Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/market_performance/
Timestamp: 2019-04-25 11:54:29+00:00

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Insurance Policy for Slave, Warwick. Image provided by New York Public Library.
Alternative Headline: "MERS: Fighting Hard to Reduce Homeowners' Recording Costs."
MERS, or Mortgage Electronic Recording System, is an alternative recording system for recording residential mortgage loan documents. Banks and other lenders, servicers and other large corporations that generate income from mortgages made it up as a way to significantly lower costs and raise their return on investment.
For 3 years, the Connecticut statutes have authorized public recording charges for roughly three times the amount otherwise charged whenever MERS is named in a publicly recorded mortgage transaction as the substitute or stand-in for any and all mortgagees, servicers, etc. MERS challenged the "constitutionality" of the Connecticut statutes under the Commerce Clause and on equal protection, due process, and other grounds. It even invoked one of the Civil Rights Laws, 42 U.S.C.A. § 1983, in alleging its claims.
Although good in theory, perhaps, MERS' claims of unconstitutionality were undercut by the record. After three years of the statutes' operation, "there is no evidence that any member of MERS has discontinued its membership in the MERS system or halted or reduced its use of that system as a result of the 2013 amendments." Merscorp Holdings, Inc. v. Malloy, 320 Conn. 448, 458, 131 A.3d 220, 227 (2016), petition for cert. filed (U.S. June 24, 2016) (No. 15-1538).
The Connecticut Supreme Court also pointed out that the record reflected that in most cases, MERS would not pay the recording fees. Rather, homeowners pay the recording fees in most cases. Merscorp Holdings, Inc. v. Malloy, 320 Conn. 448, 458, 131 A.3d 220, 227 (2016), petition for cert. filed (U.S. June 24, 2016) (No. 15-1538). In this sense, it may be said that MERS is fighting hard to reduce Connecticut homeowners' recording costs. MERS itself did not say that, however.
Parenthetically, MERS' standing apparently comes out of the cases when MERS itself paid the recording fees. In any case, standing does not appear to have been raised as an issue or briefed in this case, and it was not mentioned in the Connecticut Supreme Court's opinion.
The Connecticut Supreme Court held that the Legislature's taxation of MERS in the form of enhanced recording fees is valid. MERS is now taking its contentions that it has a constitutionally protected right to set up an alternative to government to the U.S. Supreme Court. There, many mortgage industry groups have filed amicus briefs in support of freeing their private mortgage recording system from the Connecticut statutes at issue.
RETIREMENT FIDUCIARIES BREACH BY INVESTING YOUR MONEY WITH HEDGE FUNDS?
What kind of E&O coverage might they have?
Should hedge funds, private equity portfolios and commodities be anywhere near a 401(k) plan?
See Gretchen Morgenson, "Business Day / Fair Game / Intel Lawsuit Questions Place of Hedge Funds in Retirement Plans" (New York Times Online, posted November 20, 2015).
What is the status of claims against people responsible for investing public employees' pension funds in hedge funds?
What is the standard of liability, if any, which such people must meet while investing public pension funds? Fiduciary? Negligence? Any?
Do they succeed in claiming immunity from liability, these investors of other people's pension money in hedge funds?
I looked and found the Sulyma lawsuit style, Case Number, and Court. The lawsuit is Sulyma v. Intel, Case No. 5:15-cv-049777, Northern District of California. I plan to follow it. I will let you know what happens as it happens in that case (more or less).
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements). All rights reserved. Here is a Podcast on Thomson Reuters Legal Currents of the Author reading excerpts from "Litigation and Prevention of Insurer Bad Faith". In it is a link to a YouTube video and 68 Powerpoint slides on "Lender Force-Placed Insurance Practices" and links to handouts of the Sections of the Book which are featured on the Podcast.
PENSION FUNDS, HEDGE FUNDS: IS ANYONE AWAKE AT THE SWITCH?
If it is too complicated for most of us to understand in 10 to 15 minutes, then we probably shouldn't be doing it.
Christopher Whalen of Institutional Risk Analytics, quoted in "Sunday Business" Section of New York Times National Edition on Sunday, March 23, 2008 and in 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, § 3:109 "The New 'Credit Insurance?'? Credit Default Swaps" (3d ed. Thomson Reuters West in Two Volumes, with 2015 Supplements).
