U.S. regulators are poised to introduce measures that would ensure anonymity for traders in the $700 trillion market for swaps, a flip-flop that would hand a victory to hedge funds and speedy trading firms while dealing a blow to banks, the Wall Street Journal reported today. The planned action from the Commodity Futures Trading Commission would encourage trading among any and all market participants, mirroring futures markets that the agency also oversees, and would raise the chance of traders dealing directly with one another, potentially bypassing banks that have historically been major providers for these complex transactions. The CFTC measures could be unveiled as soon as next month and may come as a rule change or as staff guidance. Many investors say that the practice of disclosing identities on credit and interest-rate swaps has enabled a cadre of big banks to dominate swaps trading. In writing rules to overhaul swaps since the financial crisis, the CFTC didn’t require that the market enforce anonymity for swaps traders who seek it, effectively keeping the status quo for banks. Read more. (Subscription required.)
COMMENTARY: AFTER THE HOUSING CRISIS, A CASH FLOOD AND SILENCE
The federal government on Aug. 17, 2012, began expropriating all the earnings of Fannie Mae and Freddie Mac, the mortgage finance giants that succumbed to the 2008 crisis. But now the government is taking extraordinary measures to keep secret the deliberations surrounding that action, according to a New York Times commentary on Saturday. What exactly is it trying to hide is being asked by a Fannie and Freddie shareholder who has sued the government over the 2012 profit grab. The investor contends that the move amounted to an improper taking of its property; the government disagrees. Margaret M. Sweeney, a judge in the Court of Federal Claims, will determine who is right, according to the commentary. Previously undisclosed court records show that the Justice Department has asserted presidential privilege to prevent 45 documents from being produced. These materials — emails, draft memos and news releases — were created by officials at the Treasury Department and the Federal Housing Finance Agency, the overseer of Fannie and Freddie since they collapsed in 2008. Initially, Fannie and Freddie had to pay interest on the loan, but in August 2012, the Treasury and F.H.F.A. abruptly changed the agreement; under the so-called third amendment, the government began sweeping all the companies’ profits into the Treasury, according to the commentary. Read the full commentary.
U.S. REGULATORS REVIVE WORK ON INCENTIVE-PAY RULES
U.S. financial regulators are focusing renewed attention on Wall Street pay and are designing rules to curb compensation packages that could encourage excessive risk taking, the Wall Street Journal reported today. Regulators are considering requiring certain employees within Wall Street firms hand back bonuses for egregious blunders or fraud as part of incentive compensation rules the 2010 Dodd-Frank law mandated be written. Including such a "clawback" provision in the rules would go beyond what regulators first proposed in 2011 but never finalized. The clawback requirement, which is being hashed out among six regulatory agencies, would be part of a broader compensation program in which firms are required to hang onto a significant portion, perhaps as much as 50 percent, of an executive's bonus for a certain length of time. The Dodd-Frank law included provisions for an incentive-compensation rule to help ensure Wall Street incentive packages are aligned with a company’s long-term health rather than short-term profits. Exactly which firms will be covered is still a matter of debate among the agencies involved in the discussions, but the 2010 law requires regulators to impose incentive-compensation rules on banks, broker dealers, investment advisers, mortgage giants Fannie Mae and Freddie Mac and "any other financial institution" deemed necessary. It also remains to be seen what type of behavior—besides fraud—would trigger a clawback and whether conduct identified by the firm or regulators would necessitate reclaiming compensation. Read more. (Subscription required.)
CLEVELAND FED PRESIDENT SEES JUNE RATE INCREASE AS "VIABLE OPTION"
Cleveland Fed President Loretta Mester is joining a chorus of central-bank officials who want to take a tentative step toward raising short-term interest rates at midyear by altering their pledge to be "patient" before making a move, the Wall Street Journal reported today. Dropping that language about patience in its policy statement, as Mester suggested she wanted to do, would mean the Fed is done promising continued near-zero rates and is officially opening the door to a rate increase in June. The central bank has kept rates near zero for more than six years. The Fed is entering an important stretch on its calendar. Chairwoman Janet Yellen is set to testify to Congress Feb. 24-25 on the outlook for interest rates and the economy. Then she is scheduled to hold a news conference after Fed officials update their economic forecasts and policy statement at a meeting March 17-18. Read more. (Subscription required.)
DOJ’S WALL ST. TASK FORCE HAS A SHIFTING ROSTER OF LAWYERS
While they indicted powerful hedge fund SAC Capital Advisors, cracked down on insider trading and sent Bernard L. Madoff's accomplices to prison, prosecutors apart of an elite Wall Street task force at the U.S. Attorney's Office in Manhattan are moving on, the New York Times DealBook blog reported yesterday. Over the last year, eight prosecutors have departed the unit, most landing at big law firms. And the current chief of the unit is now fielding interest from multiple firms, suggesting that another vacancy will soon emerge. The departures, the prosecutors say, reflect the natural ebb and flow in the Justice Department's roster, a cycle that plays out at U.S. attorneys' offices around the country and periodically occurs at Bharara's Wall Street unit. Read more.
