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Critics Question Why Big Banks Execs Do Not Face Money Laundering Charges

ABI Bankruptcy Brief | December 20 2012
 
  

December 20, 2012

 
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CRITICS QUESTION WHY BIG BANKS, EXECS DO NOT FACE MONEY LAUNDERING CHARGES

A few former federal prosecutors are critical of the Justice Department's record $1.9 billion settlement against British bank HSBC last week, saying that it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, the Associated Press reported yesterday. While some prosecutors heralded the settlement as a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico’s murderous drug cartels, others called the action “too big to jail.” Sen. Jeff Merkley (D-Ore.) wrote a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying that the government "appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution." Read more.

COMMENTARY: LAST-DITCH ATTEMPT TO DERAIL VOLCKER RULE

In an attempt to prevent implementation of the Volcker Rule, representatives of megabanks are asserting that the Volcker Rule violates the international trade obligations of the United States and would offend other member nations of the Group of 20, according to a commentary in today's New York Times DealBook blog. The Volcker Rule is almost finished winding its way through the regulatory process, and a version should be implemented soon. But in a last-ditch attempt to block it, the U.S. Chamber of Commerce has sent a letter to the United States Trade Representative asserting that the Volcker Rule creates a discord in G20 and invites foreign governments to retaliate at a time when we need those same regulators in foreign countries to support initiatives to liberalize trade in financial services. According to the commentary, there is no violation because there is no provision in any trade agreement that says U.S. banking regulators cannot protect our financial system by engaging in prudent regulation. Read more.

FITCH: BELOW-AVERAGE U.S. HIGH YIELD DEFAULT RATE TO PERSIST INTO 2013

Fitch Ratings is projecting a U.S. high yield par default rate of 2 percent in 2013, in line with 2012 activity, Reuters reported today. However, a bankruptcy filing by Energy Future Holdings, given its large size ($16 billion), has the potential to drive up the rate an additional 1.5 percent. The leading support for another below-average default year is Fitch's expectation of modestly higher U.S. GDP growth of 2.3 percent in 2013 combined with relatively good corporate fundamentals and the Federal Reserve's commitment to loose monetary policy. While the default rate is projected to remain low in 2013, it is important to note that the positive high yield rating drift of 2010 and 2011 reversed direction over the course of 2012 and the 'CCC' or lower pool expanded for the first time since 2009 - now $228 billion in size versus $197 billion at the beginning of the year. Read more.

NEW YORK FED: PROGRESS BEING MADE IN IMPROVING TRI-PARTY REPO SECTOR

The Federal Reserve Bank of New York reported today that progress was being made in reducing the risk created by a key market where dealers go to finance trading positions, the Wall Street Journal reported today. The bank said that JPMorgan and the Bank of New York Mellon have both made key changes that will reduce the amount of intraday credit in the tri-party repo market, the New York Fed said. The tri-party repo market allows bond dealers to borrow and lend securities. The New York Fed has been pressuring market participants to reform their market sector as part of a bid to strengthen the overall state of the financial system. Read more.

UPDATED EDITION OF MUNICIPALITIES IN PERIL: THE ABI GUIDE TO CHAPTER 9 NOW AVAILABLE FOR PRE-ORDER!

The second edition of Municipalities in Peril: The ABI Guide to Chapter 9 has been revised and updated to include coverage of the latest cases and offers insight into pending actions in such larger urban settings as Detroit. Including a convenient summary of all relevant state statutes, this Guide is a must-have for bankruptcy professionals entering this burgeoning practice area, as well as for municipal finance personnel and counsel seeking detailed information about the fundamental issues of governance, credit and debt adjustment that uniquely surround municipal debt cases. Member price is $35 (Please log in to obtain the member price.) Orders will ship in mid-January. Click here to pre-order.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: STATE OF MONTANA V. BLIXSETH (IN RE BLIXSETH; 9TH CIR.)

Summarized by Joel Newell of Lane & Nach, P.C.

The majority opinion ruled that by using the "context-specific" analysis based on the Nevada Statutes the involuntary bankruptcy case is viewed in the same context as a creditor seeking a charging order pursuant to the Nevada Statutes. The majority further held that Blixseth’s interests in the Nevada entities were created and exist under the Nevada Statutes; therefore, his creditor’s remedies are limited by Nevada state law, that is sufficient reason to deem Blixseth’s interests to be located in Nevada.

There are more than 700 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: THE COMMUNITY REINVESTMENT ACT AND THE HOUSING BUBBLE

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog discusses a recently released research paper examining the role of the Community Reinvestment Act and the housing bubble.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

A licensee of a trademark has the right to retain the license even when a debtor rejects the underlying contract creating the license. (Sunbeam Products, 7th Cir.)

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2013

January
- Western Consumer Bankruptcy Conference
     January 21, 2013 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.
- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.


  

- VALCON 2013
     February 20-22, 2013 | Las Vegas, Nev.

March
- 37th Annual Alexander L. Paskay Seminar on Bankruptcy Law and Practice
     March 7-9, 2013 | St. Petersburg, Fla.
- Bankruptcy Battleground West
     March 22, 2013 | Los Angeles, Calif.

April
- Annual Spring Meeting
     April 18-21, 2013 | National Harbor, Md.


 
 
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Fannie Mae Regulator Restricts New Purchases to Qualified Mortgages

ABI Bankruptcy Brief | May 7 2013
 
  

May 7, 2013

 
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  NEWS AND ANALYSIS   

FANNIE MAE REGULATOR RESTRICTS NEW PURCHASES TO QUALIFIED MORTGAGES

Fannie Mae and Freddie Mac are being asked by their regulator to limit purchases to loans meeting qualified-mortgage requirements and those exempt from Dodd-Frank Act ability-to-repay rules, Bloomberg News reported yesterday. The change announced yesterday by the Federal Housing Finance Agency means that beginning Jan. 10 next year, the U.S.-owned companies will not purchase interest-only mortgages, loans with 40-year terms or those with points and fees exceeding thresholds set by the Consumer Financial Protection Bureau. The government-sponsored enterprises will continue to buy loans that meet their own underwriting and delivery eligibility standards, FHFA said. Most loans purchased by Fannie Mae and Freddie Mac already meet qualified mortgage standards. Read more.

DEBT-REPAIR FIRM CHARGED IN FIRST CFPB CRIMINAL REFERRAL

In the first criminal referral from the Consumer Financial Protection Bureau, a debt-settlement company was accused by the U.S. of defrauding more than 1,200 people struggling with credit card debt, Bloomberg News reported today. U.S. Attorney Preet Bharara’s office today announced the unsealing of an indictment against New York-based Mission Settlement Agency, its manager, Michael Levitis, and three employees. Prosecutors allege that the defendants “systematically exploited and defrauded” people across the country. The case against Mission is the first criminal referral from the CFPB, according to the U.S. attorney’s office. In December, a Florida debt-relief company, Payday Loan Debt Solution Inc., was ordered to pay as much as $100,000 in refunds to customers under the first joint enforcement action between the agency and states. Mission and its employees lied about its fees, taking thousands of dollars from funds that its customers had set aside because they believed the money would be used to pay creditors, according to the indictment. For the majority of customers, Mission did little or no work and failed to reduce debt, prosecutors said. Read more.