The [hedge fund] manager is being paid upfront 2 percent with certainty, and the client is given 80 percent of the net return, after the fact, with uncertainty. I think it's unconscionable in the context of taxpayers who get to foot the bill if something goes wrong.
Howard Crane, a former trustee of the Colorado Public Employees' Retirement Association, quoted by Gretchen Morgenson, "Fair Game / A Sales Pitch Casts a Spell on Pensions," p. 1, col. 1 ("Sunday Business" Section of New York Times Nat'l ed., Sunday, November 8, 2015).
The Employees' Retirement System of Rhode Island.
The pension funds have chosen to invest their pension money with hedge funds.
The hedge funds have worse returns and higher expenses than the market as a whole, including the reported results of market performance studies by the Office of the Utah Legislative Auditor General and by the American Federation of Teachers.
The administrators of these pension funds have a fiduciary duty to the muni public employees whose pension money the administrators are investing.
Parenthetically, the California Public Employees' Retirement System began winding down its investments in hedge funds because of the funds' demonstrated track records over a year ago.
Generally breaches of fiduciary obligations are excluded from insurance coverage under many policies of insurance, but insurance can be purchased specifically to cover them. Do you think that the persons responsible for administering muni employee pension funds have coverage for fiduciary breach?
FEWER HOMEOWNER'S POLICIES, FEWER HOMEOWNERS CLAIMS FOR BAD FAITH?
Fewer Homeowner's Policies may mean fewer bad faith claims but the claims that are made may result in larger awards.
Beware of averages and the meaning of averages. "New-home sales tumbled 61.8 percent in the Northeast" and averaged 11.5% over the entire country. "Economists Unfazed as Sales of New Homes Slip 11.5%," p. B5, col. 1 (Reuters report, New York Times Nat'l ed., Tuesday, October 27, 2015).
Do fewer homeowner's policies -- in particular, disproportionately fewer homeowner's policies to be issued in coming weeks and months in the Northeast -- mean fewer homeowner's insurance bad faith claims? The numbers of these claims will undoubtedly decrease as well, but the awards on these bad faith claims may rise.
There are fewer homeowner's policies because there are fewer people who can afford to buy new homes. When these new homeowners make bad faith claims, it will be because they are looking for large awards to compensate them for financial distress in what is for them a bad economy.
Attorneys who represent these policyholders will have fewer bad faith claims available for representation and thus for awards and for their fees. Attorneys will have incentives to maximize the awards and their fees in the few homeowner's insurance bad faith claims available in this distressed economy.
To the degree that the future bad faith claims are decided by juries, the jury pool will necessarily include people who cannot themselves afford new homes and who do not even have the opportunity to purchase homeowner's insurance. To the extent that they may be inclined to blame anyone, as between the homeowners and the homeowners' insurance companies, they will not blame the homeowners.
ANTI-COMPETITION EXPORT-IMPORT BANK OPPONENTS FEAR INSURANCE, RENEWAL VOTE.
The Word / NASA. This image and this article expand on an earlier article published on Insurance Claims and Issues Blog on August 3, 2015.
The businesses opposing a vote on renewing the insurance guarantees and loan supports offered by the Export-Import Bank have donated well and selectively to key officeholders.
The current chair of a key committee will not allow the U.S. House of Representatives to vote to renew the Bank, which everyone understands is exactly how the Members will vote if they get the opportunity. See Jackie Calmes, "Lost Contracts and Jobs Intensify G.O.P. Discord on Ex-Im Bank" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Wednesday, September 16, 2015). The businesses affected by the loss of the insurance and loans available from an Export-Import Bank are losing business, and laying off workers and reducing jobs, as a result. Id.
This is not about ideology, you know. It is about money. The main entities providing the funds to oppose renewal of the Ex-Im Bank, as it is known, are competitors of the businesses which benefit from the Bank's insurance and loan availability covering their enormous sales to foreign buyers.
