AIG Seeking Declaratory Judgment on Right to Sue Financial Institutions

By Mark Rutter, J.D. Candidate 2015 | Posted on

American International Group (AIG) recently filed suit in the New York State Supreme Court in Manhattan in an attempt to gain a declaratory judgment affirming its right to sue the originators of the faulty residential-backed mortgages that led to its collapse (and subsequent bailout) during the 2008 financial crisis. The sole defendant in the suit is Maiden Lane II, an entity created by the Federal Reserve during the crisis to assist AIG with its bailout. Maiden Lane II purchased AIG’s bad mortgages, bolstering its liquidity.

AIG claims that it retained its right to sue the banks that sold it the allegedly faulty securities during the mortgage crisis, but according to the complaint, the Federal Reserve informed the insurer in December that all litigation claims arising from the mortgages had transferred to Maiden Lane II as a condition of the purchases. AIG is not seeking monetary damages in the current suit, but it is hoping for clarification that it can move ahead with possible lawsuits against several financial institutions. The company has been embroiled in a legal battle with Bank of America since 2011 over faulty residential-backed mortgages that the latter inherited with its acquisition of Countrywide Financial in 2008 (discussed here), and it may be looking to sue Deutsche Bank, JPMorgan, and Goldman Sachs as well.

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The Week in Review: Major Suits and Proposed Legislation

By Christopher Hammond, J.D. Candidate 2015 | Posted on

The director of the U.S. Consumer Financial Protection Bureau may be facing a challenge the constitutionality of his “recess appointment,” following a January 25 ruling by the D.C. Circuit Court of Appeals.  In that case, the court held three of President Obama’s appointments to the NLRB were unconstitutional.  The party challenging director Richard Cordray’s status would likely argue that the opinion applies to him as well, as he was appointed via the same process.  For more, see Bloomberg.

The Justice Department has sued Anheuser-Busch InBev in Washington D.C. district court, attempting to block the company’s proposed $20.1 billion merger with Modelo.  The head of the DOJ’s antitrust division, William J. Baer, said the deal would reduce competition in the American beer industry, as InBev would control 46 percent of the country’s annual sales.  “Even small price increases could lead to significant harm,” Baer said.  For more, see the NYTimes.

The Commodity Futures Trading Commission is drafting rules for “swaps,” under the directive of the Dodd-Frank financial markets overhaul.  The stakes are high, as the complex instruments account for eight-ninths of the derivatives market—and Wall Street banks have been jockeying to frame the proposals as too burdensome for their respective industries.  For more, see Reuters.

Capitol Hill may again take up a system of voluntary cybersecurity standards.  According to a new Senate Commerce Committee report, there is strong support among Fortune 500 companies.  U.S. Senator Jay Rockefeller (D., W.Va.) has spearheaded the effort, and his data suggests differing perspectives from industry leaders and the U.S. Chamber of Commerce.  Sen. Rockefeller hopes to pass a bill this year.  For more, see the Wall Street Journal.

Google’s New Years Resolution: FTC Settles with Google After Two-Year Antitrust Investigation

By Valerie Jon Ramos, J.D. Candidate 2015 | Posted on

The FTC recently dropped its two-year antitrust investigation of Google after the company voluntarily committed to license certain patents to mobile rivals, and upon request, stop “scraping,” which is the practice of including snippets of information from other websites in its search results. Google has already started to cut back on its use of “scraping” after Yelp’s complaint, which had helped ignite the FTC’s investigation. Google also promised to allow its advertisers easier movement of advertising campaigns to rival platforms.

Google was investigated on allegations that it was abusing its dominance in internet search through methods such as tying, exclusive dealings, deceptive practices, monopoly pricing, and privacy abuse. These accusations, if proven, violate section 1 and 2 of the Sherman Act and section 5 of the FTC Act. Most of these allegations stemmed from the adoption in 2007 of Google’s Universal Searching (which presents listings from news, video, images, local, and books at the top of the search results) and the merger with Motorola.

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While SCOTUS is Considering the “Fraud-on-the-Market” Presumption, the Oregon Supreme Court Weighs In.