INTERNET SALES TAX BILL FACES TOUGH SELL IN HOUSE

Traditional retailers and cash-strapped states face a tough sell in the House as they lobby Congress to limit tax-free shopping on the Internet, the Associated Press reported yesterday. The Senate voted 69-27 yesterday to pass a bill that empowers states to collect sales taxes from Internet purchases. Under the bill, states could require out-of-state retailers to collect sales taxes when they sell products over the Internet, in catalogs, and through radio and TV ads. The sales taxes would be sent to the states where the shoppers live. Current law says that states can only require retailers to collect sales taxes if the merchant has a physical presence in the state. The bill got bipartisan support in the Senate but faces opposition in the House, where some lawmakers regard it as a tax increase and anti-consumer. Read more.

COLLEGES CUTTING PRICES BY PROVIDING MORE FINANCIAL AID

Private U.S. colleges, worried that they could be pricing themselves out of the market after years of tuition increases, are offering record financial assistance to keep classrooms full, the Wall Street Journal reported yesterday. The average "tuition discount rate"—the reduction off list price afforded by grants and scholarships given by these schools—hit an all-time high of 45 percent last fall for incoming freshmen, according to a survey being released Monday by the National Association of College and University Business Officers. It is likely that some private colleges will be forced to be even more generous with discounts this fall. As of the May 1 deadline for many high-school seniors to commit for their freshman year of college, early reports suggest some non-top-tier schools fell 10-20 percent short of enrollment targets, said Jim Scannell, president of Scannell & Kurz, a consulting firm in Pittsford, N.Y., that works with colleges on pricing and financial-aid strategies. The jump in aid shows that many colleges are losing pricing power as more families focus on cost and value. Read more. (Subscription required.)

LISTEN TO THE MEDIA TELECONFERENCE EXAMINING ABI’S ETHICS TASK FORCE REPORT!

ABI held a media teleconference on May 3 that examined the recommendations contained in the ABI Ethics Task Force’s final report. Experts included Task Force reporters Profs. Nancy B. Rapoport of the UNLV William S. Boyd School of Law (Las Vegas) and Lois R. Lupica of the University of Maine School of Law (Portland, Maine), as well as Task Force member Edward T. Gavin of Gavin/Solmonese LLC (Wilmington, Del.). To listen to the teleconference, please click here.

For a copy of the report, please click here.

NEW ABI LIVE WEBINAR ON MAY 29 WILL FOCUS ON CLASS ACTIONS IN BOTH BUSINESS AND CONSUMER CASES

Class action lawsuits in both chapter 11 and 13 cases are becoming more prevalent. Are you wondering whether your clients’ WARN Act claims would be better pursued against a debtor company in a class action adversary proceeding or in a class proof of claim, or both? If your client has been sued in a debtor’s consumer class action adversary proceeding, do you know the best defenses against class certification? ABI's panel of experts will highlight the case law and explore the potential benefits and pitfalls of class actions by creditors against debtor companies in chapter 11 cases and by debtors/trustees against creditors in chapter 13 cases on May 29 from 1-2:15 p.m. ET. Special ABI member rate available! Click here to register.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS CENTRAL STATES BANKRUPTCY WORKSHOP IN JUNE

Rob Schwartz and Scott Gautier are tied at 34 Stableford Points atop the closely bunched leaderboard after the ABI's Golf Tour's first stop at Lake Presidential Golf Club. Next up for the Tour is the famed Bear course at the Grand Traverse Resort at the Central States Bankruptcy Workshop on June 14. Final scoring to win the Great American Cup—sponsored by Great American Group—is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! There's no charge to register or participate in the Tour, and women are most welcome.

ABI MEMBERS WELCOME TO ATTEND INSOL'S LATIN AMERICAN REGIONAL SEMINAR ON JUNE 13 IN SAO PAULO

ABI members are encouraged to attend INSOL’s Latin American regional seminar in São Paulo, Brazil, on June 13. The one-day seminar has been organized by INSOL in association with TMA Brasil to cover current cross-border insolvency and restructuring topics. The seminar is designed to be interactive and to allow the attendees to discuss and debate about practical issues with speakers who are leading players in the insolvency and restructuring field and with experience in insolvency proceedings involving different countries. The seminar will benefit from simultaneous translation in English, Portuguese and Spanish. For more information and to register, please click here.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: FISHER ISLAND LTD. V. FISHER ISLAND INVESTMENTS, INC. (11TH CIR.)

Summarized by Kathleen DiSanto of Jennis & Bowen, P.L.

Affirming the district court, the Eleventh Circuit Court of Appeals held that the district court properly dismissed an appeal from the bankruptcy court for lack of standing. The district court affirmed the bankruptcy court’s order requiring six creditors who filed involuntary bankruptcy petitions to post a $100,000 bond in accordance with Section 303(e) of the Bankruptcy Code. Fisher Island Limited, a non-debtor third party, sought an extension of time to appeal the district court’s order affirming the bankruptcy court’s order on the bond requirement and filed an untimely notice of appeal. The district court denied Fisher Island Limited’s motion for extension and dismissed the appeal based on a lack of standing.

There are more than 800 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: INSURANCE COVERAGE FOR PONZI SCHEME LOSSES?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines whether it would be possible to provide insurance against losses from investing in a Ponzi scheme.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Bankruptcy courts should implement constructive trusts in any case where applicable state law would recognize them.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2013

May
- "Nuts and Bolts" Program at NYCBC
     May 15, 2013 | New York, N.Y.
- ABI Endowment Cocktail Reception
     May 15, 2013 | New York, N.Y.
- New York City Bankruptcy Conference
     May 16, 2013 | New York, N.Y.
- Litigation Skills Symposium
     May 21-24, 2013 | Dallas, Texas
- ABI Live Webinar: Consumer Class Actions
     May 29, 2013

June
- Memphis Consumer Bankruptcy Conference
     June 7, 2013 | Memphis, Tenn.
- Central States Bankruptcy Workshop
     June 13-16, 2013 | Grand Traverse, Mich.
- INSOL’s Latin American Regional Seminar
     June 13, 2013 | São Paulo, Brazil
- Charity Golf Tournament
     June 14, 2013 | City of Industry, Calif.