Did you know that the Export-Import Bank was responsible for providing credit insurance to cover eligible business transactions? It is apparently called "sovereign insurance" in the context of international sales, reflecting that the government of the originating seller backs the sale to the international buyer. See Joe Nocera, "Republican Job Killers" p. A19, col. 1 (New York Times Nat'l ed., Saturday, September 19, 2015). Parenthetically, I learned quite a bit from Joe Nocera's column which is well worth the time to access the link provided here or to go online and read it in the newspaper's website.
So, no, the dispute over renewing the Export-Import Bank is not about ideology as is so often reported in the press. The dispute is about taking insurance and loan supports away from business competitors, supports that every government in the world provides to businesses located in its own country. The dispute over renewing the Export-Import Bank is about money and not ideology.
Otherwise the sworn representatives of the people of the United States would not be afraid to let the issue come up for a vote.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of "Litigation and Prevention of Insurer Bad Faith," featured in this free podcast on Legal Current Podcast. All rights reserved.
A COUPLE OF PARADIGM SHIFTS.
RECOUPING THE ILL-GOTTEN GAINS: SEC DELAYS CLAWBACK RULE.
The availability of so-called "clawbacks" would be expanded to cover the past as well as the current executives already covered under Federal law in the Sarbanes-Oxley Act of 2002.
Companies could recover stock options as well as salaries and bonuses in cash, whereas Federal law did not previously authorize recovery of stock options.
The fairly clear requirements of the Federal law are summarized in Gretchen Morgenson, "Fair Game / A Blank Page in the S.E.C. Rule Book" p. 1, col. 4 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, November 9, 2014).
To say again, the S.E.C. has yet to issue the clawback rule clearly required by Congress when it passed the Dodd-Frank Act in 2010.
In the past 4 years, the S.E.C. has succeeded in finally writing 94 out of 102 regulations which Dodd-Frank required it to write. Of the remaining 8, there are 3 related to money paid to executives.
Reportedly, what is pretty clearly a simple issue has been made into a complicated one by the financial industry and its lawyers unwilling to allow any such rule to be issued. See Gretchen Morgenson, New York Times, supra, quoting Dennis M. Kelleher, CEO of Better Markets.
And, undoubtedly when an overly long and complicated rule is finally issued, they will lead the chorus of complaints against it, first and foremost because the rule-to-be-issued will be too long and unnecessarily complicated.
RETURN ON INVESTMENT FOR DEAD EMPLOYEES.
"Life insurance, by its very nature, was created to benefit the people we love and care about most."
CEO in a letter to employees, quoted by David Gelles, "An Employee Dies, and the Company Collects the Insurance," p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Monday, June 23, 2014).
DAVID BOIES, HANK GREENBERG PREEMPTED AND DISMISSED TOGETHER.
In a case with Hank Greenberg's Starr corporation as the plaintiff, and with David Boies as the plaintiff's attorney, a Federal District Court entered its Judgment dismissing Starr's "claims against the Federal Reserve Bank of New York ('FBNY') for breach of fiduciary duty in its rescue of American International Group, Inc. ('AIG') during the fall 2008 financial crisis." Starr International Co. v. Federal Reserve Bank of N.Y., 742 F.3d 37, 38 (2d Cir. 2014).
On appeal, the Federal Second Circuit Court of Appeals affirmed the District Court's Judgment of dismissal on the ground that Delaware's law of fiduciary duties, which in other circumstances would govern the FBNY's conduct, was preempted by Federal law in this case. Starr International Co. v. Federal Reserve Bank of N.Y., 742 F.3d 37, 41-42 (2d Cir. 2014).
Not even a highly publicized lawyer and a famous client in this case could overcome the presumption of preemption, or to put it another way, the cloak of immunity which has been protecting financial decision-makers since at least 2008.
FHA'S INSURANCE EXCLUSIONS REPORTEDLY FORCE BANKS TO STIFLE CLAIMS, FORECLOSURES.
The Federal Housing Administration insures or guarantees the repayment of some loans secured by certain classes of mortgages. When the mortgage is not being paid, the loan is "nonperforming". The lender forecloses because the loan is nonperforming and then the lender makes a claim on the FHA guarantee.
However, there are certain exclusions in the FHA guarantee just as there are exclusions in most other insurance. The FHA will not pay claims if the lender making the claim violated underwriting or servicing standards or engaged in other specified forms of excluded conduct.
