A month ago, when I wrote about the dismissal of a securities class action against UBS, George Conway III of Wachtell, Lipton, Rosen & Katz told me that the UBS case had been the last, best chance for plaintiffs lawyers to find a way around the U.S. Supreme Court’s June 2010 ruling in Morrison v. National Australia Bank. Morrison, as you know, barred U.S. courts from hearing securities fraud cases against companies whose shares aren’t listed on U.S. exchanges. In the 16 months since the Supreme Court issued its Morrison ruling, federal courts have made it indelibly clear that securities suits against foreign companies — whether they involve the 1933 Act, the Exchange Act, common stock, CDOs, or swaps — are a non-starter under Morrison’s strictures. (Here’s Sullivan & Cromwell’s Sept. 29 overview of Morrison’s impact on securities litigation.) “Now it’s all over,” Conway told me. “They don’t even bother to bring these cases anymore.”
On Tuesday, Manhattan federal judge Jed Rakoff agreed to decide whether Irving Picard’s $267 million clawback case against ABN Amro and related defendants belongs in federal court rather than in Manhattan bankruptcy court, where the Bernard Madoff bankruptcy trustee filed it as an adversary proceeding. That’s bad news for Picard and his team at Baker & Hostetler. So far, Judge Rakoff has decided that he has jurisdiction over at least part of every Madoff case he’s considered, and he’s proceeded to decimate Picard’s recovery theories in his HSBC and Mets rulings.
The drumbeat of calls for Bank of America to put what remains of Countrywide into Chapter 11 has grown so loud and relentless that according to a report last month by Bloomberg, BofA is actually considering what’s been called the “nuclear option.” Resorting to a Countrywide Chapter 11 would be fraught with unknown but surely devastating consequences for a commercial bank, as bankruptcy guru Harvey Miller of Weil, Gotshal & Manges explained in a fascinating Bloomberg video. But more significantly, there’s a good chance it wouldn’t accomplish the intended goal of roping off BofA’s liability for Countrywide’s mortgage-backed securities mess.
This post was co-written with Erin Geiger Smith.
Like hundreds other Twitterati this weekend, we read with righteous amusement Joshua Brown’s Reformed Broker screed against Bank of America. The bank, you probably know, disclosed Friday in a Securities and Exchange Commission filing that it is paying former executives Sallie Krawcheck and Joseph Price a total of $11 million for the pleasure of their departure, a year-long non-compete agreement, and a promise not to sue for, as the British say, being made redundant. The Reformed Broker found the deal offensive, to say the least.
Last week a rumor made the rounds of hedge funds that trade in Bank of America and MBIA shares: The bank had reputedly agreed to settle the bond insurer’s mortgage-backed securities fraud and put-back claims for $5 billion. The rumor turned out to be false, or at least premature, since no settlement is in the offing at the moment. But the size of the rumored deal gives you a sense of the magnitude of the litigation between the banks that packaged and sold mortgage-backed securities and the bond insurers that wrote policies protecting MBS investors. We are talking about billions of dollars — perhaps tens of billions — at stake in suits by MBIA, Syncora, Ambac, and Financial Guaranty against Countrywide, Credit Suisse, GMAC, Morgan Stanley, and other MBS defendants.
With the news Wednesday that Massachusetts Attorney General Martha Coakley has “lost confidence” in the multistate AG talks with five big banks and is revving up to sue, coupled with last week’s announcement by California AG Kamala Harris that she’s also dropping out of talks and launching her own investigation, I’ve been wondering what shape an AG suit against mortgage lenders would take. I reached out to both the New York and Delaware attorneys general offices, since they were the first to start talking about filing their own cases. They didn’t return my calls. But according to the bank lawyers I talked to (caveat emptor), there’s a huge gap between the wrongs the states will be able to show and the relief for troubled homeowners that they say they want.
The $3.4 billion Indian trust land settlement known as Cobell has been one of the most hotly-litigated and longest-running class actions in history. It took almost two decades for lawyers representing hundreds of thousands of Native Americans with land held in trust by the U.S. Department of the Interior to win recompense for their clients. Even then the settlement wasn’t final until Congress signed off and Washington, D.C., federal judge Thomas Hogan approved the deal on June 21.
In August, when Johnson & Johnson disclosed its deal to resolve criminal allegations that it falsely marketed the potent schizophrenic drug Risperdal, I said that if ever a board was ripe for a big, fat shareholder derivative suit, it was J&J’s. The Risperdal settlement was the company’s third criminal plea in a little more than a year, on top of a Justice Department and Food and Drug Administration investigation of its over-the-counter children’s drugs, state attorneys general subpoenas, whistleblower suits, and product recalls. The 111-page consolidated complaint that Bernstein Litowitz Berger & Grossmann and Robbins Geller Rudman & Dowd filed against J&J’s board members last December offered more red flags than a training school for toreadors.
The most dramatic moment at the Sept. 21 hearing on Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors came near the end, when Gibbs & Bruns partner Robert Madden stood up to address Manhattan federal judge William Pauley’s concerns about how the settlement came to be. Tall and clear-spoken, Madden captured the judge’s attention as he explained that his clients, a group of 22 large institutional investors, hadn’t entered a sweetheart deal with BofA, but had banded together to force the bank to pony up billions to investors for claims BofA thought it would never have to deal with.