Orrick's Financial Industry Week in Review - December 10, 2012

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

CFTC No-Action Relief for CPO Registration of Business Development Companies

On December 4, the CFTC issued a no-action letter stating that the Division of Swap Dealer and Intermediary Oversight will not take enforcement action against operators of business development companies for failure to register as commodity pool operators.  CFTC Release.  CFTC No-Action Letter.  

CFTC No-Action Relief for Certain Swap Transactions

On December 6, the CFTC issued a no-action letter that provides swap dealers and major swap participants with relief from the requirement to disclose the pre-trade mid-market mark to counterparties in certain foreign exchange transactions under Regulation 23.43CFTC Release.  CFTC No-Action Letter.

On November 30, the CFTC issued a time limited no-action letter granting relief for bespoke or complex swaps from certain reporting obligations.  CFTC Release.  CFTC No-Action Letter.

CFTC and International Regulators Issue Joint Statement on OTC Derivatives Market

On December 4, the CFTC and over-the-counter (OTC) derivatives market regulators from Australia, Brazil, the EU, Hong Kong, Japan, Ontario, Quebec, Singapore and Switzerland issued a joint press statement outlining plans for cross-border rules for OTC derivatives.  The statement, which originated from a private meeting of regulators, discusses international plans for improving transparency and protecting against market abuse, specifically preventing regulatory gaps, reducing the potential for arbitrage opportunities and fostering a level playing field for market participants, intermediaries and infrastructures.  Joint Press Statement.  

Preliminary Results for HUD's Notes Sales Under Distressed Asset Stabilization Program

On December 3, HUD announced preliminary results from the first loan sale under its expanded Distressed Asset Stabilization Program (DASP)The next sale, in the first quarter of 2013, will include approximately 10,000-15,000 loans, and will have targeted Neighborhood Stabilization Outcome pools located in certain metropolitan areas in Georgia, California, Florida, and Ohio.  HUD Release.

Maximum Fannie and Freddie Conforming Loan Limits Unchanged for 2013

On November 29, the FHFA announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2013 will remain at existing levels.  The maximum conforming loan limits for one-unit properties, which generally have applied to loans originated since October 1, 2011, are $417,000 in most locations, but are as high as $625,500 in certain high-cost areas in the contiguous United States.  FHFA Release.

Rating Agency Developments

On December 5, DBRS released its master European structured finance surveillance methodology.  DBRS Report.

On December 4, Fitch released its criteria for U.S. wireless tower transactions.  Fitch Report.

On December 4, Fitch updated its guidelines for rating prerefunded U.S. municipal bonds.  Fitch Report

On November 30, S&P released its methodology for assigning ratings to bonds in the U.S. based on escrowed collateralS&P Release. 

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

Asset Management

CFTC No-Action Relief for CPO Registration of Fund of Funds

On November 30, the CFTC issued a time limited no-action letter stating that that the Division of Swap Dealer and Intermediary Oversight will not take enforcement action against the commodity pool operator of a fund of funds for failure to register as such until the later of June 30, 2013, or six months after the effective date (or compliance date, if later) of any revised guidance on the de minimus threshold rules. CFTC Release. CFTC No-Action Letter.  

CFTC No-Action Relief for CPO Registration of Family Offices

On November 30, the CFTC issued a no-action letter stating that the Division of Swap Dealer and Intermediary Oversight will not take enforcement action against the operators of family offices for failure to register as commodity pool operators. CFTC Release. CFTC No-Action Letter.

RMBS Litigation

Sixth Circuit Affirms Dismissal of Claims Against Credit Rating Agencies

On December 3, the United States Court of Appeals for the Sixth Circuit affirmed a decision by Judge James K. Graham of the Southern District of Ohio dismissing, with prejudice, claims against three credit-rating agencies – Standard and Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. (the “agencies”) – relating to $457 million in alleged losses on RMBS purchased by the plaintiff pension and retirement funds.  The plaintiffs brought claims for alleged violations of Ohio Blue Sky Laws and for negligent misrepresentation in connection with the allegedly fraudulent sale of 308 RMBS between 2005 and 2008.  The Sixth Circuit adopted each the District Court’s holdings in affirming its decision.  First, it held that the agencies could not be sued under the Ohio securities laws because they did not receive profits accruing from the sale of securities.  The court found that the agencies’ fees were fixed costs paid for work performed and were not contingent on the sale of the securities or variable depending on the securities’ performance.  The fact that the agencies were paid out of proceeds of the sale did not mean that they received profits accruing from the sale.  Second, the court held that the plaintiffs’ complaint failed to allege, even in conclusory terms, any underlying securities fraud for which the agencies could be held liable as aiders and abettors.  Third, the court held that the plaintiffs failed to allege any affirmative misrepresentation by the agencies.  Finally, the court rejected the plaintiffs’ negligent misrepresentation claim because (1) plaintiffs did not adequately allege any duty owed by the Agencies, and (2) the credit ratings for the RMBS were not actionable misrepresentations.  Opinion.  