  

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 11-14, 2013 | Newport, R.I.
- Southeast Bankruptcy Workshop
     July 18-21, 2013 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
    August 8-10, 2013 | Hershey, Pa.
- Southwest Bankruptcy Conference
    August 22-24, 2013 | Incline Village, Nev.

September
- ABI Endowment Golf & Tennis Outing
    Sept. 10, 2013 | Maplewood, N.J.
- ABI Endowment Baseball Game
    Sept. 12, 2013 | Baltimore, Md.


 
 
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Revamped Consumer Bankruptcy Forms Out for Public Comment

ABI Bankruptcy Brief | January 8 2013
 
  

January 8, 2013

 
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  NEWS AND ANALYSIS   

REVAMPED CONSUMER BANKRUPTCY FORMS OUT FOR PUBLIC COMMENT

The Judicial Conference Committee on Rules of Practice and Procedure is asking for comment on the first proposed modernization of bankruptcy forms in two decades, according to a Department of Justice press release today. The revised forms, published for comment, are all used by individual debtors and include the fee waiver and installment fee forms, income and expense forms, and the means test forms, replacing previous forms. The comments, submitted by the public, will be reviewed over the coming months and will be used to fine-tune the forms. The deadline for submitting comments is Feb. 15. Click here to review the revised forms.

ANALYSIS: APPEALS COURT RULING ON ROTHSTEIN FORFEITURE COULD SET PRECEDENT IN BANKRUPTCY CASES

A new federal court case could overturn U.S. District Judge James Cohn's 2009 decision allocating which victims of Ponzi schemer Scott Rothstein would receive proceeds from an asset sale, the South Florida Business Journal reported yesterday. The U.S. Court of Appeals for the Eleventh Circuit could rule instead that a bankruptcy trustee overseeing the dissolution of Rothstein’s defunct law firm, Hebert Stettin, had the authority to corral and distribute Rothstein's loot. The outcome of the case could set a precedent that would further define the powers of a bankruptcy court-appointed trustee versus the U.S. Department of Justice in a complicated financial criminal case. Rothstein’s $1.4 billion fraud came to light at the end of October 2009. The feds moved quickly to seize cars, boats and luxury goods from Rothstein’s home. Rothstein’s law partners voluntarily sought a receiver to take over the firm on Nov. 1, 2009. Stettin was named a receiver under state court authority on Nov. 2. By Nov 10, investors who lost money in the scheme filed an involuntary bankruptcy petition, and Stettin became a bankruptcy trustee by order of U.S. Bankruptcy Judge Raymond Ray. Read more.

SWAP TRADERS CLOSE TO WINNING U.S. PORTFOLIO COLLATERAL OFFSET

U.S. regulators plan to allow hedge funds and other credit-swap traders to reduce the amount of collateral needed to back transactions through the use of accounts that offset different types of trades, Bloomberg News reported today. The Securities and Exchange Commission and Commodity Futures Trading Commission are close to allowing collateral offsets for credit swaps that are tied to indexes and single securities through a process known as “portfolio margining.” Atlanta-based Intercontinental Exchange Inc., owner of the largest clearinghouse for credit swaps, Citadel LLC and other hedge and mutual funds and banks, spent more than a year pushing regulators to support the system for client trades. The regulation was issued by the SEC for comment on Dec. 14, and a companion measure could be approved by the CFTC as soon as this week. Dodd-Frank Act requirements that credit swaps be guaranteed at clearinghouses are set to take effect mid-March. The central counterparties stand between buyers and sellers and accept collateral to limit the risk from a trade default spreading throughout the financial system. Read more.

COMMENTARY: MADOFF ASIDE, FINANCIAL FRAUD DEFIES POLICING

The challenge of financial fraud oversight is not getting any easier, as the ranks of financial advisers are swelling, according to a commentary in the New York Times DealBook blog yesterday. As new regulations instituted following the 2008 financial crisis put a crimp on profits, big banks like Wells Fargo are ramping up their brokerage businesses in an effort to make up for lost revenue. Amid the renewed focus, banks have spent millions of dollars to beef up their compliance systems and improve their oversight. Regulators, too, have bolstered their efforts, increasing enforcement and adopting new measures. Every month, the Financial Industry Regulatory Authority, a Wall Street watchdog, penalizes more than 100 brokers for various actions, including unauthorized trading and fraudulent activities, as well as smaller violations. "Theft, Ponzi schemes and other financial scams continue to happen at an alarming rate," according to plaintiff's lawyer Thomas Ajamie. Read more.

LATEST ABI PODCAST EXAMINES TREATMENT OF PERSONAL INDEBTEDNESS AROUND THE WORLD

ABI's latest podcast features ABI Executive Director Samuel J. Gerdano speaking with Professor Jason Kilborn of the John Marshall Law School (Chicago). Prof. Kilborn, the ABI Resident Scholar for the 2011 Fall Semester, chairs a drafting group for the World Bank to study and report on the various ways that nations approach personal indebtedness. Prof. Kilborn discusses the project and the initial report that was presented last month at the World Bank in Washington, D.C. Click here to listen.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: SULLIVAN V. COSTA (IN RE COSTA; 1ST CIR.)

Summarized by Samuel Mushell, The Kelly Firm, P.C

The Bankruptcy Appellate Panel for the First Circuit affirmed a bankruptcy court ruling that held that a creditor's untimely filing of a motion objecting to discharge had lapsed.

There are more than 700 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: COULD 2013 SEE LEHMAN BEING PUT BACK TOGETHER AGAIN?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A new post examines a case in which the BAP for the Sixth Circuit dismissed a debtor's chapter 11 petition because the debtor's filing was abusive.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

A licensee of a trademark has the right to retain the license even when a debtor rejects the underlying contract creating the license. (Sunbeam Products, 7th Cir.)

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2013

January
- Western Consumer Bankruptcy Conference
     January 21, 2013 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.
- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.


  

- VALCON 2013
     February 20-22, 2013 | Las Vegas, Nev.

March
- 37th Annual Alexander L. Paskay Seminar on Bankruptcy Law and Practice
     March 7-9, 2013 | St. Petersburg, Fla.
- Bankruptcy Battleground West
     March 22, 2013 | Los Angeles, Calif.

April
- Annual Spring Meeting
     April 18-21, 2013 | National Harbor, Md.