Rather than being adjudicated as violating underwriting and servicing standards in the issuance and servicing of FHA-guaranteed mortgages, it is reported that many lenders are holding off on making any such claims right now.
There appears to be an affirmative benefit from not making the claims, including the good that the lenders derive from avoiding the adjudication that the lenders' claims are excluded from the FHA insurance. Lenders reportedly do not have to post reserves to cover any loans which are "performing" -- and if the lenders have not foreclosed, then the mortgages and the loans they secure must by that fact be "performing" and so the lenders do not have to post reserves on account of them.
Further, the Federal Department of Housing and Urban Development, which oversees the FHA, has responded to some claims by four (4) banks in the past year that in making those claims, the lenders have violated the False Claims Act.
All these and related issues are raised by Floyd Norris, "The Guarantee That Banks May Fear to Invoke" (Economix Blog on New York Times website, posted Tuesday, October 8, 2013); Kate Berry, "Buried in Fine Print: $57B of FHA Loans Big Banks May Have to Eat," American Banker Online, posted Monday, October 7, 2013).
All these issues are interesting, particularly the insurance-related questions. They deserve attention. I wanted to bring them to your attention now. I will address them further in more extensive articles in the future, after I have had the opportunity to research them further.
WALL STREET IGNORED! Psst. Don't tell them. They don't know.
Accustomed as Wall Street investors and bankers are to attention, they are slow to catch on when they are being ignored. They are being ignored right now by the individuals who want to crash the debt ceiling for some reason. Most of them just don't know it yet. Perversely, the individuals who want to crash the debt ceiling and destroy U.S. full faith and credit are encouraged by Wall Street not noticing that these individuals are ignoring Wall Street. See Jesse Eisinger, "DealBook / Complacency on Wall Street Could Be Worse Than a Panic" p. B8, col. 1 (New York Times Nat'l ed., Thursday, October 10, 2013).
Even the ones on Wall Street who are aware that they are being ignored by the terrorists of the debt ceiling, are slow to realize that their money just isn't enough to persuade the terrorists any longer. See "Business Groups See Loss of Sway Over House G.O.P. / A Growing Frustration / Leaders Mull Financing Primary Challenges to the Tea Party" p. A1, col. 6 (New York Times Nat'l ed., Thursday, October 10, 2013).
For the clues about whose money is more attractive to the terrorists now, see this article published in Sunday's print edition of The New York Times and posted online on October 5, 2013: Sheryl Gay Stolberg & Mike McIntire, "A Federal Budget Crisis Months in the Planning" p. A1, col. 2 (New York Times Nat'l ed., Sunday, October 6, 2013) ("Groups like Tea Party Patriots, Americans for Prosperity and FreedomWorks are all immersed in the fight, as is Club for Growth, a business-backed nonprofit organization. Some, like Generation Opportunity and Young Americans for Liberty, both aimed at young adults, are upstarts. Heritage Action is new, too, founded in 2010 to advance the policy prescriptions of its sister group, the Heritage Foundation. The billionaire Koch brothers, Charles and David, have been deeply involved with financing the overall effort.").
Can I see a show of hands how many people thought even once in the last 5 years that the investors and bankers who inhabit Wall Street might someday find it in their interest to save us?
After receiving a sweetheart deal in a national mortgage servicing settlement that turned into a global mortgage abuse settlement which never should have happened, and before a lawsuit was even filed, reportedly some of the parties released have already reneged on the deal. See, e.g., revised report by Shaila Dewan, "Monitor Finds Mortgage Lenders Still Falling Short of Settlement's Terms" p. B3, col. 1 (New York Times Nat'l ed., Thursday, June 20, 2013)(reporting various failures to perform under their settlement agreement by four of the five mortgage servicers which signed the settlement agreement, all of which at the same time received all the benefits of the national settlement performed by the other parties to the settlement: JP Morgan Chase, Citibank, Bank of America, Citibank, JP Morgan Chase, and Wells Fargo); Statement From [New York State ] A.G. Schneiderman Regarding the National Mortgage Settlement Monitor's Finding That Wells Fargo Failed to Comply With Timeline Servicing Standards, Thursday, June 19, 2013.