RMBS Trustee Sues GE Subsidiaries for $356 Million

On November 30, Deutsche Bank National Trust Company (Deutsche Bank), acting as trustee for the Securitized Asset Backed Receivables L.L.C. Trust 2006-WM3 (the “Trust”), filed a complaint against General Electric Capital Corporation (GE Capital) and WMC Mortgage L.L.C., (WMC), GE’s subprime lending subsidiary, in the United States District Court for the District of Connecticut.  The complaint alleges that WMC has breached its obligations to repurchase loans it originated that were in breach of representations and warranties WMC made when it sold the loans into the Trust.  The Trustee alleges that subsequent forensic testing of the underlying collateral shows that the loans were not originated in compliance with stated underwriting guidelines.  Due to the alleged poor quality of the loans, the Trustee alleges that WMC must have known that the loans were in breach of the representations and warranties at the time the loans were sold to the Trust.  The Trustee asserts four causes of action for breach of contract – (1) breach of the representations and warranties about the mortgage loans; (2) breach of WMC’s obligation to repurchase breaching loans; (3) breach of WMC’s obligations to notify the Trustee when a loan breaches a representation and warranty; and (4) breach of WMC’s obligations to indemnify the Trustee for expenses incurred resulting from a representation and warranty breach.  Complaint.

Goldman Sachs Sued by CIFG Assurance

CIFG Assurance North America, Inc. (CIFG) filed a summons with notice against Goldman, Sachs & Co. (Goldman) in New York State Supreme Court on December 4, 2012.  CIFG alleges that Goldman fraudulently induced CIFG to provide a financial guaranty insurance policy on a credit default swap in connection with the Fortius II CDO.  CIFG alleges that Goldman did not disclose that the CDO manager, Aladdin Capital Management, was acting at Goldman’s behest to include in the CDO particular collateral, including RMBS that Goldman wanted to sell.  CIFG asserts claims for fraud and for material misrepresentation in the inducement of an insurance contract.  It is seeking reimbursement of the nearly $34 million dollars it allegedly paid under the policy it issued when the Fortius II CDO failed.  Summons.

Court Denies Challenge to FHFA Loan Sampling Methodology

On December 3, Judge Denise Cote of the Southern District of New York denied a joint motion by all defendants across fifteen related RMBS actions brought against major financial institutions by the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac (“GSEs”).  The claims in the case arise out of certificates purchased by the GSEs from 449 different securitizations backed by roughly 1.1 million mortgage loans.  The FHFA plans to reunderwrite a sample of those loans and seeks to extrapolate the results of that sample to the entire loan pools; the defendants’ motion sought an order excluding the results of the sampling from evidence at the trial of the actions, challenging the methodology that the FHFA intends to use to select the sample.  The Court rejected the defendants’ arguments, finding that at most they raised questions about the evidentiary weight that should be assigned to the samples, rather than the question whether they should be admitted into evidence.  Order.

European Financial Industry Developments

Consultation on Temporary Product Intervention Rules

On December 3, the FSA published a consultation paper detailing proposals relating to the new Financial Conduct Authority’s (FCA) power to ban financial products without consultation in certain circumstances. Such temporary product intervention powers cannot last longer than 12 months, during which time the FCA may either consult on a permanent remedy or find an alternative resolution to the issue.  The policy statement will set out the FCA’s policy and is not intended to constitute new rules.  
The consultation sets out a number of circumstances where such powers may be invoked, including:

  • where there is a risk of mis-selling, particularly in the case of complex and niche products;
  • where the product itself is flawed; and
  • where certain non-essential features of the product are seen to cause problems for consumers.

Comments are invited on the consultation until 4 February 2013.  It is intended that a final policy statement on the use of this new power will be in place by the ‘legal cutover’ date of 1 April 2013 on which the new regulatory regime is anticipated to come into force.

ESMA Statement on Regulation of Cross-Border OTC Derivatives

On December 4, the European Securities and Markets Authority issued a statement following a meeting with a number of global regulators regarding the reform of the OTC derivatives market.  The authorities identified several inconsistencies, duplications and potential conflicts within their current rules, acknowledging that such issues may result in confusion and regulatory arbitrage.  As a start to addressing these issues, the authorities reached a number of understandings in the following areas:

  • Clearing – to consult further prior to bringing in rules relating to mandatory clearing of derivative contracts and to consider implementing clearing requirements in respect of products or product classes which certain authorities may identify should be subject to clearing.
  • Transitional provisions – in order to prevent regulatory arbitrage and market confusion, to consider the provision of transitional implementation periods for jurisdictions which are later in implementing OTC derivatives reform.

Council of the EU – General Approach Document on Freezing and Confiscating Proceeds of Crime in the EU

On December 5, the Council of the EU published a general approach document on the European Commission’s proposed Directive on freezing and confiscating proceeds of crime in the EU.  Changes made to the Commission’s proposal include:

  • limiting provisions relating to extended powers of confiscation to serious criminal offences which may give rise to economic benefit;
  • recognising that freezing may be ordered by certain competent authorities as well as judicial authorities; and
  • limiting the scope of the proposed Directive to offences listed in Article 83(1) of the Treaty on the Functioning of the European Union which are already subject to EU level approximation.
It is intended that a compromise on the text of the proposed Directive will be reached by the end of 2012.


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.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP

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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

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.


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.