 
 
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Report Big Banks Engaging in Payday Lending

ABI Bankruptcy Brief | March 21 2013
 
  

March 21, 2013

 
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  NEWS AND ANALYSIS   

REPORT: BIG BANKS ENGAGING IN PAYDAY LENDING

A new report from the Center for Responsible Lending found that some of the nation's largest banks are providing short-term loans with interest rates of up to 300 percent, driving borrowers into a cycle of debt, the Washington Post reported today. The study that was released today gives an updated look at the perils of advance-deposit loans offered by Wells Fargo, U.S. Bancorp, Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma. Researchers looked at a sample of 66 direct-deposit advances over a 12-month period. Critics say that the structure of advance-deposit loans promotes a cycle of debt. Account holders typically pay up to $10 for every $100 borrowed, with the understanding that the loan will be repaid with their next direct deposit. If the deposited funds are not enough to cover the loan, the bank takes whatever money comes in, triggering overdraft fees and additional interest. Banks contend that they are offering a vital service to customers at more reasonable price points than storefront lenders, who often charge twice as much as banks. The Consumer Financial Protection Bureau has supervisory and enforcement authority for storefront and bank payday lenders with more than $10 billion in assets. The bureau issued a request for comment last year to gauge consumer and industry concerns. Read more.

In related news, a New York Times editorial today found that even though JPMorgan Chase has instituted new policies intended to shield customers from predatory lenders, which can charge up to 500 percent in interest, banks should be doing more to protect their customers. State and federal banking officials also need to expedite their investigations into the relationship between banks and predatory lenders, according to the editorial, with the aim of developing industrywide regulations that protect the public. New rules that go into effect at JPMorgan in May will limit the overdraft fees charged to customers in situations where the lender tries to collect a payment multiple times. Banks could adopt common practices that would allow customers to close their accounts at any time and deny lenders access to automatic payments in states where predatory loans are illegal. Read more.

JUSTICE DEPARTMENT PROBING BANKS' ROLE IN FRAUD BY CUSTOMERS

The U.S. Justice Department is examining the role financial institutions play in fraud schemes perpetrated by bank customers offering deceptive products, Reuters reported yesterday. Attorneys and investigators in the DOJ's Civil Division are examining banks' possible role in assisting scammers who offer questionable payday loans, false offers of debt relief, fraudulent health care discount cards and phony government grants, according to Michael Bresnick, who heads the department's Financial Fraud Enforcement Task Force. That task force has been focused on pursuing the type of misconduct that fueled the financial crisis, but the new priorities suggest that investigators are looking beyond those cases into other types of financial misconduct that extends to different industries, from payday lending to auto loans. Read more.

WITH FREDDIE MAC SUIT, BANKS FACE BILLIONS MORE IN LIBOR CLAIMS

The fallout from the manipulation of the London interbank offered rate (Libor) has already cost banks $2.5 billion in penalties, but that sum pales in comparison to payouts that will come from private lawsuits, the New York Times DealBook blog reported yesterday. Any finding of liability could be compounded because of the potential for any award to be tripled under the antitrust laws. The latest salvo comes from mortgage finance company Freddie Mac, which has filed a lawsuit in the Federal District Court in Alexandria, Va. It asserts that the company was harmed by collusive activity among the banks that lowered the benchmark interest rate. And where Freddie Mac goes, Fannie Mae, its larger sibling, usually follows, so we can expect it to file a suit seeking damages from Libor manipulation. The three regulatory settlements to date – with Barclays, UBS and the Royal Bank of Scotland — provide much of the evidence Freddie Mac relies on in its complaint. Among the documents now public is a litany of e-mails demonstrating just how the banks worked to lower their Libor submissions to benefit their trading positions and make themselves appear stronger during the height of the financial crisis. Read more.

COMMENTARY: THE PROBLEM WITH "TOO BIG TO FAIL" BANKS

The real issue with "too big to fail" financial institutions resides in the government-provided incentives for banks to get inefficiently big in the first place, according to a commentary in yesterday's Wall Street Journal. In the absence of such incentives, according to the commentary, the risk-averse funding on which banks thrive would not be available to allow banks to create sprawling credit portfolios impossible for regulators or investors in the marketplace to assess. Modern governments, as long as they are assuming the risks of the financial system, find it convenient to have those risks concentrated in a few very large, very handy institutions. A lean solution would be to require banks to hold Treasury paper against their insured deposits, according to the commentary. Those experts who prefer solutions like higher capital requirements maintain that the business of banks would survive, forcing banks to rely more on equity than debt to finance their activities. If so, then experts should also consider that equity markets might erect new business models to finance small businesses and credit-worthy consumers if government-insured deposits were no longer available at all to underwrite such risks. Read the full commentary. (Subscription required.)

ANALYSIS: SYNTHETIC CDOs MAKING COMEBACK

Derivatives that pool credit-default swaps to make magnified bets on corporate debt, popularized in the last credit bubble, are making a comeback as investors search farther afield for alternatives to bonds at record-low yields, Bloomberg News reported yesterday. Citigroup Inc. is among several banks that have sold as much as $1 billion of synthetic collateralized debt obligations (CDOs) this year, following $2 billion in all of 2012, according to estimates from the New York-based lender. Trading in tranches of indexes that use a similar strategy to juice yields rose 61 percent in the past month. Synthetic credit, which amplified the financial crisis five years ago, is enticing investors after corporate-bond yields dropped to less than half the 20-year average. Read more.

LATEST ABI PODCAST EXAMINES EFFECTIVENESS OF CURRENT FINANCIAL EDUCATION PROGRAMS

The latest ABI podcast features ABI Resident Scholar Prof. Scott Pryor speaking with Prof. Lauren Willis of Loyola Law School talking about the effectiveness of current financial education programs. Willis discusses the strengths and weaknesses of current financial education programs and what improvements can be made going forward. Click here to listen to the podcast.

BLOOMBERG'S LATEST "BILL ON BANKRUPTCY" VIDEO: WHY IS KODAK'S STOCK SOARING?

Despite Eastman Kodak Co. stock shooting up dramatically in a week's time, investors might not have the same long-term profitable outcome that owners of American Airlines shares enjoyed, as Bloomberg Law's Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss on their new video. Click here to watch the video.

DON'T MISS ACB'S FREE EVENT TOMORROW, "THE AUTO BANKRUPTCIES: CHECKING THE REARVIEW MIRROR," ON MARCH 22!

ABI members are encouraged to register for the American College of Bankruptcy's "The Auto Bankruptcies: Checking the Rearview Mirror" on March 22 at Boston College Law School in Newton, Mass. The afternoon event will feature key players looking back at the events that led to GM and Chrysler being placed into bankruptcy and the lessons that have been learned from the cases. Panelists include:

Corinne Ball of Jones Day (New York), who served as lead bankruptcy counsel to Chrysler.

Matthew A. Feldman of Willkie Farr and Gallagher LLP (New York), who served as chief legal advisor to the Obama administration's Task Force on the Auto Industry.

• Hon. Arthur J. Gonzalez, a Senior Fellow at New York University School of Law and formerly the Chief Bankruptcy Judge for the U.S. Bankruptcy Court for the Southern District of New York, who presided over the Chrysler chapter 11 proceedings.

Harvey R. Miller of Weil, Gotshal & Manges LLP (New York), who served as lead bankruptcy counsel to GM.

The moderator will be Mark N. Berman of Nixon Peabody LLP (New York).

