On Friday, the Wall Street Journal called Bank of America’s 2008 acquisition of the tottering mortgage giant Countrywide a $40 billion mistake. Sure, the bank only paid a total of $4.5 billion to pick up Countrywide, paying $2 billion for a minority stake in 2007 and an additional $2.5 billion for the rest of the company in 2008. BofA had its eye on Countrywide’s then-profitable mortgage servicing business, but since the acquisition Countrywide and its deficient mortgages have been pretty much nothing but trouble for Bank of America, which has seen its share price drop 68 percent and is still digesting what the Journal estimated to be at least $40 billion in “total real estate losses, settlements with government agencies and amounts pledged to investors who purchased poor-performing Countrywide mortgage-backed securities.” The Journal‘s Dan Fitzpatrick quoted a North Carolina banking professor who called BofA’s Countrywide acquisition “the worst deal in the history of American finance.”
In March, at the end of his much-maligned oral argument on the constitutionality of the so-called individual mandate of the Affordable Care Act, Solicitor General Donald Verrilli threw a Hail Mary.
Last month, when plaintiffs’ lawyers filed their amended class action complaints against a bevy of banks accused of manipulating the London interbank offered rate (or Libor), I noted that the antitrust complaints were long on wonky economic analysis but short on juicy conspiracy evidence, mostly because U.S. District Judge Naomi Reice Buchwald had denied motions to grant the private antitrust plaintiffs access to materials the banks turned over to regulators. I asked whether there was enough billowy black smoke in the class complaints to withstand the banks’ motions to dismiss.
Usually when I write about the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank, it’s to tell you about yet another successful defense effort to dismiss claims involving the overseas application of U.S. laws, whether in trade secrets litigation, bankruptcy clawback actions or lots of other arenas that have nothing to do with Morrison‘s securities-law roots. In April, the Securities and Exchange Commission needed a full 106 pages to analyze Morrison‘s background and impact (before declining to answer the question of whether Congress should reform securities laws to restore a cause of action for U.S. investors against foreign-listed defendants). Across a wide plain of civil litigation, foreign defendants have wielded Morrison as a case-crushing bludgeon, with federal judges bowing to its power.
There is no federal judge more economically outspoken than Richard Posner of the 7th Circuit Court of Appeals, who in his scant spare time co-authors a provocative blog with the Nobel Prize-winning University of Chicago economist Gary Becker. With a high-pitched querulous voice and no tolerance for obfuscation, Posner can demolish lawyers he considers economics slackers. If you’ve got a dubious theory of damages, you’d better hope you don’t end up arguing it before him.
The bond insurer Syncora got just about everything it wanted when U.S. District Judge Paul Crotty of Manhattan issued his long-awaited ruling on loss causation in Syncora’s breach-of-contract case against EMC, the erstwhile mortgage arm of Bear Stearns. Crotty’s analysis didn’t track the same way as that of New York State Supreme Court Justice Eileen Bransten in the Syncora and MBIA rulings against Countrywide, and, unlike Bransten, he did not grant Syncora summary judgment on its theory of rescissionary damages, which would have entitled the bond insurer, as a matter of law, to recover everything it has paid out in claims on the EMC mortgage-backed securities it insures, less premiums. Crotty said it’s too early to decide that fact-based question.
We now know exactly who caused the financial crisis.
Or, at least, whom U.S. District Judge Frederic Block of Brooklyn holds accountable. According to a 19-page opinion Block issued Monday in the Securities and Exchange Commission case against former Bear Stearns hedge fund executives Ralph Cioffi and Matthew Tannin, “many in the financial world” believe the economic catastrophe was triggered by the collapse of two funds Cioffi and Tannin ran. That’s a pretty heavy burden the judge has laid on the former Bears, who, after all, were acquitted in a 2009 criminal trial of lying to investors about the health of their funds.
The last time I wrote about the securities fraud class action claims against JPMorgan Chase for the losses it suffered in risky credit default swaps, I told you to pay attention to the unusually short class period alleged in the early complaints. The first couple of filings claimed the bank’s deception of investors began on April 13 – the day JPMorgan CEO Jamie Dimon told analysts that news reports about the dangerous trading position of its chief investment office were a “tempest in a teapot” – and ended on May 10, when the bank disclosed the initial $2 billion loss of the “London Whale.”
Without former U.S. District Judge Richard Holwell, there probably would not have been any prosecution of Rajat Gupta, the former Goldman Sachs director and McKinsey chief convicted Friday of insider trading and conspiracy. In 2010, Holwell ruled that prosecutors could use wiretap evidence in their case against Galleon Group hedge fund founder Raj Rajaratnam, rejecting defense arguments that the government is not authorized to use wiretaps to investigate insider trading. If prosecutors hadn’t been able to use those Rajaratnam wiretaps – in which Rajaratnam obliquely referred to tips from a Goldman insider – it’s unlikely the government would have gone to trial against Gupta, since the tapes were the only link between Gupta’s alleged tips and Rajaratnam’s trades.
When John Bellinger of Arnold & Porter was the legal adviser to the State Department in the administration of George W. Bush, the Justice Department filed about a dozen amicus briefs addressing the Alien Tort Statute, a 1789 law that has become a modern vehicle for international human rights litigation. Bellinger told me on Thursday that he signed every one. When foreign nationals use the ATS to bring cases in U.S. courts for conduct that took place overseas, foreign policy is implicated, and the State Department wants a voice. That’s why Bellinger believes it’s so significant that when the Justice Department filed its new amicus brief in the reformulated Kiobel v. Royal Dutch Petroleum case at the U.S. Supreme Court, State Department legal adviser Harold Koh did not sign it.