Alison Frankel

Fait accompli: the securities defense bar’s favorite new weapon

August 13, 2012

On Friday, U.S. District Judge Deborah Batts dismissed a securities class action against Deutsche Bank and its underwriters on a $5.6 billion offering of preferred securities. The judge ruled on a defense motion for reconsideration that under the 2nd Circuit Court of Appeals’ 2011 ruling in Fait v. Regions Financial, the defendants’ valuation of Deutsche Bank’s exposure to subprime mortgages was an opinion, and the plaintiffs couldn’t show that the defendants didn’t believe that opinion when offering materials were published. Batts’s ruling was a big win for Deutsche Bank’s lawyers at Cahill Gordon & Reindel and the underwriting syndicate’s counsel at Skadden, Arps, Slate, Meagher & Flom.

Federalism fight in Stockton’s Chapter 9

August 11, 2012

Municipal bankruptcies under Chapter 9 of the federal bankruptcy code are such rarities that every case seems to pose issues of first impression. There was the question of who bore the burden of showing Bridgeport, Connecticut, was insolvent in 1991; the breaking of a collective bargaining agreement in Vallejo, California, in 2009; and being too big for bankruptcy protection in a botched bid by Harrisburg, Pennsylvania, last fall. The same is true of the doozy of a legal fight brewing between the California Public Employees’ Retirement System and the bond insurers MBIA and Assured Guaranty in Stockton, California. Before this case is over, we should know whether the federal bankruptcy code trumps state constitutional protection for pension benefits.

Hedge funds dodge Morrison in state-court case against Porsche

August 10, 2012

In what appears to be the first example of securities plaintiffs getting a green light to litigate in state court after their federal court case was bounced under the U.S. Supreme Court ruling in Morrison v. National Australia Bank, New York State Supreme Court Justice Charles Ramos ruled Wednesday that several hedge funds can proceed with claims that they lost more than $1 billion as a result of Porsche’s allegedly deceptive manipulation of the market for Volkswagen shares in 2008. But the 22-page opinion isn’t just good news for investors with fraud claims against foreign defendants. It’s also a rare judicial boost for so-called sophisticated investors, who’ve been smacked down this year by New York state and federal appeals courts.

Sheldon Adelson and the fine art of libel litigation

August 9, 2012

When it comes to making good on threats to sue his detractors for libel, Las Vegas gaming mogul Sheldon Adelson puts his money where his mouth is. And given that he has $24.9 billion as of the last accounting by Forbes, the Republican money man can afford to have a very big mouth. On Tuesday, his lawyers at Wood, Hernacki & Evans and Olasov & Hollander filed a complaint in federal court in Manhattan against the Jewish Democratic Council, seeking $60 million, based on assertions that the group libeled Adelson when it repeated unfounded claims that he abetted prostitution at his resort in Macau.

Blame Standard Chartered in-house lawyers in money-laundering mess

August 8, 2012

In June of 1995, Standard Chartered Bank’s general counsel in London sent an email to the bank’s compliance officer that “embraced a framework for regulatory evasion,” according to the case against Standard filed Monday by New York’s top financial regulator. The GC’s email was allegedly in response to a U.S. executive order imposing economic sanctions against Iran and prohibiting U.S. banks from converting Iranian wire transfers into dollars. But the Standard GC, working with the bank’s compliance staff, suggested that the bank simply cut its American operation out of the loop. Even if regulators figured out that Standard’s London headquarters was evading the U.S. executive order, the GC allegedly wrote in a “highly confidential” email, “there is nothing they could do.”

New study says SEC revolving door not important. Don’t believe it.

August 7, 2012

My hat is off to the four authors of a new study called “Does the Revolving Door Affect the SEC’s Enforcement Outcomes?” which was to be presented Monday at the American Accounting Association. As the New York Times was the first to report, researchers from Emory, Rutgers, the University of Washington and Singapore’s Nanyang Technological University set out to reach a quantitative answer to a question everyone thinks they already know the answer to. Instead, the study found that there’s no measurable impact on enforcement from lawyers moving in and out of the SEC.

Shell: Alien Tort Statute not meant for international human rights

August 3, 2012

The first case the U.S. Supreme Court will hear when the justices return in October is a reprise of Kiobel v. Royal Dutch Petroleum, which the high court originally heard in February but tossed back to the parties for rebriefing. The new question before the high court is this: Does the Alien Tort Statute, passed as part of the Judiciary Act of 1789 and revived from obscurity in the 1990s to become a tool of international human rights advocates, apply to conduct that took place outside of the United States? For the human rights community, this is a do-or-die moment. The Alien Tort Statute, which holds simply that federal courts may hear “any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States,” has become a means for victims to seek retribution from perpetrators and abettors of atrocities. The stakes are so high that the State Department’s legal adviser, former human rights litigator Harold Koh, refused to sign the Justice Department’s recent amicus brief advocating certain limits on the ATS’s reach overseas.

The Stoker verdict and Citi’s settlement with the SEC

August 2, 2012

If you’re the Securities and Exchange Commission, it’s tough to find a silver lining in Tuesday’s jury verdict for Brian Stoker, a onetime midlevel banker at Citigroup. Not only did the eight jurors in federal court in Manhattan determine that Stoker was not liable for misleading investors in a $1 billion collateralized debt obligation, they also offered a backhanded slap at the SEC. “This verdict should not deter the SEC from continuing to investigate the financial industry, to review current regulations, and modify existing regulations as necessary,” the jury said in a highly unusual note accompanying the verdict. For the SEC, which has been roundly criticized for its failure to bring civil charges against executives implicated in the financial crisis, the jury’s note has to read like one more reminder that the public is still waiting for corporate accountability.

The megabillions tax claims facing Fannie Mae and Freddie Mac

August 1, 2012

We all know that the foreclosure crisis has been a disaster for state and county governments. When homeowners lose their houses, they stop paying property taxes, which is one of the reasons why municipal governments have been driven to consider ideas like seizing underwater mortgages through the use of eminent domain. We’ve also seen state and local officials file lawsuits against the Mortgage Electronic Registration Systems, claiming that MERS and its member banks have cheated governments out of mortgage recording fees in the securitization process. MERS has had mixed results in shutting down those cases but so far hasn’t been found liable.