Registration for the afternoon event is free, so be sure to sign up today before it reaches capacity!

HOTEL BLOCK FOR ABI'S ANNUAL SPRING MEETING ALMOST SOLD OUT! REGISTER TODAY!

The hotel block at the Gaylord National Resort and Convention Center in National Harbor, Md., is almost sold out for ABI’s 2013 Annual Spring Meeting! Held April 18-21, 2013, ASM features a roster of the best national speakers, while the depth and scope of topics offer something for everyone. Specifically, four concurrent workshops will cover various “tracks,” including programs for attorneys in commercial cases, a track for restructuring professionals, a track of professional development programming and a track dealing solely with consumer issues. More than 16 hours of CLE/CPE is offered in some states, along with ethics credit totaling 3 hours, making the cost only about $50 per credit. In addition, committee sessions will drill down on other topics to provide you with the most practical and varied CLE/CPE experience ever. Sessions include:

• 17th Annual Great Debates
• Mediation: An Irrational Approach to a Rational Result
• Creditors’ Committees and the Role of Indenture Trustees and Related Issues
• Current Issues for Financial Advisors in Bankruptcy Cases
• The Individual Conundrum: Chapter 7, 11 or 13?
• The Power to Veto Bankruptcy Sales
• Real Estate Issues in Health Care Restructurings
• How to Be a Successful Expert
• The Ethical Compass: Multiple Ethical Schemes Applicable to Financial Advisors
• Chapter 9s, Nonprofits and Other Nontraditional Restructuring Processes
• And much more!

The Spring Meeting will also feature a field hearing of the ABI Commission to Study the Reform of Chapter 11, a report from the ABI Ethics Task Force, a luncheon panel discussion moderated by Bill Rochelle of Bloomberg News, and a Final Night Gala Dinner featuring a concert by Joan Jett and the Blackhearts!

Make sure to register today!

ABI IN-DEPTH

TEE OFF ON THE NEW ABI GOLF TOUR!

Starting with the Annual Spring Meeting, ABI will offer conference registrants the option to participate in the ABI Golf Tour. The Tour will take place concurrently with all conference golf tournaments. The Tour is designed to enhance the golfing experience for serious golfers, while still offering a fun networking opportunity for players of any ability. As opposed to the format used in the regular ABI conference events, Tour participants will "play their own ball." They will be grouped on the golf course separately from other conference golf participants and will typically play ahead of the other participants, expediting Tour play. Tour participants will randomly be grouped in foursomes, unless otherwise requested of the Commissioner in advance of each tournament. Prizes will be awarded for each individual Tour event, which are sponsored by Great American Group. The grand prize is the "Great American Cup," also sponsored by Great American Group, and will be awarded to the top player at the end of the Tour season. Registration is free. Click here for more information and a list of 2013 ABI Golf Tour event venues.

NEW BANKRUPTCY PROFESSIONALS: DON'T MISS THE NUTS AND BOLTS PROGRAM AT ABI'S ANNUAL SPRING MEETING! SPECIAL PRICING IF YOU ARE AN ASM REGISTRANT!

An outstanding faculty of judges and practitioners explains the fundamentals of bankruptcy in a one-day Nuts and Bolts program on April 18 being held in conjunction with ABI's Annual Spring Meeting. Ideal training for junior professionals or those new to this practice area!

The morning session covers concepts all bankruptcy practitioners need to know, and the afternoon session splits into concurrent tracks, focusing on consumer and business issues. The session will include written materials, practice tip sessions with bankruptcy judges, continental breakfast and a reception after the program. Click here to register!

LATEST CASE SUMMARY ON VOLO: STAKER V. JUBBER (IN RE STAKER; 10TH CIR.)

Summarized by Geoffrey Miller from the U.S. Bankruptcy Court for the District of Arizona

Dismissing the appeals of the bankruptcy court's orders remanding two quiet title actions to state court, the Tenth Circuit BAP held that the appeals were moot and that the debtors lacked the requisite standing to appeal the bankruptcy court's orders.

There are more than 800 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: EXAMINATION OF PENSION AND OPEB LIABILITIES FACING MUNICIPALITIES

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines two of the largest issues facing municipalities today: underfunded pensions and unfunded "other" post-employment obligations (OPEB).

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Who will win the NCAA basketball tournament?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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TOMORROW:

 

 

BBW 2013
March 22, 2013
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COMING UP

 

 

 

BBW 2013
April 5, 2013
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BBW 2013
April 10, 2013
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ASM NAB 2013
April 18, 2013
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ASM 2013
April 18-21, 2013
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NYCBC 2013
May 15, 2013
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ASM 2013
May 16, 2013
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ASM 2013
May 21-24, 2013
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ASM 2013
June 7, 2013
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ASM 2013
June 13-16, 2013
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NE 2013
July 11-14, 2013
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ASM 2013
July 18-21, 2013
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  CALENDAR OF EVENTS
 

2013

March
- Bankruptcy Battleground West
     March 22, 2013 | Los Angeles, Calif.
- ACB's Free Event, "The Auto Bankruptcies: Checking the Rearview Mirror" Program
     March 22, 2013 | Newton, Mass.

April
- ABI Live Webinar: "Legacy Liabilities : Dealing with Environmental, Pension, Union and Similar Types of Claims"
     April 5, 2013
- ABI Live Webinar: "Student Loans: Bankruptcy May Not Have the Answers - But Does Congress?"
     April 10, 2013
- "Nuts and Bolts" Program at ASM
     April 18, 2013 | National Harbor, Md.
- Annual Spring Meeting
     April 18-21, 2013 | National Harbor, Md.


  

 

May
- "Nuts and Bolts" Program at NYCBC
     May 15, 2013 | New York, N.Y.
- ABI Endowment Cocktail Reception
     May 15, 2013 | New York, N.Y.
- New York City Bankruptcy Conference
     May 16, 2013 | New York, N.Y.
- Litigation Skills Symposium
     May 21-24, 2013 | Dallas, Texas

June
- Memphis Consumer Bankruptcy Conference
     June 7, 2013 | Memphis, Tenn.
- Central States Bankruptcy Workshop
     June 13-16, 2013 | Grand Traverse, Mich.

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 11-14, 2013 | Newport, R.I.
- Southeast Bankruptcy Workshop
     July 18-21, 2013 | Amelia Island, Fla.


