EC/EU law developments in the area of corporate, banking and financial services. To view the latest edition, please click here.

 

Topics:  Banks, Compliance, EU, Financial Regulatory Reform, Foreign Banks, Morgan Stanley, Rating Agencies, RMBS, Transparency, UK

Published In: Business Torts Updates, General Business Updates, Finance & Banking Updates, International Trade Updates, Securities 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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