By Will Schildnecht, J.D. Candidate 2015 | Posted on

The Oregon Supreme Court recently ruled that securities fraud claims made under Oregon securities law require a showing of reliance, but that reliance can be established through an assertion of “fraud-on-the-market.” The Court then remanded to consider the constitutional questionsof whether misstatements must be made knowingly. The case follows on the heels of the U.S. Supreme Court’s consideration of the fraud-on-the-market presumption under federal securities laws in Amgen Inc. v. Conn. Retirement Plans & Trust Funds. That case had oral argument on November 5, 2012; an opinion is pending.

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BCLBE and Legal Connect RU Present: Russian Market: Legal and Business Perspectives

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

On Tuesday, February 5, the Berkeley Center for Law, Business and the Economy, and LegalConnect RU are cosponsoring the event: Russian Market: Legal and Business Perspectives. The event will focus on the key business and legal aspects of doing business in Russia, including startups and innovation, cross-border transactions, and intellectual property. It will be a unique opportunity to participate and engage in active conversations with entrepreneurs and leaders of  select US and Russian businesses,  venture capitalists, prominent legal practitioners and educators.

The speakers will include Berkeley Law Professor Richard Buxbaum, and several law firm partners, Svetlana Attestatova (Reed Smith), Mark Chizhenok (Ivanov, Makarov & Partners), Ramsey Hanna (Reed Smith), and Olga Loy (Jones Day), among others. Expert market analysts and industry professionals will also present. For more information on the event, including registration information, check here.

IRS Faces Setback on Path to Regulation of Tax Preparers

By Margaret Dreschel, J.D. Candidate 2015 | Posted on

Earlier this month, a federal judge effectively halted the IRS’s proposed multi-million dollar initiative to regulate tax preparers.  The magnitude of the blow became clear on Friday when the IRS asked the court to reconsider its permanent injunction on the initiative, citing the $50 million already spent on launching the program, $100 million already collected in fees, and over 100,000 tax preparers currently registered to take a competency test.  If the decision stands, the IRS not only faces these tremendous losses, but also potential class-action lawsuits from tax preparers and breach-of-contract costs.

U.S. District Court Judge James Boasberg for the District of Columbia previously issued a permanent injunction prohibiting enforcement of the agency’s rules requiring licenses for all previously unregulated tax preparers.  Judge Boasberg found that the IRS over-stepped its statutory authority by including tax preparers in the category of persons who “practice before the IRS” and are thereby subject to its regulations.  This was a victory not only for the three tax preparers who filed the suit last year with the help of the libertarian law firm Institute for Justice, but also for the estimated 600,000 tax preparers who would have been subject to the licensing rules starting this year.  The IRS’s proposed rules are available for viewing here, and the U.S. District Court’s opinion is here.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

The FTC recently revised the Hart-Scott-Rodino thresholds effective for transactions closing on or after February 14, 2013. Transactions that exceed the thresholds must be reported to the FTC and DOJ for antitrust review before closing. The FTC annually updates the thresholds when there are changes to gross national product. In a recent client alert, Wilson Sonsini summarizes the updated thresholds and compares them to last year’s amounts.

FINRA recently invited those intending to become crowdfunding portals to voluntarily share information about their business.  FINRA stated that submissions will be free and all information will be kept confidential. FINRA plans to use the information to develop rules for the portals. In a recent client alert, Davis Polk summarizes what information FINRA is seeking and how it may play into the larger scheme of crowdfunding rule development.

The SEC recently approved new compensation committee requirements for companies listed on the NYSE and Nasdaq.  The requirements are designed to enhance compensation committee independence and specify compensation committee authority and responsibility. Companies are required to comply by the earlier of their first board meeting following January 15, 2014 or October 31, 2014.  In a recent client alert, Skadden explains the new requirements and which companies are subject to them.

 

Morgan Stanley Settles for $5 Million with Regulator for its involvement in Facebook IPO

By Jared Mayberry, J.D. Candidate 2015 | Posted on

Morgan Stanley recently agreed to pay a $5 Million fine for its involvement in Facebook’s initial public offering.  The fine was agreed to without admitting or denying wrongdoing, and settled charges from a Massachusetts regulator that claimed the firm violated an earlier settlement agreement blocking investment bankers from influencing analysts.

