Source: http://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/credit-default-swaps/
Timestamp: 2018-01-24 11:18:26
Document Index: 722980960

Matched Legal Cases: ['§ 3', '§ 9', '§ 3', 'art 1', 'art 1', 'art 1', '§ 69']

Insurance Claims and Bad Faith Law Blog: Credit Default Swaps
PENSION FUNDS, HEDGE FUNDS: IS ANYONE AWAKE AT THE SWITCH?
Image provided by NASA.
The recent economic catastrophe which has come to be called the Great Recession by some of us, is still with many of us. Before and during the Great Recession, local government bodies (known collectively as "munis") lost a lot of taxpayer money by making poorly understood investments. Right after the Great Recession began, a wise observer of investing habits by poorly trained municipal employees who were given the unenviable task of making money in a financial market without any experience in it, made this critical observation of how exotic investment schemes came to be sold to munis by what can only be called predator investors:
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).
Times may have changed but practices have not, it seems. Another report in the "Sunday Business" Section of the New York Times seven-and-one-half years later addresses similar investing practices by pension funds holding the pension money of muni public employees:
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 report is not limited to one size of pension fund or one area of the country, mentioning instead a wide variety of funds which have experienced the same deeply disappointing results. The funds mentioned in the report include:
The Kentucky Retirement System.
The Employees' Retirement System of Rhode Island.
These widely separated pension funds actually have many things in common, as it turns out:
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 AFT report reveals that hedge funds lost investment revenue of $8 Billion for the pension funds over "a total of 88 fiscal years studied" combined, while during the same time periods the hedge funds managers collected an estimated $7.1 Billion in fees from the pensions. (Talk about symmetry there; they lose $8 Billion and pocket $7.1 Billion, according to the report.)
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?
Posted by Dennis Wall on November 08, 2015 at 01:59 PM in Credit Default Swaps, Credit Insurance, Current Affairs, Fiduciary Duty, Market Performance | Permalink | Comments (0)
Tags: fiduciary, hedge funds, munis, pension funds
Make Insurance Derivatives Safer: Get Swaps Addicts Off the Street.
The power of derivatives manufacturers is legendary. And apparently never comes to an end.
Derivatives manufacturers, including investment banks that hold no deposits and never have held deposits but are called 'banks' anyway, notoriously fought against regulation of their swaps. Years after Congress passed a law authorizing the U.S. Commodity Futures Trading Commission to finally regulate swaps, the derivatives manufacturers may have struck again by all appearances.
Swaps are so famously complex that very few people can understand these deliberately opaque financial transactions, let alone regulate them. The Federal Government turned to a company that held itself out as understanding swaps.
Equally important, the company, DTCC Data Repository, LLC, held itself out as having the software and hardware mechanisms in place to provide the CFTC with information required to regulate swaps. One of the theories behind the CFTC concept of effective regulation of swaps is transparency. This is kind of like Justice Brandeis's famous observation that sunlight is the best disinfectant.
Accordingly, for the purpose of transparency the CFTC designated DTCC as "a swap data repository pursuant to section 21 of the Commodity Act and section 49.3(b) of the Commission's regulations." CFTC Press Release, "CFTC Approves Application of DTCC Data Repository, LLC For Provisional Registration as a Swap Data Repository" (September 30, 2012).
Surprisingly to some, perhaps, the CFTC just issued a "Special Announcement" that the data it has been receiving from DTCC Data Repository "understated" the "notional rate values in the interest rate class" affecting, naturally, the values of interest rate swaps regulated by the CFTC. Special Announcement, "DTCC Data Repository (DDR)" (most recent CFTC "Weekly Swaps Report"). Parenthetically, in some circles and in some rather snarky reporting, the data failure is attributed not to DTCC whence it came, but to the CFTC which in reality is the victim of DTCC's data dump failure.
Information asymmetry. This is a concept familiar to bad faith practitioners. It occurs when one party has greater access to information concerning a mutual transaction involving another party which has little or no access to the same level of information about their mutual transaction. 2 DENNIS J. WALL, "LITIGATION AND PREVENTION OF INSURER BAD FAITH" § 9:5, "The Question of Bad Faith -- Presence or Absence of Fault" (Thomson Reuters West Third Edition and 2013 Supplement).
So, it may be very difficult to regulate swaps with inaccurate information, just as it was previously impossible to regulate swaps with no information at all.
