• Historical Municipal Bankruptcy.

On November 11th, Reuters reported on the November 10 filing of bankruptcy court protection by Jefferson County, Alabama, the largest municipal bankruptcy in U.S. history. The county declared bankruptcy after failing to reach an agreement with its creditors on its $3.14 billion debt. Hearings are set for November 21 and December 15 to decide who maintains control of the sewer system and to determine eligibility for Chapter 9. Bankruptcy.

• Clawback.

On November 10th, Reuters discussed the potential for a clawback lawsuit being filed against former MF Global Inc.'s ("MF Global") clients. Former clients who withdrew their money may face such a lawsuit if over $500 million in customer funds cannot be located. Those who did not withdraw their funds prior to MF Global's collapse may argue that all clients, not just those who remained or whose accounts were frozen, should share any loss. Clawback.

• Volcker on Volcker.

On November 9th, Reuters reported that Paul Volcker believes that the eponymous Volcker Rule, the provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") prohibiting FDIC-insured banks from engaging in proprietary trading, is too complicated. Volcker Rule.

• Board Accountability.

On November 8th, the New York Times' DealBook asked whether the failure of MF Global's board to stop the highly leveraged trades that are blamed for the firm's collapse, is an indication of a larger problem: the inability of boards of directors to counteract a CEO's influence. Board Accountability.

• Capital Surcharges.

On November 8th, Bloomberg summarized the provisional capital surcharges to be assessed against the largest financial institutions. The surcharges range from 1 to 2.5 percent. Five banks, including Citigroup Inc. and JP Morgan Chase & Co., would be charged the highest assessment. Surcharges.

• FCPA Guidance.

On November 8th, the Legal Times reported that the United States Department of Justice (the "Justice Department") will release guidance on the criminal and civil enforcement of the Foreign Corrupt Practices Act next year. FCPA Guidance.

• Federal Reserve Board Releases Bank Lending Practices Survey Results.

On November 7th, the Federal Reserve Board released the October 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, which addresses changes in the supply of, and demand for, bank loans to businesses and households over the past three months. The survey is based on responses from 51 domestic banks and 22 U.S. branches and agencies of foreign banks. Summary.

• Treasury Department to Sell Warrant Positions in Private Auctions.

On November 8th, the U.S. Department of the Treasury (the "Treasury Department") announced its intention to dispose of certain warrant positions received in consideration for investments made under the Capital Purchase Program. At some point during the next several weeks, the Treasury Department intends to conduct an auction to sell, in private transactions principally involving qualified institutional buyers, its warrant positions in a number of financial institutions that will be identified prior to the commencement of the auction. Treasury Department Press Release.

• CFPB Seeks Comment on Proposed Mortgage Disclosure Documents.

On November 8th, the Consumer Financial Protection Bureau ("CFPB") announced the second phase of its "Know Before You Owe" mortgage project, which will combine the two forms consumers get before finalizing a home loan into a single mortgage closing document. The CFPB is asking for public feedback on two alternative prototypes, which are designed to clearly explain the final details of the loan and closing costs. CFPB Press Release.

• CFPB to Provide Advance Notice of Potential Enforcement Actions.

On November 7th, CFPB outlined its plans to provide advance notice of potential enforcement actions to individuals and firms under investigation. The Early Warning Notice process will allow the subject of an investigation to respond to any potential legal violations that CFPB enforcement staff believe have been committed before CFPB ultimately decides whether to begin legal action. CFPB Press Release.

• CFTC Confirms MF Global Investigation.

On November 10th, the Commodity Futures Trading Commission (the "CFTC") publicly confirmed that it is investigating the shortfall in MF Global's customer accounts. Commissioner Jill E. Sommers will act as senior Commissioner after CFTC Chairman Gary Gensler recused himself. Bloomberg quoted Commissioner Bart Chilton as saying: "This isn't just a lost and found inquiry; it's a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy." The CFTC is also examining between 10 and 12 futures commission merchants ("FCMs") to ensure that they are properly segregating customer funds. See CFTC Press Release; Bloomberg. The New York Times' DealBook reported that the customer funds segregation practices of all FCMs will be examined, with self-regulatory organizations like CME Group conducting the reviews of smaller FCMs. Examination. See also CFTC Webpage on MF Global.

• Commissioner Chilton Addresses 4th Annual Risk Management in Energy Trading Conference.

On November 8th, CFTC Commissioner Bart Chilton discussed MF Global's collapse and some of its repercussions. The CFTC has scoured MF Global's financial records in an effort to locate over $500 million in missing customer funds. The agency, however, has been unable to account for the money. Chilton also addressed CFTC Rule 1.25, which allows FCMs to use segregated customer margin funds as collateral in repurchase agreements. Chilton hopes the CFTC will restrict the rule's reach by the end of the year. He also wants the agency and exchanges to closely examine customer segregated accounts and examine FCMs' documentation to ensure that the funds are where they are said to be. Chilton Remarks.

