Orrick's Financial Industry Week In Review - April 30, 2012


Financial Industry Developments


SEC and CFTC Modify Swap Definitions

On April 27, the SEC and CFTC, in consultation with the Fed, issued a final rule, in accordance with Title VII of the Dodd-Frank Act, under the Commodity Exchange Act and the Securities Exchange Act to further define the following swap terms: “swap dealer”, “security-based swap dealer”, “major swap participant”, “major security-based swap participant”, and “eligible contract participant”.  The rule will be effective 60 days after publication in the Federal Register.  Final Rule.

ISDA Best Practices for OTC Commodity Derivates Trading

On April 25, ISDA published a whitepaper on OTC commodity derivatives trade processing lifecycle events.  The paper analyzes opportunities for further standardization in the OTC commodity derivatives market, and summarizes OTC commodity derivatives markets’ trade processing lifecycle events.  The paper also outlines three areas for potential improvement in the market: (i) lifecycle processes; (ii) OTC settlement processes and (iii) settlement matching processes.  ISDA Release. 

Rating Agency Developments


On April 25, Moody’s released its methodology for waste-to-energy products.  Moody’s Report.

On April 25, Fitch updated its criteria for Asian Pacific CMBS.  Fitch Report.

On April 24, S&P revised its methodology for assessing asset-liability mismatch risk in covered bonds.  S&P Report.

On April 23, DBRS published its list of acceptable third-party due diligence firms.  Release.  Report.

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

Recent Orrick Alerts


China 20/20

China 20/20 is a monthly Orrick newsletter which covers legal and regulatory developments in China.  To view the latest edition, please click here.

RMBS Litigation


Second Circuit Upholds Dismissal of $37 Million CDO Suit Against Goldman Sachs

On April 19, 2012, the United States Court of Appeals for the Second Circuit affirmed a lower court’s dismissal of a lawsuit brought by Landesbank Baden-Wurttemberg (“Landesbank”) lawsuit against Goldman Sachs & Co. (“Goldman Sachs.”)  Landesbank asserted claims for fraud, negligent misrepresentation, and unjust enrichment, alleging that Goldman Sachs misstated the quality of the mortgages underlying the collateral that backed a CDO and secretly took a position to profit from the CDO’s failure.  In affirming the lower court, the Second Circuit determined that Landesbank failed to allege a specific motive for Goldman to commit fraud and failed to allege the existence of any special relationship between Goldman and Landesbank sufficient to support a negligent misrepresentation claim.  Order.

Court Denies Goldman Sachs’s Motion to Dismiss in Case Arising Out of Abacus CDO

On April 24, 2012, New York State Court Judge Barbara Kapnick denied a motion brought by Goldman Sachs Group Inc. (“Goldman Sachs”) to dismiss an action brought by ACA Financial Guaranty Corp. (“ACA”) arising out of ACA’s provision of financial guaranty insurance wrapping the Abacus 2007-ACI CDO issued by Goldman Sachs.  ACA alleged that Goldman Sachs misrepresented material facts about the economic interest of the hedge fund Paulson & Co. Inc. (“Paulson”), an investor in the CDO.  According to ACA, Paulson, which participated in the selection of the portfolio of mortgage loans backing the CDO, was represented to be a long investor but in fact took a short position against the deal.  Judge Kapnick found ACA’s allegations sufficient to state a claim that Goldman Sachs fraudulently concealed the information about Paulson’s position and thus fraudulently induced ACA to insure the CDO.  Order.

Option One Reaches $28.2 Million Settlement with SEC Over RMBS Misrepresentation Claims

On April 24, 2012, the SEC announced a settlement with Option One Mortgage Corp. (“Option One”), now known as Sand Canyon Corporation, and filed an action in the United States District Court for the Central District of California for the purpose of having the settlement approved by the court.  In the complaint, the SEC alleged that Option One had omitted material information from the offering materials for seven RMBS securitizations in early 2007 by failing to tell investors that Option One’s deteriorating financial condition would inhibit its ability to satisfy its loan repurchase obligations in connection with those RMBS.  The $28.2 million settlement resolves claims that the SEC asserted under Section 17 of the Securities Act of 1933.  Press Release.  Complaint.

MetLife Sues Morgan Stanley Over $757 Million in RMBS

On April 25, 2012, Metropolitan Life Insurance Co. (“MetLife”) filed suit in New York State Court against Morgan Stanley.  MetLife alleges that Morgan Stanley misrepresented the quality of the mortgage loans underlying RMBS certificates that MetLife bought in nine offerings.  Specifically MetLife alleges that Morgan Stanley misrepresented that the loans were originated according to underwriting standards described in the offering documents and that the appraisals of the properties underlying the loans had been overstated.  MetLife further alleges that Morgan Stanley knew of these misstatements as a result of due diligence it conducted in connection with the offerings.  MetLife asserts claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.  Complaint.



Breakfast Briefing: Introduction to Shipping Finance and Workouts

On May 16, Orrick will host a panel discussion in the New York Office to address the legal and business considerations of the shipping industry, including shipping workouts.  This briefing will discuss the complexities related to the industry with regard to jurisdictions, insurance, diligence, and other topics that arise when dealing with vessels.  Panelists will include Orrick partners Raniero D'Aversa, William Haft and Laura Metzger, as well as Robert DiMarsico, Managing Director at Poseidon Capital Corp., and Senior Shipping Advisor at FTI Consulting.  For additional information and to RSVP, please click here.

iiBIG's 2012 Education Loan & Financing Executive Summit

May 9-10, 2012 – Orrick is sponsoring the two-day conference in Washington, D.C., which will bring together Student Loan Issuers & Investors, Student Loan Servicers, Student Loan Lenders - both private and public - and other key valued industry participants in the student loan industry to discuss the latest issues facing the industry – and to lay the groundwork for the road ahead in 2012 and beyond. Orrick Managing Associate Tonio DeSorrento will moderate the panel “Private Education Finance 2.0: Better For Borrowers, Better For Schools.”  Click here for more information.


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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