For more on the story of the long and undying resistance to swap regulation by derivatives manufacturers and purveyors of similar weapons of mass financial destruction, as they say, see also Silla Brush and Robert Schmidt, "How the Bank Lobby Loosened U.S. Reins on Derivatives" (Bloomberg News, posted on www.bloomberg.com on September 4, 2013).
Wall Street Bid on Cross-Border Swaps Quashed by U.S. Regulator - Bloomberg
Posted by Dennis Wall on December 31, 2013 at 05:55 AM in Bad Faith, Credit Default Swaps, Credit Insurance, Current Affairs, Derivatives, Unfair and Deceptive Practices | Permalink
Bad Insurance Deals Push Cities to Brink.
U.S. counties and cities are going bankrupt. County administrators and city managers blame employees and the employees' pensions and unions, with whom they contracted.
The real problem is not enough money. Bad insurance products are a much bigger cause of bad budgets than anything else including pensions. The root cause is the people who made, and make, bad budget decisions.
Interest rate swaps and credit default swaps ("CDS," another form of credit insurance) are not subject to pressure. Munis must pay the premiums. There is no exemption for derivatives, for which the munis contracted as a part of their financing, even if the munis declare bankruptcy. The derivatives manufacturers made sure of that. See, e.g., Mary Williams Walsh, "Detroit Wins $55 Million Concessions From 2 Banks" p. B1 (New York Times Nat'l ed., Wednesday, December 25, 2013); Mary Williams Walsh, "'Safe Harbor' in Bankruptcy is Upended in Detroit Case" p. B1 (New York Times Nat'l ed., Tuesday, December 24, 2013).
As a result, bankrupt debtors including counties and cities have no ability to pressure a creditor whose deal is backed up by law enforcement.
Nor do bankrupt debtors have any incentive to draw unwanted attention to their derivatives creditors. If they do, they might not get financing the next time.
Small-government or muni administrators who agreed to have their munis pay for these insurance products had and have little experience with them. They do not know what they are getting into. DENNIS J. WALL, 1 "LITIGATION AND PREVENTION OF INSURER BAD FAITH" §§ 3:109 & 3:110, "The New 'Credit Insurance?' Credit Default Swaps" & "Bond Insurance on and for 'Municipal Bonds,' and the Subprime Credit Crisis" (THOMSON REUTERS WEST THIRD EDITION AND 2013 SUPPLEMENT).
Employees, pension plans and unions are subject to intense pressure on the other hand. That pressure includes small-government officials putting out the story that government employees and unions are responsible for bad budgets. See Rick Lyman and Mary Williams Walsh, "Police Salaries and Pensions Push California City to Brink" p. A1, col. 5 (New York Times Nat'l ed., Saturday, December 28, 2013). The reporters' story is written much more fairly than the headline written by an editor suggests. But we know from previous New York Times reports in particular that bad financial insurance products are a much greater cause of bad muni budgets. Again, see, e.g., Mary Williams Walsh, "'Safe Harbor' in Bankruptcy is Upended in Detroit Case" p. B1 (New York Times Nat'l ed., published in print on Christmas Eve, 2013); Mary Williams Walsh, "Detroit Wins $55 Million Concessions From 2 Banks" p. B1 (New York Times Nat'l ed., published in print Christmas Day, 2013).
The root cause of bad municipal budgets today is the bad insurance purchasing decisions made yesterday. Those bad decisions were made by some if not most of the same muni managers that are also responsible for misdirecting our attention away from their bad insurance purchasing decisions, to the contracts they entered into for employee pensions, i.e., to their employees. County and city employees are to be forgiven if they are under the impression that small governments would stand by the contracts they made with their employees, too.
Posted by Dennis Wall on December 29, 2013 at 11:27 AM in Bond Insurance, Credit Default Swaps, Credit Insurance, Current Affairs, Derivatives, Market Performance, Premiums, Unfair and Deceptive Practices | Permalink
This post follows previous posts on similar subjects on Insurance Claims and Issues Web Log on May 14, 2012 and on May 15, 2012, and on Insurance Claims and Bad Faith Law Blog on May 15, 2012.
When the Great Recession started, Wall Streeters said that they had no idea that loss could follow risk. They attempted to make us believe flimsy excuses along the lines of "Who knew?" Or, "It was a perfect storm," or "a black swan," something that is so far out of the realm of human experience that they just could not anticipate it.
They were wrong. We know now that not only did they anticipate it, they did not care so long as they made money for themselves.
