When New York attorney general Eric Schneiderman sued Bank of New York Mellon in August, the AG asserted that the Countrywide mortgage-backed securitization trustee had breached its duty to MBS investors. “As trustee, BNYM owed and owes a fiduciary duty of undivided loyalty,” said the AG’s suit, which was filed as a counterclaim in BNY Mellon’s case seeking approval of the proposed $8.5 billion Bank of America settlement with MBS investors. “[BNYM] breached that duty to [investors’] detriment and disadvantage, by failing to notify them of issues regarding the quality of loans underlying their securities.”
Helen Chaitman of Becker & Poliakoff represents more than 300 investors who had accounts with Bernard Madoff. For more than two years she’s hammered away at one particular argument in federal bankruptcy court, in Congress, even on YouTube: Madoff bankruptcy trustee Irving Picard of Baker & Hostetler shouldn’t be allowed to demand the return of profits that Madoff investors pulled out of their accounts as long ago as 2002, six years before the Ponzi scheme imploded in December 2008. On Tuesday night, Chaitman finally found vindication, even though it wasn’t in any of her cases. Manhattan federal judge Jed Rakoff, ruling in Picard’s fraud case against the owners of the New York Mets, concluded that a section of the federal bankruptcy code precludes Picard from attempting to claw back money Madoff investors pulled out of the Ponzi scheme before 2006.
When I first read the Federal Housing Finance Agency Inspector General’s report criticizing Freddie Mac’s $1.35 billion MBS put-back settlement with Bank of America, I wondered if the FHFA IG had just exposed billions of dollars in untapped bank liability. The IG report notes, after all, that Freddie’s deal with BofA (unlike Fannie Mae’s simultaneous $1.52 billion BofA settlement) resolves not only pending breach of contract claims, but also any future claims that Countrywide breached representations and warranties on the mortgages it sold Freddie. Those are exactly the kinds of global settlements banks are going to have to reach if they have any hope of resolving their MBS put-back liability.
You had to be a sophisticated investor if you wanted to give J. Ezra Merkin your money. The hedge fund director made that clear in the offering documents for three of his funds: investors had to entrust considerable assets to him (at least $5 million for individuals and $25 million for businesses); had to conduct their own due diligence before deciding to invest; and had to accept the risk that Merkin’s funds might lose their money. Unsaid, but well-understood by many of the investors in Merkin’s Ascot fund (at least according to Merkin lawyer Andrew Levander of Dechert), was that Merkin would be feeding investors’ money to Bernard Madoff.
Lucy Marcus, a consultant, Harvard Business Review writer, and corporate director, posted an HP- and Yahoo-inspired cri de coeur Friday at HBR. “How bad does it have to get before we come to terms with the fact that we need to fix the boardroom?” she wrote, in a piece entitled “It Is Time to Fix Our Boardrooms.” Marcus’s idea is that boards should fix themselves. Independent directors have to think hard about who’s sitting around the table with them, she said, and “assess whether the board and the individual directors have the skill and the will to rise to the challenge of future-proofing the organizations that they serve.”
One of the verdant new fields the Dodd-Frank act has opened for litigators involves the Securities and Exchange Commission’s say-on-pay rule, which requires public companies to put executive compensation up for an advisory shareholder vote every two years. The rule went into effect in January. By May, Dena Aubin of Reuters was already reporting on a surge in shareholder derivative suits claiming boards breached their fiduciary duty by pushing through pay packages that shareholders voted down.
The Association of Financial Guaranty Insurers doesn’t exactly mince words. In a newly-released letter to Credit Suisse CEO Brady Dougan, the executive director of the bond insurance group, Teresa Casey, accused the bank of “materially” understating its obligation to repurchase deficient underlying mortgage loans securitized in Credit Suisse MBS offerings. “We estimate that Credit Suisse’s obligations in respect of the securities insured by AFGI members aggregate billions of dollars,” the AFGI letter said. “We seek to understand the reasons why the full magnitude of the liability has not yet been recognized by Credit Suisse.”
Over the last couple of months Bank of America has taken a stock market and regulatory beating so brutal that it’s reportedly considering the previously unthinkable option of putting Countrywide into Chapter 11. BofA’s mortgage-backed securities exposure seems to have no upper limit; throughout BofA’s long hot summer, it felt like every week investors surfaced with new claims that BofA, Countrywide, or Merrill Lynch violated state and federal securities laws in MBS offerings.
This summer, thanks to NPR’s This American Life, a patent holding company called Oasis Research became one of the most famous patent trolls in the land. The brilliant radio segment, When Patents Attack! (also available as a Planet Money print story), homed in on a sweeping patent for “an online back-up system,” which Oasis acquired from Intellectual Ventures in July 2010 and proceeded to assert in an Eastern District of Texas case against a dozen tech defendants. When NPR’s reporters tried to find out who or what Oasis is, they struck out. No one answered the door at Oasis’s deserted “office” in Marshall, Texas, and the company’s lead lawyer, John Desmarais of Desmarais LLP, politely declined to answer NPR’s questions when the reporters tracked him down at a tech IP conference. (He also declined, via e-mail, to answer mine for this story.)