INTERNATIONAL BANKING HACK HEIST YIELDS UP TO $1 BILLION
An international hacking ring has stolen as much as $1 billion from more than 100 banks in 30 countries in what may be the biggest banking breach ever, USA Today reported today. The scheme, which goes back as far as 2013, uses malware so sophisticated that hackers have used it to dispense cash from ATMs without any physical contact with the machines, according to the report by Moscow-based security firm Kaspersky Labs. The malware used in the hacks, dubbed Carbanak, targets employees of banking institutions, rather than customers, and suggests a "new era in cybercrime" in which criminals go after institutions' internal operations, the report said. The Kaspersky report declined to name the banks that have been compromised, but said the victims were mostly "Russian-speaking financial institutions," and the malware was largely downloaded from Russian. Still, the problem is global and has targeted banks in China, Ukraine, the U.S., India, Sweden and Great Britain, the report said. Read more.
SOUTHERN FLORIDA ABI MEMBERS INVITED TO ATTEND DISTRESSED INVESTING SUMMIT IN PALM BEACH
ABI members in South Florida are invited to attend the 2015 Distressed Investing Summit on Feb. 22 and 23 at The Colony Hotel in Palm Beach. The program features a symposium bringing together 200 of the industry’s most active dealmakers and other key market experts: academics, media, government and policymakers, including several involved in the Commission to Study the Reform of Chapter 11. Symposium delegates will engage in interactive sessions led by a faculty of more than 35 industry leaders on the key issues facing the distressed investing and restructuring markets today. The program will conclude with a gala dinner and the Ninth Annual M&A Advisor Turnaround Awards, which recognize the leading distressed M&A transactions, restructuring, refinancing, products and services, firms and professionals in the U.S. and international markets. ABI members can attend the afternoon symposium sessions on Feb. 23 as guests of ABI and the M&A Advisor! For more information and to register, please click here.
ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!
Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.
NEW ABI LIVE WEBINAR TO EXAMINE "PENSION TENSION" IN RESTRUCTURING
Make sure to save the date for "Pension Tension: Dealing with Plans in the Restructuring World," the new ABI Live Webinar scheduled for Feb. 26 from noon - 1:15 p.m. EST! This webinar, presented by ABI's Labor and Employment Committee, will address current employee- and labor-related issues in chapter 11 and out-of-court restructurings, including, among other things: (a) whether private equity sponsors may be subject to pension fund withdrawal liability under ERISA in light of the First Circuit's Sun Capital decision; (b) whether pension plan withdrawal liability is entitled to administrative claim status; and (c) the status of the Pension Benefit Guaranty Corp.'s moratorium on 4062(e) enforcement. Attorneys and other restructuring professionals dealing with the PBGC will learn about current developments in this dynamic and changing area of law that plays an important role in many reorganizations today.
Speakers include:
- David R. Seligman (Kirkland & Ellis LLP, Chicago)
- Gregory F. Pesce (Kirkland & Ellis LLP, Chicago)
- James J. Mazza Jr. (Skadden, Arps, Slate, Meagher & Flom LLP, Chicago)
NEW CASE SUMMARY ON VOLO: LYDON V. T&N LIMITED (1ST CIR.)
Summarized by Guy Moss of Riemer & Braunstein LLP
Affirming the ruling of the district court, the First Circuit determined that the plain language of a confirmed chapter 11 Plan, which created a litigation trust to which individual asbestos claims were assigned, compelled the conclusion that all such claims were time-barred unless brought within thirty days of the notice of the Plan's effective date. That deadline was deemed to govern because (i) the automatic stay terminated pursuant to 11 U.S.C. sec. 362(c)(2)(C), (ii) 11 U.S.C. sec. 108(c)(2) extended the time by only thirty days within which an action could be brought when the statute of limitations had not run prior to the filing of the bankruptcy, (iii) the Plan expressly allowed for tort actions to be brought by the Trust immediately, (iv) the Plan could have been drafted to address statute of limitations problems, but wasn't, and the intent of the Plan draftsmen, even if determinable, could not trump the plain meaning of the Plan, which governs the Trust's rights, and could not fairly be imposed on the insurers absent adequate language to that effect, (v) the delayed discharge of such claims is not dispositive, and (vi) the Plan's permission to sue "in the ordinary course" could not operate to "modify" a stay that otherwise had been lifted by the Plan's language and by operation of law.
There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: TENTH CIRCUIT CLARIFIES LITIGANT’S RIGHT TO PURSUE NON-INTERPLEADER CLAIMS AGAINST PARTY SEEKING INTERPLEADER RELIEF
A recent blog post examined the Tenth Circuit's recent opinion in Aviva Life and Annuity Company v. White (In re: Millennium Multiple Employer Welfare Benefit Plan), 772 F.3d 634 (10th Cir. 2014), which clarified a litigant's rights to continue to pursue claims against a party seeking the typical protections afforded when interpleading funds into the court’s registry.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
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TOMORROW:
Distressed Investing Summit
Feb. 22-23, 2015 Palm Beach, Fla. ABI members can attend the afternoon symposium sessions on Feb. 23 as guests of ABI and the M&A Advisor!