In addition to other failures reported by the National Settlement Monitor, JP Morgan Chase reportedly "also failed to remove ... forced-place insurance, within two weeks of a borrower's submitting proof that he or she had insurance." Shaila Dewan, New York Times, supra.
What was said to a similar person long ago merits saying again to these people, it seems: At long last, have you no shame?
Investors are driving up housing prices. They pay in cash. People that want new homes cannot compete. When they try to compete with the investors, the investors bid more money.
The investors are buying to rent.
This may drive up the price of renter's insurance along with the price of houses.
However, the successful crop of cash buyers reportedly includes "international investors".
Why would "international investors" invest in houses in the United States?
When prices on foreclosed houses go up, the value of these 'assets' is marked up too. That increases the value of these assets on the investors' balance sheets.
Are there other forces at work? Are there government including tax regulations and benefits that the general public does not know but the investors and their servicers know?
No-one taking their cash is asking the investors any questions at this time. See Jennifer Medina and Katharine Q. Seelye, "As Home Sales Heat Up Again, Buyers Must Resort to Cold Cash" p. 1, col. 5 (New York Times Nat'l ed., Sunday, June 9, 2013).
Do Investor Property Purchases Mean Faster Economic Recovery or Future Problems?
SETTLING EVERY CASE IS NOT A GOOD POLICY.
A U.S. Senator is focusing the attention of the Department of Justice, the Federal Reserve, and the Securities and Exchange Commission on why they exist.
They exist for the purpose of protecting the public and enforcing the law. Each of them in the past has equated serving this purpose with making secret settlements with investment banks. That includes the secrecy surrounding why exactly they do not demand admissions of guilt in making settlements with investment banks.
They are not your ordinary parties to civil litigation, who settle their differences rather than go to trial. Regardless of their public releases, these agencies of government are not serving their common purpose by pursuing a policy of constantly settling with wrongdoers in every situation.
They are prosecutors, these agencies, not simply parties who as it happens have a difference of opinion about the wrongs that were done and are still being done.
Senator Elizabeth Warren (D-Mass.) has demanded that the Department of Justice, the Federal Reserve, and the Securities and Exchange Commission provide the Senate with the analyses they have done, if any, on the pros and cons of settling with large financial institutions accused of financial wrongdoing, without requiring an admission of guilt. See E. Scott Reckard, "Sen. Warren Goads Fed, SEC, DOJ to Explain No-Fault Bank Deals" (Los Angeles Times Online at www.latimes.com, posted May 14, 2013).
THE FDIC'S PURSUIT OF BAD FAITH.
Case law reflects the lines being drawn by the Federal Deposit Insurance Corporation in its pursuit of recoveries while standing in the shoes of banks in its receivership.
In Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013), the FDIC alleged claims of legal malpractice and breach of fiduciary duties. The defendants are a law firm and a lawyer who advised a bank regarding a closing which involved $5,300,000.00 in a "real estate acquisition and development loan" to a development company.
Parenthetically, the issue presented to the Court which resulted in this particular decision was the Defendants' Motion in Limine to Exclude Expert Testimony by one of the FDIC's Experts, a nonlawyer who was proffered to testify about "'commercial lending and underwriting practices, bank management, bank operations and procedures, and the standards of care in the banking industry.'" Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013). The Court denied the motion.
INVESTMENTS IN MORTGAGE-BACKED SECURITIES Continued ... The Third Judge Speaks.
This continues an article begun here on Sunday, April 28, 2013.
One Judge, Judge Straub, dissented in part and concurred in part. Judge Straub pointed out that previous ERISA case law had consistently followed an objective "prudent person" standard; "it focuses on the process of the fiduciary's conduct preceding the challenged decision." The focus of the prudent person standard of fiduciary liability under ERISA "asks whether the fiduciary, at the time he engaged in the challenged transaction," used methods which were appropriate both to investigate, and if the investigation turned up good results, to set up the investment.