 
 
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U.S. District Judge Limits Bankruptcy Courts Powers on Claims for Fraudulent Transfers

ABI Bankruptcy Brief | May 10, 2012
 
  
May 10, 2012
 
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  NEWS AND ANALYSIS   

U.S. DISTRICT JUDGE LIMITS BANKRUPTCY COURTS' POWERS ON CLAIMS FOR FRAUDULENT TRANSFERS

U.S. District Judge Jed S. Rakoff, ruling yesterday in a case involving the Refco litigation trust, said that bankruptcy judges do not have the power to make final rulings on claims for fraudulent transfers and unjust enrichment, citing a U.S. Supreme Court ruling in the Stern v. Marshall case, Bloomberg News reported today. Bankruptcy judges can only issue reports and recommendations to district judges, Rakoff said in the Refco opinion. In their requests to have cases moved from bankruptcy court to district court, some Madoff defendants have cited Stern, which stopped the former Playboy model Anna Nicole Smith’s heirs from collecting millions of dollars from Texas billionaire J. Howard Marshall's estate and put district judges in control of more bankruptcy issues. Judge Rakoff, who let the New York Mets owners move their dispute with the Madoff liquidator to his court, received more than 400 requests during the week ended April 2 from companies sued by trustee Irving Picard. Those seeking to move cases included HSBC Holdings Plc, UniCredit SpA and Merrill Lynch, as well as former spouses of Madoff's sons. The transfer of cases has undercut Bankruptcy Judge Burton Lifland's power to reverse some fraudulent transfers and limited Picard's ability to collect money to pay victims of Madoff’s $52 billion Ponzi scheme, the largest in U.S. history. This month, Rakoff sent 84 lawsuits against investors back to bankruptcy court, limiting the trustee to trying to take back two years of fake Ponzi profits rather than six years of payouts from the scheme. Read more.

WITNESSES AT HOUSE HEARING SAY ASBESTOS TRUST FUNDS NEED GREATER TRANSPARENCY TO PREVENT FRAUD

The congressionally created system of asbestos trust funds needs greater transparency to prevent potential fraud, a series of witnesses told the House Judiciary Committee's Subcommittee on Courts, Commercial and Administrative Law at a hearing examining H.R. 4369, the "Furthering Asbestos Claim Transparency Act of 2012," BusinessInsurance.com reported today. The bill, which was introduced in April by Rep. Ben Quayle (R-Ariz.), would require federal asbestos bankruptcy trusts under §524(g) to make quarterly public reports about claims, payouts and other activities to bankruptcy courts. S. Todd Brown, an associate professor at SUNY Buffalo Law School, said that fraudulent claims paid out in secret by trust administrators threaten the ability of the trust to handle future claims, and nothing in the bill requires more information than is required in bankruptcies every day. Marc Scarcella, manager at Bates White Economic Consulting, testified that transparency in the operation of the asbestos trusts is "critical" and that the measure would provide a "cost-effective, efficient" way to deal with claims. Charles Siegel, a partner in the Dallas-based law firm of Waters Kraus & Paul L.L.P. who represents claimants in mass tort cases, testified against the bill, saying that H.R. 4369 was "designed to slow down the payment of claims" to people suffering from mesothelioma. Siegel said that if the bill becomes law, it would impose "onerous" administrative burdens on the trusts. Click here to read the prepared witness statements.

NEW CFPB RULES MAY CURTAIL SOME FEES IN MORTGAGES

The Consumer Financial Protection Bureau (CFPB) said that it planned to propose tighter mortgage lending regulations that would limit the ability of banks and mortgage brokers to charge certain transaction fees, the New York Times reported today. Bureau officials said that the rules, which were released yesterday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan. The consumer bureau also said that it would require that lenders offer a reduced interest rate when a consumer opted to pay upfront discount points and would require lenders to offer a loan option without points. During the financial crisis, some lenders charged the points without lowering the interest rate. Changing that rule, the bureau believes, will make it easier for consumers to weigh offers from multiple lenders. Click here to read the CFPB's press release.

VOLCKER DEFENDS RULE BARRING BANKS FROM PROPRIETARY TRADING

Paul A. Volcker, the former chairman of the Federal Reserve, defended the regulatory rule that bears his name, telling the Senate Banking Committee yesterday that the Volcker Rule was a "solid step toward reining in" banks that are considered too big to fail, the New York Times’ DealBook blog reported yesterday. Volcker has championed efforts to bar banks from trading with their own money, a practice known as proprietary trading, which is outlawed under the new policy. The Volcker Rule, a crucial component of the Dodd-Frank regulatory overhaul law, was rooted in his belief that banks should not place risky bets while enjoying government deposit insurance and other backing. Volcker argued yesterday that his namesake rule would make a serious dent, not only in outsize risk-taking, but in the likelihood of future Wall Street bailouts. Read more.

REGISTER FOR THE LABOR & EMPLOYMENT COMMITTEE'S "EVOLVING LABOR ISSUES IN CHAPTER 11" WEBINAR

Make sure to mark your calendars for May 23 from 2-3 p.m. ET for the ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar. A panel of experts will be discussing recent developments in several large complex bankruptcy cases, including Hostess, Kodak, Nortel and American Airlines. The expert panel includes Babette A. Ceccotti of Cohen, Weiss & Simon LLP (New York), former chief counsel of the PBGC Jeffrey B. Cohen of Bailey & Ehrenberg PLLC (Washington, D.C.), Marc Kieselstein of Kirkland & Ellis LLP (New York) and Ron E. Meisler of Skadden, Arps, Slate, Meagher & Flom LLP. Issues to be discussed include:

• Hostess' efforts to eliminate their multi-employer pension plan contribution liability through motions to reject their labor agreements under Section 1113.
• Kodak's attempt to terminate retiree health benefits.
• The effect of the automatic stay upon efforts by the U.K. Pension Protection Fund and the U.K. Nortel Pension Plan to enforce its powers under the U.K. Pensions Act.
• American Airlines' efforts to reduce legacy costs in bankruptcy.

Click here to register.

U.S. TRUSTEE PROGRAM RE-OPENS COMMENT PERIOD ON PROPOSED GUIDELINES FOR ATTORNEY COMPENSATION IN LARGE CHAPTER 11 CASES

The U.S. Trustee Program has re-opened the comment period until May 21, 2012, on proposed guidelines for reviewing applications for attorney compensation in large chapter 11 cases ("fee guidelines"). The USTP also scheduled a public meeting for June 4, 2012, at the U.S. Department of Justice in Washington, D.C. on the proposed fee guidelines. Click here for more information on submitting comments or attending the public hearing.

ABI IN-DEPTH

JUNE 5 WEBINAR WILL EXAMINE HOW TO HANDLE AN ADMINISTRATIVELY INSOLVENT ESTATE

Panelists from one of the top-rated sessions at the 2011 Winter Leadership Conference are going to reconvene for an ABI and West LegalEd Center webinar on June 5 titled "Handling the Administratively Insolvent Estate- What to Do When Your Chapter 11 Goes South?" CLE credit will be available for the webinar that will last from 11 a.m. - 12:30 p.m. ET.