Now we read recent newspaper reports that JPMorgan Chase has lost Billions of Dollars trading in credit derivatives, particularly Credit Default Swaps, the same instruments that nearly brought down the house or, more accurately, definitely brought on the Great Recession.
At first JPMorgan announced that its losses were $2 Billion. Now JPMorgan is announcing that the losses are $3 Billion, with more to come. And JPMorgan representatives are eerily echoing the false excuses of the first days of the Great Recession. 'Who knew?' 'No-one could have anticipated this loss,' and so on.
These things were not true in late 2007. They are not true in the Spring of 2012, either.
The office of JPMorgan from which the announced losses are originating is a huge clue. JPMorgan Chase turned its Risk Management office into a profit center. Anyone who looked at the fact that profits were being generated by Risk Managers should have known, in fact almost certainly did know, that something was glaringly, terribly wrong at Diamond Jamie's place. See Jessica Silver-Greenberg and Ben Protess, "Bank Regulators Under Scrutiny in JPMorgan Loss / Risk Was Played Down / No Overseers Assigned to Investment Unit That Lost Billions" p. A1, col. 6 (New York Times Nat'l ed., Saturday, May 26, 2012): "But JPMorgan's office, with a portfolio of nearly $400 billion, had become a profit center that made large bets and recorded $5 billion in profit over the three years through 2011."
Those who have eyes to see with, let them see, and ears to hear with, let them hear. It is not truthful to claim that you could not see something that was so unusual it had to have been seen, or that you could not hear what everyone else could hear including that there was a whole lot of shakin' goin' on at JPMorgan even before Billions of Dollars in losses arrived at the door.
P.S. on so-called regulation by the Wall Street-controlled OFFICE OF THE COMPTROLLER OF THE CURRENCY, which has jurisdiction over the activities in question at JPMorgan:
"The Office of the Comptroller of the Currency has also faced scrutiny about whether it is too cozy with the banks it oversees." Id.
Duh. What was your first clue?
Posted by Dennis Wall on May 29, 2012 at 04:01 AM in Credit Default Swaps, Credit Insurance, Current Affairs, Derivatives, Market Performance | Permalink | Comments (0) | TrackBack (0)
ROI Rigged on Default Swaps; No ROI for You, Me.
Capital cannot be invested everywhere at the same time. Capital invested in things which are useful only to a few who receive a payoff means that that same capital is not available for investment in things that benefit the many -- say, roads, schools, factories, infrastructure.
That is the amazing story behind the story of Credit Default Swaps which, as readers of this Blog know, is really an unregulated substitute for Credit Insurance. Since CDSs are unregulated, their twin shortcomings are hidden from investors.
First, CDSs are deliberately made hard to understand, since the persons holding the rights to CDS payoffs face no requirements to make them understandable. This means that someone is needed to 'explain' CDSs to the marks or other investors. The "someone" is always a person who (silently, surreptitiously) holds the rights to CDS payoffs or their intermediaries.
Second, CDSs are undercapitalized. In Insurance parlance, they are under-reserved. This is one more consequence of evading regulation as Credit Insurance: Parties issuing CDSs are not equipped to pay off their 'counterparties' or Insureds. Who do you think that leaves to make the payoff? Taxpayers?
These twin issues are currently suspected in the European money situation. Everything is changing, nothing is new, as they say. "These are the same twin market flaws that helped hide the problems at the American International Group -- problems that arose from insurance that A.I.G. had foolishly written on crummy mortgage securities." Gretchen Morgenson, "Fair Game / Sad Proof of Europe's Fallout" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, November 6, 2011).
To be sure, 'investment vehicles' involved in the European situation include the same old things with new names, such as "credit-linked notes" and "bespoke deals". They are all unregulated Credit Insurance. They are all headed to the same unregulated end.
Whoever this is good for, it does not sound like Good Faith for you, or for me.
Posted by Dennis Wall on November 10, 2011 at 03:46 AM in Credit Default Swaps, Credit Insurance, Current Affairs, Good Faith, Market Performance, Reserves | Permalink | Comments (0) | TrackBack (0)
UPDATE to "Who Fleeced the Fiduciaries"?
This is an update to two posts, both on July 6, 2010: One on Insurance Claims and Issues Web Log, and one on Insurance Claims and Bad Faith Law Blog.
The Government Accountability Office reports that the New York Fed has some 'splainin' to do. See Binyamin Appelbaum, "Report Says New York Fed Failed to Cut A.I.G. Deals" p. B1, col. 4 (New York Times Nat'l ed., "Business Day" Section, Tuesday, November 1, 2011), differently written in the print edition vs. the version found online at www.nytimes.com.
