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On October 27, Moody's released is methodology for rating CMBS transactions in the period between the maturity date of the latest maturing loan and the final maturity date of the transaction (tail period). Moody's Release.
On October 27, DBRS released its U.S. RMBS loss model and rating methodology. DBRS Release.
On October 26, DBRS released its master European RMBS rating methodology and jurisdictional agenda. DBRS Release.
On October 26, DBRS released its European covered bond rating methodology. DBRS Release.
Note: Free registration is required for Moody's releases and reports.
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SEC Adoption of Final Form PF
On October 26, pursuant to Sections 404 and 406 of the Dodd-Frank Act, the SEC adopted a new rule requiring certain advisers to private funds to report information on a new Form PF for use by the Financial Stability Oversight Council to monitor risks to the U.S. financial system. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, depending upon type of and amount of AUM, to end on or after December 15, 2012. However, the following advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012: (i) advisers with at least $5 billion in AUM attributable to hedge funds; (ii) liquidity fund advisers with at least $5 billion in combined AUM attributable to liquidity funds and registered money market funds; and (iii) advisers with at least $5 billion in AUM attributable to private equity funds. Advisers to private funds with less than $150 million of AUM will not be required to file Form PF. SEC Release.
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures
On October 27, the SEC ordered FINRA to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. The order was made in connection with alleged violations of Section 17(a) of the Exchange Act and Rule 17a-1, namely the alteration of certain records prior to submission to SEC inspection staff. SEC Release. SEC Order.
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AIG RMBS Dispute Against Bank of America Stays in Federal Court Under the Edge Act
On October 20, 2011, Judge Jones of the U.S. District Court for the Southern District of New York found that the Edge Act conferred federal jurisdiction over a lawsuit brought by AIG against Bank of America and related entities arising out of certain AIG RMBS investments. The Edge Act confers federal jurisdiction over, among other things, any case in which a national bank is a party arising out of transactions involving banking in a U.S. dependency or insular possession. Defendants relied on the presence in certain RMBS collateral pools of mortgage loans that were secured by properties located in overseas locations, such as Puerto Rico, Guam, and the U.S. Virgin Islands. Noting that 4 of the 349 RMBS at issue were backed by mortgages in U.S. territories, Judge Jones found that jurisdiction was proper even if the territorial transactions involve only a small portion of the total transactions at issue. Decision.
Class Certified, but at Reduced Size, in Washington Mutual RMBS Litigation
Judge Pechman of the U.S. District Court for the Western District of Washington issued an order on October 21, 2011 granting Plaintiffs' motion to certify a class of investors in certain Washington Mutual RMBS on a substantially narrower basis than Plaintiffs had requested. The lawsuit, which brings claims under Section 11 of the Securities Act of 1933, involves 6 offerings that collectively contained 123 separate tranches of certificates. Plaintiffs, who purchased in only 13 of the tranches, sought to certify a class of all investors in any tranche of any of the 6 offerings. The court found that each tranche represents a different security and that Plaintiffs lacked standing to sue as to any tranche in which they had not purchased. Judge Pechman thus both denied class certification and granted judgment on the pleadings in favor of Defendants as to those tranches. As to the remaining 13 tranches in which Plaintiffs had purchased, the court found that class certification was appropriate. Decision.
Court Grants, in Large Part, Motions to Dismiss in Allstate's Lawsuit Against Countrywide
On October 21, 2011, Judge Pfaelzer of the U.S. District Court for the Central District of California issued an order largely granting motions by Countrywide, various of its officers and directors, and Bank of America to dismiss various federal securities and state law claims asserted by Allstate arising out of Allstate's investments in 25 Countrywide RMBS. Judge Pfaelzer found the federal claims time-barred, holding that Allstate brought its action more than three years after it was put on notice of its claims, and that the three-year period was not tolled by an earlier-filed action in which the plaintiff had standing to sue only as to different Countrywide RMBS. Certain of the state law claims, involving certificates purchased prior to December 27, 2005, also were held to be time-barred. As to later-purchased certificates, the court found that Allstate adequately alleged claims under New York and Illinois law for common law fraud arising out of alleged misrepresentations in the offering documents of those certificates concerning Countrywide's origination and underwriting practices and the characteristics of the loans in the collateral pools. The court dismissed, without prejudice, additional claims for aiding and abetting fraud and for negligent misrepresentation, finding as to the former that Allstate had not alleged scienter on the part of the alleged aiders and abettors, and as to the latter that Allstate had not alleged sufficient privity between it and the Defendants. The court also dismissed, without prejudice, Allstate's claim for successor liability against Bank of America. Decision.
Allstate RMBS Suit Against Credit Suisse Remanded to New York State Court
Judge Buchwald of the U.S. District Court for the Southern District of New York issued an order on October 19, 2011, remanding a suit brought by Allstate against Credit Suisse and related entities arising out of alleged misrepresentations made in connection with over $200 million of RMBS allegedly purchased by Allstate. Defendants had removed the action on "related to bankruptcy" grounds on the basis that three of the originators of loans underlying Allstate's certificates, against whom Defendants had potential claims for indemnification, had declared bankruptcy. The court found that because Defendants had not asserted any of the indemnification claims against the bankrupt originators, and because the time to do so in the relevant bankruptcy proceedings had passed, that Defendants had not shown a sufficient relation to those bankruptcy proceedings to justify the exercise of federal jurisdiction. The court further found that even if Defendants had shown that related to bankruptcy grounds existed, the court still would be required to remand the action on mandatory abstention grounds. Decision.
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