Speakers include:

Robert J. Feinstein of Pachulski Stang Ziehl & Jones LLP (New York)
Cathy Rae Hershcopf of Cooley LLP (New York)
Robert L. LeHane of Kelley Drye & Warren LLP (New York)

Robert J. Keach of Bernstein Shur (Portland, Maine) will be the moderator for the webinar.

The webinar costs $115 and purchase provides online access for 180 days. If you are purchasing a live webcast, you will receive complimentary access to the on demand version for 180 days once it becomes available. Click here for more information.

LATEST CASE SUMMARY ON VOLO: GORDON V. OFFICIAL COMMITTEE OF UNSECURED CREDITORS (IN RE ROYAL MANOR MANAGEMENT, INC.; 6TH CIR.)

Summarized by Dean Langdon of DelCotto Law Group PLLC

In an opinion not recommended for full-text publication, the Sixth Circuit Court of Appeals affirmed decisions by the District Court and Bankruptcy Court for the Northern District of Ohio that denied creditors' claim and their motion to file a new claim.

Nearly 500 appellate opinions are summarized on Volo typically 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: CHAPTER 15 OFFERS SAFE HARBOR BUT NOT COMPLETE REFUGE FROM FOREIGN COURT RULINGS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A blog post discusses a recent decision out of the Southern District of Florida regarding a shipping reorganization, SNP Boat Serv. S.A. v. Hotel Le St. James, in which the district court found that the bankruptcy court abused its discretion in not properly granting comity to a foreign reorganization proceeding.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll
The debtor-in-possession model has proven too susceptible to abuse; a trustee should be appointed in every chapter 11 case, at least as a check on a DIP with more limited management authority. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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NEXT EVENT

ABI_TMA_LS12
May 15-18, 2012
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COMING UP

 

ABI'S "Evolving Labor Issues in Chapter 11" Webinar
May 23, 2012
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MEMPHIS 12
June 1, 2012
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ABI'S "Handling the Administratively Insolvent Estate- What to Do When Your Chapter 11 Goes South?" Webinar
June 5, 2012
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CS 2012
June 7-10, 2012
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NE 2012
July 12-15, 2012
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SE 2012
July 25-28, 2012
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MA 2012
August 2-4, 2012
Register Today!

 
   
  CALENDAR OF EVENTS

May
- ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar
     May 23, 2012

June
- Memphis Consumer Bankruptcy Conference
     June 1, 2012 | Memphis, Tenn.
- ABI'S ""Handling the Administratively Insolvent Estate- What to Do When Your Chapter 11 Goes South?" Webinar
     June 5, 2012
- Central States Bankruptcy Workshop
     June 7-10, 2012 | Traverse City, Mich.

  


July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 12-15, 2012 | Bretton Woods, N.H.
- Southeast Bankruptcy Workshop
     July 25-28, 2012 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
     August 2-4, 2012 | Cambridge, Md.

 
 
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ABI Bankruptcy Brief Is Detroits Bankruptcy a Bid to Bust Unions

ABI Bankruptcy Brief | October 10, 2013
 
  

October 10, 2013

 
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  NEWS AND ANALYSIS   

COMMENTARY: IS DETROIT’S BANKRUPTCY A BID TO BUST UNIONS?

While Detroit’s bankruptcy has often been portrayed as “a cautionary tale about what can happen when a once great American city is run into the ground by poor leadership and pensions run amok,” Paul Alexander, a former Time reporter who now blogs for the Huffington Post suggests in a commentary that it is “yet another battle between Republicans and public employee unions.” Alexander bases his analysis on the close political ties between Michigan Gov. Rick Snyder and conservative donors, including the DeVos family and the Koch brothers, who strongly supported the state’s right-to-work legislation pushed through by Snyder last December. That effort prompted AFL-CIO president Richard Trumka to label Gov. Snyder a "puppet of extreme donors" whose actions "will diminish the voice of every working man and woman in Michigan." According to Alexander, critics contend Snyder believes that police, fire, and city retirees are “unsecured creditors, like bondholders, under U.S. bankruptcy law and aren't exempt from potential cuts.” Those 20,000 retired workers are owed $3.5 billion in pensions and $5.7 billion in health coverage, a significant portion of Detroit’s estimated $18 billion debt. Should they be forced, through bankruptcy, to surrender up to 90 percent of that money, as some union leaders estimate, it would represent, “a devastating blow to organized labor not just in Detroit but across the state and country,” according to Alexander. On September 19, Bankruptcy Judge Steven Rhodes, who is overseeing Detroit’s chapter 9 case, heard 45 of 109 individuals who filed papers to be allowed to speak to the court and explain why the bankruptcy should not be allowed to proceed. After listening to the testimony, which Judge Rhodes characterized as “extraordinary,” he was so moved, Alexander writes, that “he ordered Orr and Governor Snyder, who were not present in court, to listen to a recording of the hearing. ‘I think,’ Rhodes said from the bench, ‘democracy demands nothing less than they personally listen to what the citizens of this city said in this court today.’ ” Click here to read the full commentary.

GAO TO DECIDE QUESTION OF “TOO BIG TO FAIL”

Big banks argue that government subsidies, such as those that limited the meltdown of large financial institutions during fall of 2008 and early 2009, have been curtailed or even eliminated by the Dodd-Frank financial reform act passed in 2010. Now, according to Simon Johnson, writing on the New York Times Economix blog, a forthcoming assessment by the General Accounting Office will pass official judgment on the question. But Johnson suggests that the GAO would do well to look past the opinions of such insider banking groups as the Clearing House Association, and more toward independent researchers; both groups were represented at a conference on “too big to fail” banks last week at New York University. Johnson cites one of the independent papers, which concluded that “large institutions could borrow more cheaply from private lenders, presumably because the implicit government guarantee lowered the credit risk for those firms relative to their smaller competitors. They also find that ‘passage of Dodd-Frank did not eliminate expectations of government support’ — meaning this advantage in credit markets persists in the data.” Another paper found that, “at the peak of the crisis, the risk that the financial sector would collapse as a whole was substantially underpriced relative to the risk of failure of individual financial firms. This may sound technical but it is actually quite profound; it means the markets expected a rescue of some form at the systemwide level.” Johnson concedes that the GAO report could still support the banks’ contention that government subsidies have been eliminated, but includes a cautionary note in the form of an Upton Sinclair quotation: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Read more.