Among other things, the GAO reports that the New York Fed has been inconsistent in its explanations about how and why it came to be that Federal Taxpayer Funds were used to pay AIG's 'counterparties' 100 cents on the dollar of each and every one of their Credit Default Swap claims against AIG -- even at least one counterparty which told the New York Fed that it would take less.
Apparently, the New York Fed refused to be negotiated down.
The GAO report does not address the mystery of how a complete Release of All Claims by AIG -- even claims not yet made by AIG -- came to pass in favor of all of AIG's counterparties. At least, the linked newspaper article does not mention the mystery. The posts of July 6, 2010 mention this mystery.
There is still no answer to the mystery.
One mystery has been solved, however. (Well, "mystery" may be too strong a word; it is something that at least is not talked about very often.) That is:
Who was in charge of the Federal Reserve Bank of New York when the New York Fed decided to use Federal Taxpayer Money to pay AIG's counterparties 100% of the counterparties' claims against AIG?
He later became Secretary of the Treasury under Mr. Obama. His name, of course, is Timothy Geithner. See id.
Posted by Dennis Wall on November 03, 2011 at 04:21 AM in Bad Faith, Claims Handling, Credit Default Swaps, Current Affairs, Derivatives, Market Performance, Releases, Settlements in Bad Faith Cases. | Permalink | Comments (0) | TrackBack (0)
RMBS Defendants Sued For Alleged Misrepresentations.
Residential Mortgage Backed Securities have so many problems. Now those problems are sticking to the issuers of RMBS.
To begin with, four lawsuits have recently been filed in Federal Courts on Claims based on alleged illegal sales of RMBS, including alleged misrepresentations to Credit Unions. In each case, the Plaintiff is the Regulator of Credit Unions, the National Credit Union Administration Board, which "charters and regulates federal credit unions and insures their accounts," Gregory Mott and Joel Rosenblatt, "Goldman Sachs Sued by U.S. Over Securities Sold to Failed Credit Unions" (Bloomberg.com, Wednesday, August 10, 2011). The Defendants in these cases are well-known, very large financial institutions:
1. Goldman Sachs, Fremont Mortgage Securities Corp., et al. National Credit Union Admin. Bd. v. Goldman Sachs & Co., et al., Case No. 11-06521, United States District Court for the Central District of California, Complaint Filed August 9, 2011 (unavailable on PACER, the Federal Courts' electronic docket).
2. Royal Bank of Scotland ("RBS") and Wachovia Mortgage Loan Trust, LLC, among others in Download National Credit Union Admin. Bd. v. RBS Securities, Inc., etc., et al. (Complaint, Part 1, Filed July 18, 2011, C.D. Cal. Case No. 11.5887). The linked document is only Part 1 of the Complaint in this case; PACER identifies three (3) other Parts of the Complaint in the Court File. The linked Part 1 is 35 pages long and has its own Table of Contents.
3. The NCUA also sued RSB in the U.S. District Court, Western District of Missouri, in a Complaint reportedly filed on June 20, 2011 (Complaint unavailable on PACER).
4. JP Morgan Chase, reportedly in a separate lawsuit also filed in the U.S. District Court for the Western District of Missouri, Complaint reportedly filed on June 20, 2011 (Complaint also unavailable on PACER).
As noted, each of the four above lawsuits was filed by the NCUA, a Board of the United States. The Commonwealth of Massachusetts previously filed and recently settled its own lawsuit. The Defendant was one Option One. The Commonwealth alleged that Option One, a subprime lender, engaged in unfair and discriminatory lending practices. As the Massachusetts Attorney General described the settled case:
They [Option One, the Defendant subprime lender] employed a business model that absolutely failed to gauge the ability of borrowers to replay the loans. In other words, they knew or should have known that those loans were going to fail.
Massachusetts Attorney General Martha Coakley, quoted in Associated Press Report published in the New York Times National Edition of Wednesday, August 10, 2011, p. B4, col. 5. Reportedly, when the lawsuit was filed by Massachusetts in 2008, it was the first lawsuit in which a subprime lender was accused of civil rights violations in the making of subprime loans. See id.
Recently, American International Group ("AIG") has also sued on similar Claims. The Defendant is Bank of America. "The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor." Louise Story and Gretchen Morgenson, "A.I.G. to Sue Bank on Loss In Fiscal Crisis" p. A1, col. 5 (New York Times Nat'l ed., Monday, August 8, 2011). Parenthetically, note that by the time this linked newspaper article was posted online, the story opener was changed to reflect the fact that AIG's lawsuit had already been filed at that time.