Anyone who has had the experience of writing a pleading, whether it be a complaint, an answer and affirmative defenses, or all of these, knows that in drafting a client's allegations of fact it is good pleading practice to frame the available facts based on the prevailing law. Given the potential of a later motion being filed by the opposing party or parties to challenge whether these factual allegations are properly framed either as a claim or as a defense under the applicable law, the pleader tries to frame the client's allegations accordingly, applying law to fact because that is what the Court will do if the legal sufficiency of the allegations is attacked. If the pleader can match factual allegations available in the given case to read in a similar way to legal quotations which she or he will argue from relevant case law or statutes at the hearing, so much the better.
That is precisely what the attorneys for the plaintiffs tried to do in this case, match their clients' factual allegations to the applicable law -- or at least to the law which applied at the time the complaint was filed. Recall that that ERISA case law extant at the time that the complaint in this case was filed, had consistently followed an objective "prudent person" standard; "it focuses on the process of the fiduciary's conduct preceding the challenged decision." The focus of the prudent person standard of fiduciary liability under ERISA "asks whether the fiduciary, at the time he engaged in the challenged transaction," used methods which were appropriate both to investigate, and if the investigation turned up good results, to set up the investment.
In this case, the plaintiffs pleaded that the defendant breached its fiduciary obligations under ERISA "by making 'high-risk investments ... at precisely the time when defaults of subprime mortgages were skyrocketing and numerous subprime lenders were facing insolvency.'" That is what they specifically alleged, for example, in paragraph 29 of their Amended Complaint.
The one Judge in the minority on this panel pointed out that although the Amended Complaint did not contain factual allegations that "specifically detail" how the defendant perpetrated its alleged mismanagement, the plaintiffs did sufficiently "allege that [defendant] acted imprudently by maintaining investments in high-risk mortgage securities, at a time when [defendant] knew or should have known that the market for such securities was collapsing." Regardless of whether the plaintiffs would ultimately prevail at the end of this case, the plaintiffs at the beginning of this case sufficiently alleged a breach of fiduciary duties under ERISA against Wall Street, in the eyes of the Judge who was in the minority on this panel.
There you have it. Two Judges applied what amounted to a summary judgment or directed verdict standard, both dependent on evidence of record, to a motion to dismiss an amended complaint and concluded not that proof was lacking but that allegations were lacking (even though, at least arguably, they were there). It is respectfully submitted that the Judge who wrote in the minority on this panel was the one who got it right in this case.
 Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *19 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).
INVESTMENTS IN MORTGAGE-BACKED SECURITIES CANNOT ALLEGEDLY VIOLATE FIDUCIARY DUTIES.
INVESTMENTS IN MORTGAGE-BACKED SECURITIES CANNOT ALLEGEDLY VIOLATE FIDUCIARY DUTIES, two Judges say.
Two Judges on the Second Circuit Court of Appeals stressed the lack of "factual detail" in a group of pension funds' allegations that the defendant investment bank, Morgan Stanley, violated "its fiduciary duties under the Employee Retirement Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq." by investing in mortgage-backed securities ("RMBS"). The two Judges did not say that investing in residential-mortgage back securities, which in this case included a wide assortment of RMBS including subprime mortgages, was a good thing. They said that the plaintiffs did not support their claims of "imprudence" with "well-pleaded factual allegations" that investments backed by subprime mortgages were a breach of the defendant's fiduciary duties.
In sum, viewing the allegations in the Amended Complaint as a whole, and drawing every reasonable inference in favor of Saint Vincent's, the Amended Complaint does not allege facts plausibly showing that Morgan Stanley knew, or should have known, at the relevant times, that the securities held in the fixed-income Portfolio were imprudent investments. Instead, the Amended Complaint alleges imprudence by association, reasoning that because the Portfolio contained nonagency mortgage-backed securities—of which subprime mortgage-backed securities are now the most infamous type—and because the whole world knows (in hindsight) that many subprime mortgages turned out to be disastrous investments, the Portfolio's concentration in mortgage-backed securities generally and nonagency securities in particular was imprudent. The relevant pleading standards do not permit such general accusations of imprudence, unsupported by well-pleaded factual allegations.
The two Judges shared the view, then, that the plaintiffs' allegations of breach of fiduciary duties were based on nothing more specific than "imprudence by association". Everyone knows now, they said, that subprime mortgages are risky investments and poor collateral, but that is hindsight.
