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The bankruptcy context is particularly ripe for D&O claims, and it also represents a particularly difficult claims context for D&O insurers. Anyone with any doubts about just how complicated bankruptcy claims can be will want to take a look at the settlement that the various concerned parties recently reached in the bankruptcy of defunct Florida homebuilder, TOUSA, Inc. As discussed below, various D&O insurers will be paying a total of $67 million to settle claims that had been asserted against former directors and officers of TOUSA and related entities. According to the motion papers, the settlement agreement is part of a "grand bargain" to
5 years 11 months ago
by Raphaela Taylor  Secured lenders often resort to non-judicial foreclosure sales of personal property upon a borrower's default. Article 9, Part 6 of the Uniform Commercial Code requires that every aspect of such a sale must be commercially reasonable. However, the courts have historically provided little guidance as to what exactly constitutes a commercially reasonable sale. Fortunately, the Delaware Chancery Court recently issued a decision, entitled Edgewater Growth Capital Partners, L.P. v. H.I.G. Capital, Inc., C.A. No. 3601-CS (Del.Ch. Apr. 18, 2013) [
5 years 11 months ago
I am often asked, "How many Ponzi schemes are there?" This is a tough question to answer with 100% accuracy because there is no central registry for all Ponzi scheme cases. The media certainly reports on the big cases, and occasionally the smaller, local cases, but most schemes go unreported as lawyers, accountants, trustees and receivers quietly unravel them. The Securities Exchange Commission does respond to a significant portion of Ponzi scheme cases - the ones that involve the fraudulent sale of securities. Its website reports that since fiscal year 2010,
5 years 11 months ago
The Administrative Review Board of the Department of Labor concluded that Lockheed Martin had violated Section 806 of the Sarbanes-Oxley Act after an employee alleged that the company retaliated against her for reporting suspicions that a supervisor was improperly using corporate assets. The company then appealed to the Court of Appeals for the Tenth Circuit.
5 years 11 months ago
Authored by Tye C. Hancock, Joseph E. Bain, and Evelyn Breithaupt Recently, in the case of In re Village at Camp Bowie, I, L.P., 710 F.3d 239 (5th Cir. 2013), the Fifth Circuit announced a rule that provides greater flexibility to debtors seeking to successfully emerge from Chapter 11.   Under Chapter 11 of the Bankruptcy Code, a plan of reorganization cannot be confirmed unless at least one “impaired” class claims has voted to accept the plan.  11 U.S.C. § 112 (a)(10).  Generally, a class of claims is impaired under a plan of reorganization if its members’ rights under applicable non-bankruptcy law are altered in any respect.  In many cases, debtors will attempt to intentionally alter (in a non-material way) the rights of a “friendly” class in order to obtain the necessary vote of acceptance from the “impaired” class of creditors.  In Village at Camp Bowie, I, L.P.,  the Fifth Circuit upheld this method of “artificial” impairment as compliant with the plain language of the Bankruptcy Code. Background The debtor, Village at Camp Bowie I, LLC (the “Village”), owned real estate in Fort Worth, Texas.  Western Real Estate Equities, LLC (“Western”) acquired the debtor’s secured debt “with an eye toward displacing the Village as owner of the underlying real estate.” 
5 years 11 months ago
Authored by Tye C. Hancock, Joseph E. Bain, and Evelyn Breithaupt Recently, in the case of In re Village at Camp Bowie, I, L.P., 710 F.3d 239 (5th Cir. 2013), the Fifth Circuit announced a rule that provides greater flexibility to debtors seeking to successfully emerge from Chapter 11.   Under Chapter 11 of the Bankruptcy Code, a plan of reorganization cannot be confirmed unless at least one “impaired” class claims has voted to accept the plan.  11 U.S.C. § 112 (a)(10).  Generally, a class of claims is impaired under a plan of reorganization if its members’ rights under applicable non-bankruptcy law are altered in any respect.  In many cases, debtors will attempt to intentionally alter (in a non-material way) the rights of a “friendly” class in order to obtain the necessary vote of acceptance from the “impaired” class of creditors.  In Village at Camp Bowie, I, L.P.,  the Fifth Circuit upheld this method of “artificial” impairment as compliant with the plain language of the Bankruptcy Code. Background The debtor, Village at Camp Bowie I, LLC (the “Village”), owned real estate in Fort Worth, Texas.  Western Real Estate Equities, LLC (“Western”) acquired the debtor’s secured debt “with an eye toward displacing the Village as owner of the underlying real estate.” 
5 years 11 months ago
The controversy surrounding proxy advisory firms has reached Congress, as the House Capital Markets and Government Sponsored Enterprises Subcommittee held a hearing yesterday to examine the role proxy advisory firms play in corporate governance. In its press release, the House Subcommittee indicated that the two largest firms control 97% of the market.
5 years 11 months ago
Net winners in a Ponzi scheme - those who have profited - often get sued to return the profits paid to them. Those who lost money (net losers) usually don't get sued, unless they were not in "good faith." It is a bankruptcy trustee or regulatory receiver calling the shots of who does and doesn't get sued in the process of unraveling a Ponzi scheme in a subsequent insolvency proceeding. When it comes time to distribute recovered funds to investors, the net winners and net losers frequently do battle over the type of distribution made out of an insolvency proceeding, with each faction fighting for a bigger slice of the pie. Either the priority scheme
5 years 11 months ago
Commissioner Gallagher recently lamented that the SEC has played a "significant role" in the rising influence of proxy advisory firms and the increasing willingness of investors to rely on them.  He blamed the rules adopted in 2003 under the Investment Advisers Act, which focused on an investment adviser's fiduciary obligation to its clients when the adviser has the authority to vote its clients' proxies. 
5 years 11 months ago
It's springtime, and Ponzi schemes are in full bloom. Here is a summary of stories that were reported this month. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what's in the news, not writing or verifying it. Leonard Ansill was arrested in connection with an alleged $1.1 million Ponzi scheme in which he offered investments to six investors that were supposedly funded with mortgages that he never actually held. Daniel Bonventre, Jerome O'Hara, and George Perez, former employees of Bernard L. Madoff Investment
5 years 11 months ago
While we wait for the SEC to act on the Dodd-Frank mandate on recoupment of executive compensation, Walmart will be facing an unusual shareholder proposal on the topic this coming week.
5 years 11 months ago