The Securities and Exchange Commission, which for whatever reason has not filed many such lawsuits and no significant charges of criminal wrongdoing whatsoever in connection with RMBS, has now sued a broker, Stifel, Nicolaus & Company, for alleged misrepresentations in the sale of securities 'backed' by Synthetic Collateralized Debt Obligations or "CDOs". Download United States Securities and Exchange Commn v. Stifel, Nicholas & Co., and David W. Noack (Complaint Filed August 10, 2011 E.D. Wis.) (44pages). The Eastern District of Wisconsin's Case Number is 2:11-cv-00755-AEG.
Reportedly, Credit Unions are pursuing political means to make up for lost ground or lost profits, by lobbying the U.S. Congress through their trade association to increase their lending limits by Federal Statute. See Emily Maltby, "A Push For More Loans / Credit Unions Aim to Raise Lending Cap, Say Banks Aren't Doing Enough" p.B9, col. 1 (Wall Street Journal print edition, Thursday, August 11, 2011).
Posted by Dennis Wall on August 14, 2011 at 04:11 AM in Credit Default Swaps, Current Affairs, Derivatives, Fraud, Market Performance, Recoupment and Restitution, Unfair and Deceptive Practices | Permalink | Comments (0) | TrackBack (0)
"The Banks Still Want a Waiver" ... No, They Also Want Immunity: ...
This is an update to numerous posts in this space, most recently on July 19, 2011 entitled, "Prayers Over Bondi, Mortgage Finance "Unfair, Deceptive and Unconscionable" Actions
... Foreclosure Fraud by Foreclosure Plaintiffs, Continued.
"MERS" stands for "Mortgage Electronic Registry Systems". This company has nothing to do with the Clerks of Court in the States. It is a corporation made by Banks and other Lenders to save them the time and expense not only of recording all the Mortgages they take back to secure their Loans in the first place, but also to file Foreclosure Lawsuits against defaulting Homeowners-Mortgagors. Unfortunately, MERS did not make the loans and, in addition, MERS does not have the original note or a lawful excuse why not, in many cases.
There is a split among the Courts over whether MERS has standing to sue for Foreclosure under these circumstances. The percentage breakdown among the Courts is unclear. The judicial view that MERS has no standing to sue in such Foreclosure Cases is well-articulated by Federal Judge Robert E. Grossman, quoted by Gretchen Morgenson, "Fair Game / The Banks Still Want A Waiver" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, July 24, 2011):
This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.
The contrary view is expressed, for example, in a case involving the substantive law of Arizona, which is a Nonjudicial Foreclosure State meaning that the only involvement Courts in Arizona have with Foreclosures is when someone files a lawsuit to halt or to enforce one. See, e.g., Download Schayes v. BAC Home Loans Servicing, LLP (D. Ariz. Case Nos. CV.10.1893, CV.11.1074, Order Filed July 15, 2011) PUBLIC ACCESS also published as 2011 WL 2746322 *2 (D. Ariz. July 15, 2011)(only Defendant was "the current servicer" of a residential loan secured by a deed of trust; holding in case at bar in pertinent part both that the Plaintiffs had not adequately pled sufficient facts in their Complaint to withstand dismissal of their Claims, and had stated legally insufficient Claims, that the mortgage servicer "is incapable of foreclosing absent actual possession of the note," that the trust deed is invalid, or that the mortgage servicer lacks standing "to conduct a non-judicial foreclosure.")(authorized password required to access Westlaw).
Banks that own MERS are seeking releases of liability against claims that have not been made yet, it is reported by Gretchen Morgenson, "The Banks Still Want A Waiver," supra. The Banks are making this demand in their current negotiations with the 50 State Attorneys General. "Lawyers who have examined this issue say it would be unprecedented to grant a broad release from liability ... from claims that have not been investigated." Id.
Demanding a release from Unknown Claims is not exactly unprecedented on Wall Street, however. The U.S. Government, specifically the Federal Reserve Bank of New York and the Treasury Department, forced AIG to release in advance what a release demanded by AIG's counterparties on Credit Default Swaps specifically labeled as "Unknown Claims". See "AIG's Secret 'Unknown Claims' Release Worthless Paper?" posted here on July 6, 2010; and see "Who Fleeced the Fiduciaries? AIG's 'Unknown Claims' Release ... Could Be Worthless Paper" posted on Insurance Claims and Issues Blawg, also on July 6, 2010
The story about the hidden release of AIG's "Unknown Claims" was broken by New York Times Reporters Louise Story and Gretchen Morgenson. One of the few good things in this situation is that the newspaper and these fine reporters are still focused on this very important and unfortunately recurring story.
Posted by Dennis Wall on July 28, 2011 at 04:59 AM in Credit Default Swaps, Current Affairs, Foreclosures, Mortgage Insurance, Releases, Title Insurance | Permalink | Comments (0) | TrackBack (0)
Class Action Dismissed With Leave, Involves Countrywide's "MBS".
Investors reportedly are filing Federal Cases to try to compel originators of "MBS" or "Mortgage-Backed Securities" to buy back the Plaintiffs' investments and perhaps to pay them Interest and even Damages. Lawsuits are generally filed under the Federal Securities Act of 1933 and allege that the Defendant "made materially untrue or misleading statements or omissions" regarding the Defendant's "loan origination practices in public offering documents". Download Maine State Retirement System v. Countrywide Financial Corp. (C.D. Cal. Case No. 2.10cv00302, Order Dismissing Amended Class Action With Leave, Filed November 4, 2010)PUBLIC ACCESS, Slipsheet Opinion attached at 2.
These Lawsuits and allegations can have the effect of raising a wide range of Insurance Coverage Issues when the Defendant and its Officers and Directors claim Coverage for their alleged actions and omissions.
In the linked Order Dismissing Amended Class Action With Leave, the U.S. District Court for the Central District of California was faced with an Amended Class Action Complaint against Countrywide and others. The amount at stake came from Countrywide's origination or purchase between 2005 and 2007 of $1,400,000,000.00 or $1.4 Trillion in mortgage loans.
The issue at hand in that Federal Case, however, did not involve the merits of the Plaintiffs' Claims. The Federal Court held that the Plaintiffs' Amended Class Action Complaint was legally deficient for two reasons unrelated to the substance of the Plaintiffs' charges against Countrywide.
First, the Court held that as a matter of settled Federal Law the Plaintiffs in that Case could not "represent the interests of investors in MBS offerings in which the plaintiffs did not themselves buy." Download Maine State Retirement System v. Countrywide Financial Corp. (C.D. Cal. Case No. 2.10cv00302, Order Dismissing Amended Class Action With Leave, Filed November 4, 2010)PUBLIC ACCESS, at 5. Accordingly, the Plaintiffs were given leave to amend to specifically allege the MBS offerings in which they did buy. Id. at 7.
Second, the Federal Court held that, for reasons related at least in part to its Standing ruling in this case, Download Maine State Retirement System v. Countrywide Financial Corp. (C.D. Cal. Case No. 2.10cv00302, Order Dismissing Amended Class Action With Leave, Filed November 4, 2010)PUBLIC ACCESS, at 11-12, the Amended Class Action Complaint raised questions about whether some or any of the Plaintiffs' Claims were filed on time, or whether instead some or any of those Claims are barred by the Statute of Limitations. Accordingly, said the Federal Judge in this Case, although the Statute of Limitations is an Affirmative Defense which Countrywide and the other Defendants must prove in that Case, the Plaintiffs are given leave to amend -- ordered to amend, actually -- their Class Action Complaint to also specifically allege the dates on which they purchased their securities from Countrywide. Id. at 12-13.
The next round of allegations and dispositions in this Case is coming.
Posted by Dennis Wall on November 07, 2010 at 05:48 AM in Credit Default Swaps, Current Affairs, Directors and Officers Insurance, Fiduciary Duty, Market Performance | Permalink | Comments (0) | TrackBack (0)
Good Faith Takes On a New Meaning.
Upon the occasion of the "Settle Every Claim" SEC closing its investigation of Mr. Joseph Cassano, Mr. Cassano's lawyers issued a statement:
We think they realized that our client acted in good faith, kept his superiors informed, and was honest with investors.
Gibson, Dunn & Crutcher LLP Statement of June 16, 2010 quoted by KarenFreifeld, "Cuomo Reopens Probe of AIG's Cassano After U.S. Ends Its Case" (Bloomberg.com, Friday, July 23, 2010). [Emphasis added.]
Mr. Cassano headed American International Group's defunct Financial Products Unit until March, 2008, in which capacity he was in charge of making "derivative bets on subprime loans that forced A.I.G. into a U.S. bailout." Id.