PETTERS FALLOUT ENGULFS TWO POWERHOUSE LAW FIRMS

Bankruptcy Judge Paul G. Hyman, Jr. (S.D.Fl.) has green-lighted a massive Ponzi scheme lawsuit against one of the biggest law firms in the United States, Fulbright & Jaworski, according to an article in yesterday’s South Florida Business Journal. The ruling opens the way for a $718 million malpractice suit by Palm Beach Finance, which claims that Fulbright failed to advise them to file for bankruptcy following the explosion of the Tom Petters Ponzi scheme. The judge may also block Fulbright from recovering the fees it tried to charge Palm Beach Finance, which was heavily tied to Petters’ business. After Petters’ fraud was exposed in October 2008, Palm Beach delayed filing for bankruptcy for more than a year, at which time it had amassed debts of $1 billion. According to the South Florida Business Journal, two Miami powerhouse bankruptcy firms are involved. Michael Budwick of Meland Russin & Budwick represents the fund receiver Barry Mukamal; Scott Baena of Bilzin Sumberg represents Fulbright. Petters, meanwhile, is serving 50 years in prison for running the third-largest Ponzi scheme in the nation. Read more. (Subscription required.)

GOVERNMENT SHUTDOWN DELAYS MEDICAL SUPPLIER’S BANKRUPTCY EXIT

As Congress and the White House fitfully discuss ways to avert the country’s debt crisis and end the stalemate that has shuttered the government for more than a week, the shutdown has been blamed for the disruption of a California bankruptcy case. Lawyers for the Centers for Medicare and Medicaid Services persuaded Bankruptcy Judge Mark Wallace on Monday to delay a court hearing that could have allowed a California medical supplier, American Medical Technologies, to get out of chapter 11 protection. In papers filed with the U.S. Bankruptcy Court in Santa Ana, Calif., U.S. Department of Justice attorney Seth Shapiro said that CMS employees, furloughed by the government shutdown, are prohibited from working, and thus can’t evaluate AMT’s plan to repay the $76 million that the agency says it’s owed. “It’s not [AMT’s] fault if the government can’t keep its house in order,” said Scotta McFarland, AMT’s attorney, during Monday’s hearing after pointing out that Justice Department attorneys have the power to ask for special permission to keep working on cases. Judge Wallace, who reset the company’s bankruptcy-exit hearing to Nov. 20 from Oct. 21, hinted that he wouldn’t clear the company to leave chapter 11 unless its biggest debts are worked out in a repayment plan. Under AMT’s restructuring plan, the company’s founder and president, Gerald Del Signore, agreed to contribute several million dollars to help the company pay off its debts. Medicare payments make up more than 90 percent of AMT’s revenue. The company filed for chapter 11 protection in February 2012 amid a dispute with a Medicare-payment contractor, which halted payments to AMT during an investigation into whether the company improperly billed for extra wound care supplies. Click here to read the full article. Read more.

NEW FISCAL SURVEY FINDS NATION’S CITIES STRUGGLING, BUT SURVIVING

Pressure from soaring health care and pension costs, coupled with cuts in state and federal aid, are undermining the improving but still shaky financial health of the nation’s cities, according to a report released today, the Washington Post reported. The National League of Cities, which advocates on behalf of 1,700 member cities, said that its annual survey of local finance officers reflects a slowly brightening financial picture for many cities. Still, the survey found that cities continue to suffer the effects of the recent economic downturn, as well as structural problems, that are making it difficult for them to pay for core services such as public safety. The survey found that after six straight years of decline, cities this year reported a small increase in general fund revenues — the locally generated taxes, fees and outside aid that local officials have wide discretion to spend on services from public safety to parks. Sales and income tax revenues are up, but property taxes continue to decline because they typically reflect property values as much as several years before their collections. For cities, that means that their tax revenues are still depressed by the steep drop in property values that accompanied the downturn. Despite the problems, the report finds that few cities are facing the extreme pressure that since 2011 has caused Jefferson County, Ala., Stockton and San Bernardino, Calif., and Detroit to topple into bankruptcy. Overall, nearly three in four of the 350 city finance officers surveyed reported that their cities are better able to meet financial needs in 2013 than they were in 2012. But many also reported that they have been forced to squeeze jobs out of the budget, reduce health care and pension benefits and raise fees, and sometimes taxes, to make ends meet. Read more.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

FIRST ABIWORKSHOP PROGRAM LOOKS AT RISKY TIMES FOR SECURED LENDERS AND SERVICERS! ATTEND IN PERSON OR VIA LIVE WEBSTREAM

You will not want to miss the abiWorkshops series' inaugural program, "Risky Times for Secured Lenders and Servicers." The program is cosponsored by TMA (Chesapeake), IWIRC (D.C./Greater Maryland) and RMA (Potomac), and will be held on Nov. 6 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 6 program include:

- Living with the New CFPB Mortgage Servicing Rules
- Business Lending: Navigating What Lies Ahead
- Business Lending: Recent Legal Developments

For more information or to register for the "Risky Times for Secured Lenders and Servicers" abiWorkshop on Nov. 6, please click here.

EXPERTS TO EXAMINE STUDENT LENDING AND BANKRUPTCY AT ABI WORKSHOP PROGRAM ON NOV. 15

Experts will tackle the hot topic of student lending issues in bankruptcy on the abiWorkshops series' new program, "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" The program will be held on Nov. 15 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 15 program include:

- Student Lending Today: Who Borrows, How Much, Delinquency & Default Trends
- Repayment Options: Income Based Repayment and New Lender/Servicer Programs
- Litigation under Sect. 523(a)(8): What Proofs Are Needed? Evidence Demonstration

For more information or to register for the "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" abiWorkshop on Nov. 15, please click here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: ONYEABOR V. CENTENNIAL POINT OWNERS ASSOCIATION (IN RE ONYEABOR) (10TH CIR.)

Summarized by Steven T. Mulligan of Bieging Shapiro & Barber LLP

he circuit court ruled that conversion is appropriate where a plan makes no provision for repayment of pre-petition secured claims, where the debtor’s income is insufficient to support her plan or even the appellees’ judgment lien, and where the debtor fails to address the trustee’s objections.

There are more than 1,000 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: FIFTH CIRCUIT NIXES CONSENT IN STERN CASES

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post argues that while the CFTC is on hiatus during the shutdown, the industry should consider the damage that might be done to a market that has become an integral part of banking.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Does the bankruptcy court's Section 105 power enable it to surcharge the debtor's exempt property?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2013

October
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency & Restructuring Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- abiWorkshop: "Risky Times for Secured Lenders and Servicers"
   Nov. 6, 2013 | Alexandria, Va.
- Complex Financial Restructuring Program
   Nov. 7, 2013 | Philadelphia, Pa.
- Corporate Restructuring Competition
   Nov. 7-8, 2013 | Philadelphia, Pa.
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

  

 


-abiWorkshop: "You Can't Discharge Student Loans in Bankruptcy - Or Can You?"
   Nov. 15, 2013 | Alexandria, Va.
- Delaware Views from the Bench
   Nov. 25, 2013 | Wilmington, Del.

December
- Winter Leadership Conference
    Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York

January
- Western Consumer Bankruptcy Conference
    Jan. 20, 2014 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
    Jan. 23-24, 2014 | Denver, Colo.

 

 
 
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