• SEC Approves New Listing Rules for Reverse Mergers.

On November 9th, the SEC approved proposed new rules by NYSE Amex, the New York Stock Exchange and the NASDAQ Stock Market that would raise the standards that companies going public through a reverse merger must meet to become listed on those exchanges. The new rules would prohibit a reverse merger company from applying to list until: (i) it has completed a one-year "seasoning period" by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger, and filed all required reports with the Securities and Exchange Commission (the "SEC") including audited financial statements; and (ii) it has maintained the requisite minimum share price for a sustained period, and for at least 30 of the 60 trading days immediately prior to its listing application and the exchange's decision to list. The reverse merger company generally would be exempt from these special requirements if it is listing in connection with a substantial firm commitment underwritten public offering, or the reverse merger occurred sufficiently long ago that at least four annual reports with audited financial information have been filed with the SEC. SEC Press Release.

• Rescission of Outdated Rules and Forms, and Amendments to Correct References.

On November 4th, the SEC adopted amendments to its rules and forms to correct references and remove certain rules, forms, and interpretive releases, to conform to changes in federal securities laws. The amendments are effective immediately. SEC Release No. 33-9273.

• Agenda and Panelists Announced for Government-Business Forum on Small Business Capital Formation.

The SEC has published the agenda and named the speakers and panelists for its Government-Business Forum on Small Business Capital Formation, to be held on November 17, 2011. Opening remarks will be given by SEC Chairman Mary Schapiro. SEC Commissioners Luis Aguilar, Daniel Gallagher, Troy Paredes and Elisse Walter also will deliver remarks during the morning session. SEC Press Release.

• Madoff Revote.

On November 10th, the Wall Street Journal reported that the SEC will revote on the formula that the Securities Investor Protection Corporation (the "SIPC") trustee (the "SIPC Trustee") liquidating Bernard Madoff's brokerage should use to compensate victims. The SEC Inspector General recommended that the Commissioners revote after investigating then SEC General Counsel David Becker for possible conflicts of interest violations. The estate of Becker's mother had invested with Madoff and Becker had been involved in framing the earlier SIPC recommendation. Although the Inspector General referred the matter to the Justice Department, the latter will not investigate. Revote.

• Commissioner Supports Crowd-Funding.

On November 9th, Reuters reported that SEC Commissioner Elisse Walter generally supports crowd-funding, but cautioned that it should be limited. Crowd-Funding.

• Chairman Schapiro Discusses Money Market Funds.

On November 7th, SEC Chairman Mary L. Schapiro addressed the Securities Industry and Financial Markets Association's ("SIFMA") 2011 annual meeting where she discussed reforms for the money market industry. After briefly mentioning floating net asset values for money market funds, Chairman Schapiro spoke at greater length about a capital buffer for money market funds. Much of the SEC staff's energy has been focused on developing a meaningful capital buffer reform proposal. A capital buffer potentially could be combined with redemption restrictions. In assessing potential capital buffer structures, the SEC is examining the pros and cons of various sources of the capital. The capital in a money market fund could come from: (i) the fund's sponsor; (ii) the fund's shareholders; or (iii) the market, through the issuance of debt or a subordinated equity class. In addition, the SEC is closely examining the appropriate size of any capital buffer. Schapiro Remarks.

• SEC Reports on Administrative and Enforcement Proceedings.

On November 4th, the SEC issued its report on administrative proceedings for the period beginning April 1, 2011, and ending September 30, 2011. The report identifies the number of matters pending before the administrative law judges and the SEC at the beginning of the six-month period; the number of matters instituted, filed, and disposed of during the period; and the number pending at the end of the period. For each category of decision, the report shows the median age of the matters at the time of decision and the number of matters decided within the guidelines in Rule 900 for the timely completion of adjudicatory proceedings or within the time specified in orders instituting proceedings for issuance of an initial decision, or any extension granted by the SEC. The report also includes data from the previous two six-month periods. SEC Release No. 34-65691. On November 9th, the SEC summarized its enforcement activity. The SEC filed a record 735 enforcement actions in the fiscal year that ended September 30. It highlighted cases stemming from the financial crisis and its investigation into insider trading. SEC Press Release.

• CME Group under Fire.

On November 9th, the New York Times' DealBook reported criticism of CME Group (the self-regulatory organization (or "SRO") with principal responsibility for MF Global) is growing amid concerns that over $500 million of client money had not been properly segregated by MF Global. Some are calling upon CME Group to make up the shortfall while others are saying that the SRO regime for FCMs must be revised. Criticism.