Posted by Dennis Wall on August 02, 2010 at 05:58 AM in Bad Faith, Credit Default Swaps, Credit Insurance, Current Affairs, Market Performance | Permalink | Comments (0) | TrackBack (0)
Posted by Dennis Wall on July 30, 2010 at 05:52 AM in Credit Default Swaps, Current Affairs, Discovery, Fiduciary Duty, Fraud, Market Performance, Mortgage Insurance, Recoupment and Restitution, Rescission, Unfair and Deceptive Practices | Permalink | Comments (0) | TrackBack (0)
Too Clever By Half: The Secret Story of AIG's "Releases".
This adds to posts about AIG's attempted Secret Releases of its Counterparties given during its near-death throes in late 2008, which are posted here on June 30, 2010 entitled, "Fed Demanded Secret Waiver Immunity by AIG: Bad Faith Too?"; also a post here on July 6, 2010, "AIG's Secret "Unknown Claims" Release Worthless Paper?", and another post exploring the Release and its language on Insurance Claims and Issues Web Log also on July 6, 2010, "Who Fleeced the Fiduciaries? AIG's "Unknown Claims" Release Could Be ... Worthless Paper". The contentions of the New York Fed, that these abnormal conditions are normal, are stated and addressed in a post here on July 12, 2010, "New York Fed: 'Not me'; Denies Forcing AIG Secret Release".
The insureds or "Counterparties" on certain Credit Default Swaps or Credit Insurance issued by AIG apparently wrote up a form "Termination Agreement" for AIG to sign for each of their CDS's. Here is a copy courtesy of New York Times reporter Ms. Louise Story: Download AIG Termination Agreement With Release Incl. of .Unknown Claims. The overly broad Release language is found in Paragraph 1(b)(ii) on page 2, and their "Unknown Claims" definition is just as overly broad in paragraph 1(b)(v) on page 3.
Note that the Release language includes "claims based on breach of fiduciary duty ..., aiding and abetting fraud or breach of fiduciary duty, ... [and] breach of the implied dovenant of good faith and fair dealing".
I have proofed and compared them to the provisions input on July 6, 2010 in the post, "Who Fleeced the Fiduciaries? AIG's "Unknown Claims" Release Could Be ... Worthless Paper". All the words quoted from the "Termination Agreement" are correctly and completely quoted in the post.
The conclusion of the July 6 post on Insurance Claims and Issues is accurate too: "The validity and effect of the secretly kept AIG Release of Counterparties, which was unearthed by New York Times reporters Louise Story and Gretchen Morgenson, are unlikely to be accepted at face value by the Courts in the United States." That includes the State and Federal Courts in New York. Paragraph 11 of the "Termination Agreement" provides that it "shall be governed by and construed in accordance with the law of the State of New York," and that each of the parties to it submits to jurisdiction both in the United States District Court for the Southern District of New York, and in any New York State Court "sitting in New York City".
Posted by Dennis Wall on July 15, 2010 at 05:07 AM in Bad Faith, Credit Default Swaps, Credit Insurance, Current Affairs, Fiduciary Duty, Fraud, Releases | Permalink | Comments (0) | TrackBack (4)
Fed Demanded Secret Waiver Immunity by AIG: Bad Faith Too?
When the Federal Reserve in Washington and the New York Federal Reserve Board forced AIG to pay 100 cents on the dollar of each of the Credit Default Swaps AIG issued to Goldman Sachs, Deutsche Bank and Merrill Lynch, the Fed also required AIG to give them a waiver that AIG would never sue them to get the money back. See Louise Story and Gretchen Morgenson, "Documents on Bailout of A.I.G. Show How Big Banks Benefited" p. A1, col. 1 (New York Times Nat'l ed., Wed., June 30, 2010).
The existence of AIG's waiver, which also binds parties who "stand in the shoes" of AIG, i.e., the people who succeed to AIG's rights such as you and me and other Taxpayers in America, was not previously disclosed. Not by Goldman, nor by Deutsche Bank, nor by Merrill Lynch. Nor by the Fed. Nor by AIG, which was apparently also required to keep the waiver a secret from you and me and other Taxpayers in America.
The waiver itself was produced among many, many pages of documents in response only to a Congressional subpoena issued earlier this year:
It was not until a Congressional committee issued a subpoena in January that the New York Fed finally turned over more comprehensive records. The bulk remained private until May, when some committee staff members put them online, saying they lacked the resources to review them all.