That is not what the plaintiffs alleged. Their allegations are reproduced more or less verbatim in the third Judge's opinion, and they will be examined in detail not only in the third Judge's opinion, but in the next post continuing this article. Suffice it to say now that the plaintiffs were much more specific than the majority described. The plaintiffs alleged that at the time it engaged in the RMBS transactions, the defendant fiduciary used methods of investigation inadequate to the task, and that even the investigation conducted by the defendant turned up bad results which did not dissuade the fiduciary from making the investments, to the detriment of the plaintiffs.
The majority ignored these allegations and attempted to re-label them.
There is a saying which is familiar in many parts of the United States. If you take a cow, and hang a sign around its neck that says, "Horse," if it has horns and an udder, it is still a cow.
 Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *1 (2d Cir. April 2, 2013).
 Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *12 (2d Cir. April 2, 2013).
OPPORTUNITY TO BE HEARD ON FORCE PLACED INSURANCE.
The Federal Housing Finance Agency ("FHFA") has issued a Notice that it invites our Comments on restrictions it should consider placing on Lender Placed (Force Placed) Insurance under Mortgages involving Fannie Mae and Freddie Mac: Download LPIregister32613.pdf.FHFA Notice of Restrictions Proposed on Lender Placed Insurance Terms and Conditions. The FHFA is the Conservator for these two government sponsored enterprises ("GSEs").
1. Certain Sales Commissions. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers.
2. Certain Reinsurance Activities. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer.
The Comment period will end 60 days from publication of the FHFA Notice in the Federal Register. In an abundance of caution, I am calendaring Friday, May 24, 2013 or the 60th day by my calculations after the Notice was signed by the FHFA Acting Director on March 25, 2013, in order to be absolutely certain my input makes the FHFA deadline.
FHFA will accept public input through its Office of Housing and Regulatory Policy (OHRP), no later than [INSERT DATE 60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER], as the agency moves forward with its deliberations on appropriate action. Communications may be addressed to Federal Housing Finance Agency, OHRP, Constitution Center, 400 Seventh Street SW., Ninth Floor, Washington, DC 20024, or emailed to LPIinput@fhfa.gov. Communications to FHFA may be made public and posted without change on the FHFA Web site at http://www.fhfa.gov, and would include any personal information provided, such as name, address (mailing and email), and telephone numbers.
This is our opportunity to have our voices heard! Won't you join me in insuring that this opportunity is placed on Lender Placed Insurance?
A similar article on Wednesday, March 27, 2013 on Insurance Claims and Issues Blog similarly announced the opportunity provided by the FHFA to be heard on LPLI.
UPDATE on the Whole Financial Catastrophe, JPMorgan Also.
It seems that for a brief moment, at least, the immense power of the United States Senate Permanent Subcommittee on Investigations focused public attention on the possible misdeeds and definite mistakes of JPMorgan executives and its chief. See, e.g., Ben Protess and Jessica Silver-Greenberg, "Trading Hearings Put Focus Back on JPMorgan's Chief" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Monday, March 18, 2013); Jessica Silver-Greenberg, "JPMorgan Executives Face Withering Questions at Senate Hearing" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, March 16, 2013).
One ironic feature of interest in JPMorgan's suspect trading activities, apparently totally unmentioned in the newspaper reports, is that JPMorgan was trading in Credit Default Swaps (CDS's), otherwise known as unregulated Credit Insurance. See "JPMorgan Chase Whale Trades: A Case of History of Derivatives Risks and Abuses," Report of the Permanent Subcommittee on Investigations, Committee on Homeland Security, United States Senate, in particular pages 29-30 and search the document for "credit default swaps" (307 pages; stated "Released in Conjunction With The Permanent Subcommittee on Investigations March 15, 2013 Hearing"): Download REPORT - JPMorgan Chase Whale Trades (3-15-13)2.
Force-Placed Insurance? One person's "commissions." Other people call them "kickbacks."
The New York State Department of Financial Services reportedly has noted publicly "that JPMorgan Chase has made about $600 million since 2006 by taking 75 percent of the profit from the force-placed business it gave" to insurance giant Assurant, the country's largest force-placed insurer at this time. Karen Freifeld and Ashutosh Pandey, "UPDATE 4--Assurant Settles With New York Over 'Force-Placed' Insurance" (Reuters Online, posted Thursday, March 21, 2013).