• FINRA Reminds Firms of Obligations Regarding the Supervision of Registered Persons Using Senior Designations.

On November 11th, the Financial Industry Regulatory Authority ("FINRA") reminded firms of their supervisory obligations regarding the use of certifications and designations that imply expertise, certification, training, or specialty in advising senior investors. FINRA also outlined findings from a survey of firms and highlighted sound practices used by firms with respect to such designations. FINRA is encouraging firms to adopt those practices to strengthen their own supervisory procedures. Regulatory Notice 11-52.

• Asset-Backed Securities Transaction Reporting Pilot.

On November 7th, FINRA reminded members that the Trade Reporting and Compliance Engine ("TRACE") pilot program, which requires a firm to report a transaction in an asset-backed security no later than the business day following the date of execution, will expire on November 18, 2011. Upon expiration of the program, most transactions in asset-backed securities must be reported the day of execution during TRACE system hours. FINRA Trade Reporting Notice.

• Supplemental FOCUS Information Proposed.

On November 7th, the SEC provided notice of FINRA's proposed FINRA Rule 4524 (Supplemental FOCUS Information) and Proposed Supplementary Schedule to the Statement of Income (Loss) Page of FOCUS Reports. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of November 14. SEC Release No. 34-65700.

• SEC Approves Exemptions for Reporting Certain Alternative Trading System Trades.

On November 4th, the SEC approved FINRA's proposed rules allowing FINRA to grant exemptions from certain equity trade reporting obligations for alternative trading systems meeting specified criteria. SEC Release No. 34-65695.

• Amendments Proposed for OATS.

On November 4th, the SEC provided notice of the FINRA's proposed amendments to: (i) Rules 5320 and 7440 to require that members report to the Order Audit Trail System ("OATS") information barriers put into place by the member in reliance on Supplementary Material .02 to Rule 5320; (ii) Rule 7440 to require that members report customer instructions regarding the display of a customer's limit order in any OATS-eligible security; and (iii) Rule 7450 to codify the specific time OATS reports must be transmitted to FINRA. Comments should be submitted on or before December 1, 2011. SEC Release No. 34-65692.

• Enhanced Margin Methodology Proposed.

On November 7th, the SEC provided notice of ICE Clear Credit's filing of a proposal to adopt the enhanced margin methodology recommended by the ICC Risk Working Group, ICC Risk Committee, ICC Board of Managers, an independent third-party risk expert (Finance Concepts), the Federal Reserve Bank of New York and the New York State Banking Department. ICE Clear Credit believes that the implementation of these enhancements to the ICC risk methodology will result in a better measurement of the risk associated with clearing CDS Indices. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of November 14. SEC Release No. 34-65699.

• ISDA Publishes Cost-Benefit Study.

On November 10th, the International Swaps and Derivatives Association released a study analyzing the costs and benefits of the electronic execution requirements for over-the-counter interest rate products mandated by the Dodd-Frank Act. ISDA Press Release.

• Amendments Regarding Professional Qualifications and Information Concerning Associated Persons are Approved.

On November 3rd, the SEC approved the Municipal Securities Rulemaking Board's proposed amendments to Rule G-3 on professional qualifications, and Rule G-7 on information concerning associated persons. The changes to Rule G-3 provide that the FINRA Series 7 examination would no longer qualify individuals as "municipal securities representatives" unless they were engaged solely in sales activities or they passed the Series 7 examination prior to the effective date of this rule change. Instead, passage of the Series 52 examination would be required for any municipal securities activities other than sales activities. Rule G-7 requires brokers, dealers and municipal securities dealers to keep records concerning their associated persons, including the category of function they perform "whether municipal securities principal, municipal securities sales principal, municipal securities representative or financial and operations principal." The amendment to Rule G-7 adds "municipal securities sales limited representative" to that list. The amendment also streamlines Rule G-7(b) by requiring that dealers obtain either Form U4 (in the case of non-bank dealers) or Form MSD-4 (in the case of bank dealers), rather than repeating the categories of information required by those forms. SEC Release No. 34-65679.

• NASDAQ OMX PHLX Proposes Modification to Listing Criteria for Certain Options.

On November 8th, the SEC provided notice of NASDAQ OMX PHLX's proposed modification of Commentary .01 to Rule 1009 regarding criteria for listing an option on an underlying covered security. The modification would permit the listing of an option on an underlying covered security that has a market price of at least $3.00 per share on the business day immediately preceding the date on which the exchange submits a certificate to the Options Clearing Corporation for listing and trading. The exchange does not intend to amend any other criteria for listing options on an underlying security in Rule 1009 and accompanying Commentary. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of November 14. SEC Release No. 34-65706.

• NASDAQ Markets Propose Low Latency Network Connections.