Louise Story and Gretchen Morgenson, New York Times June 30, 2010, supra.
Dumping thousands of irrelevant documents along with a few pages of relevant production appears to be a frequently used tactic. See "Delay, Disrupt and Dismay: Goldman Sachs and Its Lawyers Respond ... Dump Documents, May Overwhelm Financial Crisis Inquiry Commission," posted here on June 11, 2010.
It is clear however that AIG's waiver was good for Goldman, good for Deutsche Bank, and good for Merrill.
Who told you that AIG's waiver was good for AIG, or for you, or for me, or for any other American taxpayer?
If it had been, they would all have told everyone who would listen. They did not.
Disclosure of secrets which, if kept secret will or may cause injury to other people, is compelled by Law in certain circumstances in many States, including Florida. Fla. Stat. § 69.081. Disclosure is almost always a better policy choice than secrecy when it comes to the payment of money or, in this instance, waiving other people's rights to get that money back.
Can AIG's waiver include a waiver of all causes of action to redress fraud against it by those that received AIG's waiver?
Would it include all causes of action for Breach of Fiduciary Duties and Fair Dealing?
There are many other questions, including who received the benefits and immunities arguably conferred by AIG's waiver, who asked for it, and why was it given. The linked newspaper article reflects that the documents disclosed so far do not reflect answers, yet, to any other questions such as these.
AIG's waiver must be examined by independent lawyers. Then some of these and other similar questions can begin to be addressed. And until then, a word of advice:
"Pay no attention to the man behind the curtain." Those that kept AIG's waiver a secret are not to be heard now as to why it should not be further disclosed.
Posted by Dennis Wall on June 30, 2010 at 08:04 AM in Bad Faith, Credit Default Swaps, Current Affairs, Fiduciary Duty, Fraud, Market Performance, Recoupment and Restitution | Permalink | Comments (0) | TrackBack (0)
Posted by Dennis Wall on June 11, 2010 at 05:57 AM in Credit Default Swaps, Credit Insurance, Current Affairs, Discovery | Permalink | Comments (0) | TrackBack (0)
Posted by Dennis Wall on April 19, 2010 at 09:34 AM in Additional Insureds, Credit Default Swaps, Credit Insurance, Current Affairs, Fiduciary Duty, Fraud, Market Performance, Recoupment and Restitution | Permalink | Comments (0) | TrackBack (0)
Posted by Dennis Wall on April 12, 2010 at 06:06 AM in Bond Insurance, Credit Default Swaps, Credit Insurance, Fiduciary Duty | Permalink | Comments (0) | TrackBack (0)
Credit Default Swaps, Reserves, and Regulation: Credit Insurance.
There is good news and bad news from a Letter to the Editor from New York State Insurance Superintendent James Wrynn, that was published in the Business Section of the Sunday New York Times on March 7, 2010.
First, the bad news. Superintendent Wrynn reaffirmed a decision to back off of Regulation of the forms of Credit Insurance exemplified by some kinds of Credit Default Swaps. At first, the New York State insurance Department was going to Regulate those CDSs that functioned like the Credit Insurance they are. Download NYS Insurance Dept Circular Letter.09.22.08. Two months later, the New York State Insurance Superintendent announced that he discovered that the Federal Government was taking steps to possibly talk about Regulating CDSs, and that satisfied him to back off. Download NYS Insurance Dept News Release.11.20.08.
Second, the good news. The importance of Reserves is explicitly recognized in Superintendent Wrynn's Letter:
There are two benefits to reserve requirements. One, they ensure that the seller of the swap can pay up on its promise. Two, since they will increase the price of swaps, they will tend to limit their use to situations where they serve a real economic purpose.
Parenthetically, note the current description of these requirements as "reserve requirements". Financial planners tend to describe setting aside Capital as "Capital requirements," and Insurance professionals tend to describe setting aside enough Capital to pay Claims as "Reserve requirements". The difference in wording expresses the difference in orientation of the speaker. When the previous New York State Insurance Superintendent backed off regulating CDSs in November, 2008, the Department's Press Release used the language of Finance -- to be regulated by the Federal Government -- and described similar requirements as maintaining "adequate capital". Download NYS Insurance Dept News Release.11.20.08, at first unnumbered bullet point.
Posted by Dennis Wall on March 09, 2010 at 09:16 AM in Credit Default Swaps, Credit Insurance, Reserves | Permalink | Comments (0) | TrackBack (0)