Last week I published a blog post on the US Supreme Court’s unanimous decision in Bullock v. BankChampaign, N.A., No. 11-1518 (May 13, 2013) (pdf), that focused on the Court’s application of the noscitur a sociis canon to the bankruptcy nondischargeability statute dealing with “defalcation in a fiduciary capacity.”

I write this second blog post discussing Bullock because I think the case will prove especially noteworthy for those who deal with the concept of “recklessness” in their civil practice.

5 years 11 months ago
By JOANNE KAUFMAN No long chats with the doorman. No umbrellas or wet boots in the hall. No welcome mats or decorations on the front door. No wearing flip-flops in the lobby. These are but a few of the more extreme rules that apartment boards in New York City have imposed, or at least thought about imposing, on the residents of their buildings. The average co-op or condominium has two dozen house rules. “Typically, they’re quality-of-life rules meant to benefit everyone in the closed community,” said Toni Hanson, a vice president and senior managing director of Douglas Elliman. While there’s good sense behind many of these rules — don’t hang or shake things out the window; lay off the stereo before or after a certain hour — certain strictures can charitably be described as quirky, not to say capricious or overreaching. Your home is your castle? Think again. It’s all, of course, in the interest of helping a building full of strong-minded New Yorkers coexist in (relative) harmony. Co-op boards have long issued directives about deportment and decorum, and condo boards are increasingly following suit. For the most part, they are well within their rights. Residents can either get with the program or get behind a co-op coup to remove the big-brother board members in their midst.

Read More from: Shenwick & Associates

5 years 12 months ago
By JESSICA SILVER-GREENBERG and CATHERINE RAMPELL The nation’s largest private student lender, Sallie Mae, is cleaving itself into two companies — a move that will create a new home for more than $100 billion of student loans amid broad concerns from federal authorities and consumer advocates that graduates hobbled by debt are increasingly falling behind on their payments.The overhaul by Sallie Mae is playing out as college students, facing persistent unemployment and a sluggish economy, are defaulting on their loan payments at a rate of 13.4 percent, a level not seen for more than a decade, according to the latest statistics from the Department of Education.

Read More from: Shenwick & Associates

5 years 12 months ago
The recent PCAOB reproposed auditing standards on related parties and significant unusual transactions also include a modification to Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatement, focused on executive compensation. 
5 years 12 months ago
When is a loan document not evidence of a loan, but rather of an equity investment? In their article, “Ninth Circuit Favors Substance Over Form in Fitness Holdings" Thompson & Knight Partner Ira L. Herman and Associate Evelyn Breithaupt discuss the nuances of the Ninth Circuit decision in In re Fitness Holdings International Inc. (2013 U.S. App. LEXIS 8729). This ruling and similar decisions permit the recharacterization of an obligation labeled as debt, as equity. This decision is an important reminder that although parties may structure a transaction to look like a loan, courts have the inherent authority to determine what the transaction really is and are not bound by what it is called. The decision warns that payments made on account of a recharacterized loan may constitute a distribution on account of an equity interest, subject to “clawback” as a fraudulent transfer. The article was published by Law360 on May 6, 2013. 
5 years 12 months ago
When is a loan document not evidence of a loan, but rather of an equity investment? In their article, “Ninth Circuit Favors Substance Over Form in Fitness Holdings" Thompson & Knight Partner Ira L. Herman and Associate Evelyn Breithaupt discuss the nuances of the Ninth Circuit decision in In re Fitness Holdings International Inc. (2013 U.S. App. LEXIS 8729). This ruling and similar decisions permit the recharacterization of an obligation labeled as debt, as equity. This decision is an important reminder that although parties may structure a transaction to look like a loan, courts have the inherent authority to determine what the transaction really is and are not bound by what it is called. The decision warns that payments made on account of a recharacterized loan may constitute a distribution on account of an equity interest, subject to “clawback” as a fraudulent transfer. The article was published by Law360 on May 6, 2013. 
5 years 12 months ago
The US Supreme Court has long taught the importance of certain canons of interpretation unique to bankruptcy law, the more significant ones being:
  • The Fresh-Start Policy:  A primary purpose of bankruptcy is to relieve the debtor "from the weight of oppressive indebtedness and permit him to start afresh...." (Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).
  • Equality of Distribution:  "[H]istorically one of the prime purposes of the bankruptcy law has been to bring
5 years 12 months ago

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