On November 4th, the SEC provided notice of proposed amendments by NASDAQ OMX BX, NASDAQ Stock Market, and NASDAQ OMX PHLX to their respective Rules 7034 to establish programs for offering low latency network connections and to establish the initial fees for such connections. Comments should be submitted on or before December 1, 2011.

• Retail Liquidity Programs Proposed.

On November 2nd, the SEC provided notice of separate proposals by NYSE Amex and the New York Stock Exchange for a one-year pilot program to establish a Retail Liquidity Program to attract additional retail order flow to their respective exchanges. Comments should be submitted on or before November 30, 2011.

• SLUSA Bars Lawsuit against Closed-End Fund.

On November 10th, the United States Court of Appeals for the Seventh Circuit affirmed the dismissal of a lawsuit brought against a closed-end investment fund. Common stockholders in the fund alleged that the fund improperly redeemed the auction market preferred stockholders' shares, breaching the fund's fiduciary duties. The court held that dismissal, with prejudice, under the Securities Litigation Uniform Standards Act was appropriate because plaintiffs' allegation of fraud could not be disentangled from the breach of fiduciary duty claim. Moreover, even if the fraud allegation was deleted, that deletion would not be credible because plaintiffs could seek to reassert the fraud claim on remand. Brown v. Calamos.

• Requiring Repayment at Par is not an Antitrust Violation.

On November 10th, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a borrower's antitrust lawsuit against its lenders. Holders of CompuCredit's promissory notes did not violate the Sherman Act when they refused CompuCredit's offer to redeem the notes at or above the notes' market value, but below the notes' par value. Furthermore, it is not a violation of the Sherman Act for debtors to act collaboratively to collect pre-existing debts. CompuCredit Holdings Corp. v. Akanthos Capital Management, LLC.

• Ninth Circuit Affirms Class Certification in Amgen Securities Fraud Case.

On November 8th, the United States Court of Appeals for the Ninth Circuit (the "Ninth Circuit") addressed what plaintiffs must plead to invoke the fraud-on-the-market presumption in aid of class certification in a securities fraud case. Joining the United States Courts of Appeals for the Third and Seventh Circuits, and affirming a district court decision, the Ninth Circuit held that plaintiffs must show that the security in question was traded in an efficient market and that the alleged misrepresentations were public. Plaintiffs must also plausibly allege, but need not prove, that the claimed misrepresentations were material. Proof of materiality, or rebuttal of the fraud-on-the-market presumption, is a matter for trial or summary judgment, not a matter to be taken up in a class certification motion. Connecticut Retirement Plans and Trust Funds v. Amgen Inc.

• Rajaratnam Ordered to Pay Record Civil Penalty.

On November 8th, Judge Jed Rakoff ordered Raj Rajaratnam to pay $92,805,705 as a civil penalty in the SEC's insider trading case against him. SEC civil penalties, especially those involving such misconduct as insider trading, are designed to make such unlawful trading a money-losing proposition for all who would consider it. The court therefore imposed the maximum statutory penalty, which trebles Rajaratnam's $30,935,235 gain. SEC v. Rajaratnam. See also SEC Press Release.

• Madoff Feeder Fund Case Sent Back to State Court for Additional Proceedings.

On November 7th, the Supreme Court of the United States vacated a Florida appellate court's order refusing to compel arbitration in a Bernard Madoff feeder fund case. Investors bought partnership interests in KPMG-audited funds which invested with Madoff. The investors allege KPMG failed to use proper auditing standards in reviewing the funds' financial statements, violating common and statutory law. The Supreme Court held that any arbitrable claim must be sent to arbitration. Because the state court only addressed two of the four claims when it refused to compel arbitration, its order must be vacated for reconsideration of the other two claims. KPMG LLP v. Cocchi (per curiam).

• SIPC Trustee May Investigate MF Global.

On November 4th, the Federal Bankruptcy Court granted the SIPC Trustee's motion to establish procedures for the issuance of subpoenas for document production and depositions in connection with the SIPC Trustee's independent investigation into the business and affairs of MF Global. Access to documents produced by witnesses and attendance at examinations will be limited to the SIPC Trustee and his professionals. The SIPC, SEC and CFTC will have access to the discovery upon the execution of confidentiality agreements. In re MF Global Inc.

• Adkins to Discuss Fraud and Money Laundering in Banking & Finance.

Litigation partner Robb Adkins, based in Winston & Strawn's San Francisco and Los Angeles offices, will present "Fraud and Money Laundering in Banking & Finance" as part of the Knowledge Congress Webcast Series on December 6, 2011. Event.

• Contact Us.

If you have any questions about the information in this Update, or about any financial services matters generally, please click here to see a list of Winston & Strawn professionals.