Assumption of the Risk? But this isn't a lawsuit and there is no "Assumption of the Risk" Affirmative Defense to a Bad Faith Claim. You're right. This isn't a lawsuit.
So, after some 5 years, the question has changed: If someone keeps on keeping on, making money at my expense, not changing their ways of doing it, and if I do nothing about it, have I learned my lesson? See Jesse Eisinger, "Lesson Learned After Financial Crisis: Nothing Much Has Changed" (Dealbook, New York Times, March 19, 2013). See, in addition, Moyers & Company, airdate Friday, March 22, 2013, Bill Moyers interview with Sheila Bair, head of the Systemic Risk Council and most recently, Chair of the Federal Deposit Insurance Corporation.
Tuesday in Tampa: JPMorgan Shareholders Deserve More Than Apologies.
When RISK MANAGERS Took Risks, Made Profits, Who Knew From Losses?
The Good Faith of JP Morgan.
"While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone." Unidentified JPMorgan spokesperson, quoted by Jessica Silver-Greenberg and Ben Protess, "Senate Inquiry Faults JPMorgan on Trading Loss / Rebuke for the C.E.O. / Bank Seen as Ignoring Big Risks -- Hearing is Set on Issues" p. A1, col. 6 (New York Times Nat'l ed., Friday, March 15, 2013).
"Let me be clear, JPMorgan completely disregarded risk limits and stonewalled federal regulators. This bank appears to have entertained, indeed embraced, the fact that it was too big to fail." Senator John McCain (R-Ariz.), quoted by Jim Puzzanghera, "Former 'London Whale' Boss at JPMorgan Admits Mistakes" (Los Angeles Times Online, posted Friday, March 15, 2013), in a newspaper report about the Senate investigation and report on "$6.2 billion" worth of JPMorgan "mistakes".
JPMorgan Chase is far and away "the bank that enjoys the best reputation among its peers." JPMorgan is also the largest trader in derivatives on the face of the earth. Gretchen Morgenson, "Fair Game / JPMorgan's Follies, For All To See" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, March 17, 2013).
Reportedly when its London traders increasingly provoked JPMorgan's own internal measure of risk to sound the alarm that something destructive might be happening or about to happen, JPMorgan changed the metric it used to measure risk. The change was made in January, 2012 and enabled the London traders "to continue building the big bets, the [U.S. Senate] subcommittee found." Jessica Silver-Greenberg and Ben Protess, New York Times, supra. See, in addition, Jim Puzzanghera, Los Angeles Times, supra.
The change was "personally authorized" by JPMorgan CEO Jamie Dimon. Jessica Silver-Greenberg and Ben Protess, New York Times, supra.
"No, that is not acceptable practice." Testimony of Douglas L. Browstein, Vice Chair, JPMorgan, quoted by Gretchen Morgenson, New York Times, supra. Here is a link to the Witness Testimony and the senators' statements at the Hearing of the Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security held on Friday, March 15, 2013.
"[F]ive former and current JPMorgan executives [were called] to testify about the trades at a six-hour hearing -- and they all sought to pass the buck." Jim Puzzanghera, Los Angeles Times, supra.
In the utmost Good Faith and with no intent to mislead anyone about the risk disclosed only to JPMorgan by JPMorgan by its original metric. Absolutely.
WHAT'S "PRODUCTIVITY" GOT TO DO WITH IT?
With Apologies for fair use to Tina Turner.
Newspapers have gone goofy, I think. Reporters write as though they are truly puzzled because they attribute increased profits to gains in "productivity," yet there are increasingly fewer jobs. It seems they just cannot figure this out. See, e.g., Nelson Schwartz, "Recovery in U.S. Lifting Profits, Not Adding Jobs / Wall Street is Buoyant / A Gulf is Widening as Federal Budget Cuts Take Effect" p. A1, col. 6 (New York Times Nat'l ed., Monday, March 4, 2013). It would help to understand, I submit, not to think in terms of "productivity" at all.
At least newspapers report the phenomenon of higher profits and fewer workers. However, productivity in the sense of workers producing more things in less time while working the same number of hours, does not explain it. "Productivity" has nothing to do with it.

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