In 2003, ten brokerage firms were penalized for their conduct during the dotcom bubble.  The 2003 settlement noted that the brokerage firms engaged in acts that were considered conflicts of interest between research analysts and investment bankers, and that the respective firms did not manage the conflicts appropriately.  The current  potential violation of the settlement arose when a senior Morgan Stanley investment banker informed an analyst that David Ebersman, Facebook’s CFO, believed revenue for the second quarter and full year would be lower than anticipated.

Fearing his conduct did not comply with the 2003 settlement, the banker convinced Ebersman to file an updated S-1 registration statement.  The senior investment banker testified that his solution was an attempt to “update analyst guidance without creating the appearance of not providing the underlying trend information to all investors.”  Ebersman wrote to the board that the updated S-1 would “help us to continue to deliver accurate messages at the road show meetings (without someone claiming we are providing any selective disclosure to big accounts only).”

Immediately after the filing of the S-1, Facebook’s Treasurer made 15-minute update calls to about twenty syndicated research analysts.  The senior investment banker rehearsed with the Treasurer for these calls, but was not present in the room when the calls were placed.  The $5 Million fine comes out of what Forbes approximates to be a $68 Million fee from Facebook for their work as an underwriter for its May offering.

According to the Chicago Tribune, the litigation concerning the Facebook’s IPO is not over.  A proposed class-action case has accused Facebook of misrepresentations of its financial condition leading up to the companies much-anticipated IPO.  Collectively, the group has claimed over $7 million in damages.

For previous Network coverage of Facebook’s IPO, see here and here.

Professor Krishnamurthy: Feds should use inventive method to restructure home debt

By jsantiesteban | Posted on

Last week, Berkeley Law Professor Prasad Krishnamurthy published an opinion piece in the Oakland Tribune advocating that the government use shared appreciation mortgages to aid underwater homeowners. Shared appreciation mortgages are those in which a portion of the principle of a loan is written off in exchange for a share of the equity if the price of the home increases. While this method is already in use in the private sector, Krishnamurthy argues that the government, through the FHFA, should implement a similar plan. The article lays out the details of how the mortgages could aid homeowners and address some potential criticisms. Check out the full article here.

Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

This week, Manatt has a guide on “How to Handle Confidential Investigations of Bank Activities,” published in the ABA Banking Journal. The guide explains how banks should handle potentially suspicious transactions identified during a safety and soundness examination. The guide stresses that while not every suspicious transaction warrants a full outside investigation, those involving “significant employee or customer negligence or misconduct, or violations of law or regulations” likely require such an investigation. The guide explains the requirements for planning, conducting, and ensuring regulatory compliance throughout the investigation.

Last week, Gibson Dunn published its “2012 Year-End Securities Enforcement Update,” including some interesting findings. Keeping pace with last year, the SEC filed 734 enforcement actions extracting more than $3 billion in penalties and disgorgement. The update notes, however, “the SEC confronted significant challenges in litigating previously filed enforcement actions against individuals in cases related to the financial crisis.”  These challenges aside, the SEC significantly increased actions against investment advisors and broker-dealers, bringing 147 and 134 cases against each, respectively. The update breaks down the enforcement actions, explaining in detail the types of entities and conduct likely to raise the ire of the SEC.

Among other tax changes, the American Taxpayer Relief Act of 2012 extends the 100 percent capital gain exclusion for “qualified small business stock.” This exclusion originally was implemented as part of the Internal Revenue Code of 1986, but only excluded from capital gains tax 50 percent (in some cases 75 percent) of gains from the sale of qualified small business stock. The Small Business Jobs Act of 2010 increased the exemption to 100 percent and increased the time frame in which the deduction applied. The recent Taxpayer Relief Act extended the exemption period to January 1, 2014. In a recent Client Alert, Latham & Watkins explains the requirements of “qualified small business stock” and the benefits and limitations of the exclusion. The Client Alert is available for download here.