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On May 30, the Federal Reserve Board issued a final rule that establishes procedures for nonbank companies that own at least one registered securities broker or dealer to register for supervision by the Federal Reserve Board as a securities holding company (SHC). The Dodd-Frank Act eliminated supervision of SHCs by the SEC and provided SHCs with the ability to seek supervision by the Federal Reserve Board to satisfy the requirements of foreign regulators or foreign law that companies be subject to consolidated supervision in the United States. The final rule includes capital and financial condition requirements and specifies other information necessary for registration. Once registered, an SHC would be supervised and regulated as if it were a bank holding company. However, the restrictions on nonbanking activities in section four of the Bank Holding Company Act would not apply to the supervised SHC.
On May 24, the Residential Mortgage-Backed Securities (RMBS) Working Group announced the launch of a new web site to facilitate the reporting of RMBS fraud, as well as the formation of a coordination team “to facilitate various investigations underway around the country.” For more information on the RMBS working group, see InfoBytes, Jan. 27, 2012.
On April 30, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of an action brought by a putative class of pension fund investors against issuers of certain mortgage-backed securities. New Jersey Carpenters Health Fund v. Rali Series 2006-QO1 Trust, No. 11-1683, 2012 WL 1481519 (2nd Cir. Apr. 30, 2012). The investors claimed that the issuers made false and misleading statements in the prospectuses of the MBS at issue, and brought suit to recover damages under the Securities Act. In denying the investors’ motion for class certification, the district court held that class treatment was not appropriate because individual issues predominate - each purchaser’s actual knowledge of the specific false or misleading statements or omissions would need to be determined on an individual basis. Based on the “limited evidence” available “without the benefit of discovery,” the circuit court affirmed the dismissal, but suggested that a different inference could have been drawn on a more complete record. The court also acknowledged several district court decisions that followed the instant case, in which the courts certified classes presenting similar claims.
On February 27, the United States Court of Appeals for the Second Circuit held that a residential mortgage-backed securities (MBS) case that had been removed from New York state court fell within the securities exception to both original and appellate jurisdiction under the Class Action Fairness Act of 2005 (CAFA). BlackRock Financial Management Inc. v. Segregated Account of Ambac Assurance Corp., No. 11-5309, 2012 WL 611401 (2nd Cir. Feb. 27, 2012). The case arose out of claims that the originator and servicer of MBS breached obligations owed to the trusts. After the trustee reached an $8.5 billion settlement agreement, it initiated an Article 77 proceeding in New York state court to confirm that it had authority to enter the settlement under the trust documents and that entry into the settlement did not violate its duties under the agreements and state law. Certain investors intervened and removed the case to federal court under the Class Action Fairness Act (CAFA). The district court denied a motion to remand to state court on the grounds that the case fell within CAFA's securities exception. On this interlocutory appeal, the court concluded that the case was one that solely involved a claim that "relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security." The courts rationale was that, based on prior precedent, it did not have jurisdiction over claims that were based "either on the terms of the instruments that create and define securities or on the duties imposed on persons who administer securities," although it did have jurisdiction over "claims based on rights arising from independent sources of state law." Because the underlying Article 77 case sought a declaration authorizing the exercise of the trustee's power to enter a settlement, the trustee was seeking construction of its rights under the Pooling and Servicing Agreement (PSA) and an instruction from the court as to whether it complied with its duties and obligations arising under the PSA. Therefore, the court (i) held that the securities exception of CAFA applied, (ii) dismissed the appeal for lack of jurisdiction, (iii) reversed the district court's order, and (iv) directed the district court to vacate its decision and order and remand the case to state court.
On January 6, multiple media outlets reported that the Securities and Exchange Commission (SEC) announced a policy change related to settlement of securities fraud cases. Under the new policy, settling defendants no longer will be permitted to neither admit nor deny civil liability, while concurrently being convicted of, or admitting guilt with regard to, criminal charges. The policy change also will apply to civil cases in which a defendant has entered into a deferred or non-prosecution agreement in a parallel criminal matter. Under the traditional SEC approach, a defendant found guilty of criminal conduct still could settle civil claims brought by the SEC without admitting or denying those civil charges. Going forward, in cases with parallel criminal actions, the SEC will (i) remove the "neither admit nor deny" language from its settlement agreements, (ii) recite the fact and nature of the criminal conviction, and (iii) allow staff to determine whether to include in the settlement facts obtained from the criminal conviction. The SEC's current prohibition on defendants denying the SEC's allegations or making statements those allegations are without merit will be retained. The new policy will not alter the "neither admit nor deny" approach used when settling cases that involve neither a criminal conviction nor allegations of criminal law violations.
- Daniel R. Alonso to discuss "How to become an AUSA" at the New York City Bar Association Minorities in the Courts Committee “How To” series
- Michelle L. Rogers and Kathryn L. Ryan to discuss “Fintech U.S. expansion” at the Tech Nation 3.0 cohort meeting
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum