Financial Services Update______December 5, 2011
Volume 6, No. 44



IN THIS ISSUE

Insights from Winston & Strawn

In the News

Congressional Developments

Joint Agency Actions

Banking Agency Developments

Treasury Department Developments

Commodity Futures Trading Commission

Securities and Exchange Commission

Exchanges and Self-Regulatory Organizations

Judicial Opinions

Winston & Strawn Speaking Engagements and Publications


Insights from Winston & Strawn [Top]

Last week, the Securities and Exchange Commission ("SEC") brought enforcement actions against three separate investment advisers for failing to implement adequate compliance policies and procedures in violation of Rule 206(4)-7 of the Investment Advisers Act of 1940 (the "Advisers Act"). Rule 206(4)-7, which became effective in 2004, requires investment advisers to adopt compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the securities laws by the advisers and their supervised persons. The rule also requires advisers to annually review those policies and procedures for their adequacy and effectiveness. In addition, the rule requires advisers to designate a chief compliance officer who is responsible for implementing the adviser's compliance program.
Historically, enforcement actions on the basis of compliance program violations have been rare. According to an SEC press release, these cases are part of a concerted effort by the SEC's Division of Enforcement, Asset Management Unit to proactively prevent investor harm by coordinating with the examination staff to ensure that advisers have adequate compliance programs. Two of the advisers charged simply failed to adopt and implement compliance policies and procedures and a code of ethics. As a result of failing to implement a compliance program, one of these advisers engaged in hundreds of principal trades without obtaining the necessary client consent under the Advisers Act. In the third case, the adviser adopted compliance policies and procedures and a code of ethics only after the SEC examination staff alerted the adviser of its compliance deficiencies. More than three years later, the adviser still had failed to fully implement its compliance program and code of ethics and only took steps to implement these policies and procedures after it had been notified of an impending examination.
The violations described in the SEC's orders relating to these enforcement actions are egregious in nature. Nonetheless, these cases serve as a warning to all investment advisers of the need to have adequate compliance programs and of the requirement to review the adequacy and effectiveness of those programs on an annual basis. We will continue to monitor regulatory developments to keep you informed.


In the News [Top]
  • David vs. Goliath.
On December 2nd, Fortune profiled James Koutoulas, the head of a small futures commodity merchant whose willingness to take on the "system" may ensure that MF Global's customers get their money back. Profile.
  • FINRA's Growing Enforcement Role.
On December 1st, the New York Times' DealBook profiled the Financial Industry Regulatory Authority's fraud taskforce and the essential, if low-key, role it plays in the identification of potential insider trading cases. FINRA Taskforce.
  • More Insider Trading Arrests Coming.
On December 1st, the Los Angeles Times reported that the federal insider trading investigation is continuing, with arrests of hedge fund and mutual fund managers likely. The expanded inquiry is focused on the funds' use of expert networks. Insider Trading.
  • NASAA Announces Registration System for Investment Advisers.
On November 29th, the North American Securities Administrators Association announced a coordinated review program for investment advisers switching from federal to state securities regulatory oversight as mandated by the Dodd-Frank Act. The Investment Adviser Coordinated Review Program is open to SEC-registered investment advisers switching their registration to between four and 14 states. Under the Dodd-Frank Act, investment advisers registered in 15 or more states can remain with the SEC. The program will conclude on March 30, 2012. NASAA Press Release.
  • Some MF Global Customer Money May be in England.
On November 28th, the New York Times' DealBook reported that $200 million found in a British JP Morgan account may belong to MF Global's customers. Found Money.
  • Paperboarding.
On November 26th, the Economist commented on the Foreign Account Tax Compliance Act ("FATCA"), which requires foreign financial firms to register with the IRS by June 30, 2013 or face a 30 percent withholding tax. FATCA is part of the IRS's effort to find Americans who are hiding their assets offshore, but the Economist speculates that the reporting requirements could drive foreign firms away. Paperboarding.
  • SIPC for Futures Proposed.
On November 24th, Reuters reported that the National Futures Association, futures exchanges, and futures commission merchants are discussing the establishment of an insurance fund to protect customer assets. Such a fund was proposed and rejected 25-years ago because the industry was perceived to be safer than the securities industry. The collapse of MF Global, and the possible loss of $1.2 billion in customer funds, has changed that view. SIPC for Futures.
  • Justice Department Announces Antitrust Investigation.
On November 23rd, the Los Angeles Times reported the Justice Department is investigating banks for potential antitrust violations after the firms attempted to impose monthly charges on account holders for using their debit cards. Antitrust Investigation.
  • Whistleblowers.
On November 23rd, CFO.com reported that employees continue to report potential corporate fraud internally despite the SEC's new whistleblower bounty. Some had predicted that the whistleblower bounty would encourage employees to report their suspicions to the SEC first, without giving employers the opportunity to investigate or correct the problem. Whistleblowers.
  • Retailers Challenge Debit Card Swipe Limits.
On November 22nd, the Washington Post reported the National Retail Federation is challenging the Federal Reserve Board's interchange limits for debit cards alleging that the limits allow banks to charge for prohibited services. Lawsuit.

Congressional Developments [Top]
  • Senators Propose Bill to Encourage Small Company Capital Formation.
On December 1st, Senators Charles Schumer and Pat Toomey announced they are sponsoring a bill that would establish a new category of issuers, called "emerging growth companies," that have less than $1 billion in annual revenues at the time they register with the SEC and less than $700 million in publicly-traded shares after an IPO. The legislation creates a transitional "on-ramp" status for these companies to encourage them to go public. The "on-ramp" period would last as many as five years, or until a company reaches $1 billion in annual revenue or $700 million in publicly-traded shares. Full compliance with certain obligations would be phased in during that period. Press Release (with summary of bill's provisions).
  • House Committee Passes End User Exemption.
On November 30th, the House Financial Services Committee passed H.R. 2682, the "Business Risk Mitigation and Price Stabilization Act of 2011." The bill would amend the Commodity Exchange Act and the Securities Exchange Act to exempt end users from margin requirements for uncleared swaps and derivatives.
  • Senate Committee Schedules MF Global Hearing.
On November 28th, Reuters reported that the Senate Agriculture Committee will hold hearings on the collapse of MF Global. The Committee has asked former MF Global Chairman Jon Corzine to testify. Hearings. On December 2nd, Reuters reported that the Committee has unanimously voted to subpoena Corzine after receiving a letter from Corzine's lawyer indicating that the former U.S. Senator was unavailable. Subpoena.

Joint Agency Actions [Top]
  • FDIC and Treasury Department Issue Orderly Liquidation Proposal.
On November 25th, the FDIC and Treasury Department published for comment proposed rules that would implement Section 210(n)(6) of the Dodd-Frank Act. The proposed rules govern the calculation of the maximum obligation limitation ("MOL"), the aggregate amount of outstanding obligations that the FDIC may issue or incur in connection with the orderly liquidation of a systemically important financial institution. Comments should be submitted on or before January 24, 2012. 76 FR 72645.

Banking Agency Developments [Top]
Federal Deposit Insurance Corporation
  • FDIC Publishes Fall Edition of Consumer Newsletter.
On November 30th, the FDIC published the fall edition of its consumer newsletter which discusses saving for retirement, improving credit scores, and buying vs. renting a home. In addition, the issue offers new tips and information related to Internet banking. FDIC Press Release.
  • FDIC Issues Quarterly Banking Profile.
On November 22nd, the FDIC released its latest Quarterly Banking Profile. The report found that commercial banks and savings institutions had an aggregate profit of $35.3 billion in the third quarter of 2011, an $11.5 billion improvement from the $23.8 billion in net income the industry reported in the third quarter of 2010. This is the ninth consecutive quarter that earnings registered a year-over-year increase. It also found that loan portfolios grew slowly for a second consecutive quarter; large institutions again experienced sizable deposit inflows; the number of institutions on the FDIC's "Problem List" fell for the second quarter in a row; and the Deposit Insurance Fund balance continued to increase. FDIC Press Release.
Federal Reserve
  • Central Banks Lower Dollar Liquidity Swap Rate.
On November 30th, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice. These central banks have also agreed to establish temporary bilateral liquidity swap arrangements. These swap lines are authorized through February 1, 2013. Federal Reserve Board Press Release.
  • Federal Reserve Board Issues Final Rule on Capital Plans and Launches 2012 Stress Tests.
On November 22nd, the Federal Reserve Board issued a final rule requiring top-tier U.S. bank holding companies with total consolidated assets of $50 billion or more to submit annual capital plans for review. The Federal Reserve Board also issued instructions outlining the information the Federal Reserve is seeking from the firms and the analysis the Federal Reserve will conduct for the Comprehensive Capital Analysis and Review ("CCAR") in 2012. There are two sets of instructions: one for the 19 firms that participated in the CCAR in 2011, the other for 12 additional firms with at least $50 billion in assets that have not previously participated in a supervisory stress test exercise. The level of detail and analysis expected in each institution's capital plan will vary based on the company's size, complexity, risk profile, and scope of operations. Capital plans must be submitted on or before January 9, 2012. Federal Reserve Board Press Release (with links to questions and answers and CCAR instructions).
Office of the Comptroller of the Currency
  • 2012 Fee Structure.
On December 1st, the OCC provided notice of its 2012 fee structure. Notice.
  • OCC Proposes Rule and Guidance on the Removal of References to Credit Raters from OCC Regulations.
On November 29th, the OCC published for comment a proposed rule that would remove references to credit ratings from various OCC regulations. It also published related proposed guidance that would assist national banks and federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments. Comments should be submitted on or before December 29, 2011. OCC Press Release.
  • OCC Issues Report on Foreclosure Practices Review.
On November 22nd, the OCC issued a report on the actions by 12 national bank and federal savings association mortgage servicers to comply with consent orders issued in April 2011 to correct deficient and unsafe or unsound foreclosure practices. The report summarizes progress on activities related to the independent foreclosure review announced November 1, 2011, as well as other activities to enhance mortgage servicing operations, strengthen oversight of third-party service providers and activities related to Mortgage Electronic Registration Systems ("MERS"), improve management information systems, assess and manage risk, and ensure compliance with applicable laws and regulations. OCC Press Release.
  • OCC Reopens Comment Period on Capital One's Proposed Acquisition of HSBC Assets.
On November 21st, the OCC reopened the comment period related to the Bank Merger Act application filed by Capital One, National Association and Capital One Bank (USA), National Association to acquire through a purchase and assumption the credit card portfolio of HSBC Bank Nevada, National Association. Comments should be submitted on or before December 19, 2011. OCC Press Release.
  • OCC Issues Alert on Unauthorized Mexican Banks.
On November 21st, the OCC issued an alert regarding certain entities purporting to be banks or financial institutions in Mexico but which are not authorized members of the Mexican financial system. OCC Alert.

Treasury Department Developments [Top]
  • Treasury Department Designates Syrians and Government-Controlled Business.
On December 1st, the Treasury Department announced the designation of two high-ranking Syrians and the Military Housing Establishment and Real Estate Bank. As a result of the action, U.S. persons are generally prohibited from engaging in transactions with Muhammad Makhluf and Aus Aslan and any assets they might have under U.S. jurisdiction are blocked. In addition, U.S. persons are generally prohibited from engaging in transactions with the Military Housing Establishment and Real Estate Bank. Treasury Department Press Release.
  • Taskforce Formed to Combat HAMP Fraud.
On December 1st, the Office of the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP"), the Consumer Financial Protection Bureau ("CFPB"), and the Treasury Department announced the creation of a joint task force to combat scams targeted at homeowners seeking to apply for the Home Affordable Modification Program ("HAMP"). SIGTARP, the CFPB, and the Treasury Department will investigate and close these scams and provide education programs to vulnerable homeowners. The joint task force also issued a consumer fraud alert to protect homeowners from HAMP-related mortgage modification scams. The fraud alert will also be provided directly to homeowners eligible for HAMP. Joint Press Release.
  • CFPB Issues Report on Credit Card Complaints.
On November 30th, the Consumer Financial Protection Bureau ("CFPB") issued a report on its first three months of collecting credit card complaint data. The Consumer Response Credit Card Interim Report provides a complete breakdown of complaints received by the CFPB by type, as well as by their progress through the complaint handling system. In conjunction with the report, the CFPB also published for comment a proposal that would make available to the public a searchable database containing various data fields for each complaint. Comments should be submitted on or before January 30, 2012. CFPB Press Release.
  • Treasury Department Publishes Broker Reporting Rules; Announces Public Hearing.
On November 25th, the Treasury Department published for comment proposed regulations relating to reporting by brokers for transactions related to debt instruments and options. The proposed regulations reflect changes in the law made by the Energy Improvement and Extension Act of 2008 that require brokers when reporting the sale of securities to the IRS to include the customer's adjusted basis in the sold securities and to classify any gain or loss as long-term or short-term. The proposed regulations implement the Act's requirement that a broker report gross proceeds from a sale or closing transaction with respect to certain options. In addition, the proposal contains proposed regulations that implement reporting requirements for a transfer of a debt instrument or an option to another broker and for an organizational action that affects the basis of a debt instrument or option. A public hearing on the proposal will occur on March 16, 2012. Comments should be submitted on or before February 23, 2012. Outlines of topics to be discussed at the March 16, 2012 hearing should be submitted on or before February 24, 2012. 76 FR 72652.
  • Unblocking Notices.
On November 23rd, the Treasury Department's Office of Foreign Asset Control ("OFAC") issued a notice unblocking the assets of 42 entities named in Executive Order 13566 of February 25, 2011, "Blocking Property and Prohibiting Certain Transactions Related to Libya." On November 29th, OFAC issued a notice unblocking the assets of Imad Fa'iz Mughniyah.
  • Treasury Imposes Additional Sanctions against Iran.
On November 21st, the Treasury Department summarized recent steps taken in response to concerns over Iran's nuclear program. Actions include the expansion of energy-related sanctions; the designation of Noor Afzar Gostar Company, Fulmen Group, Yasa Part, Javad Rahiqi, Modern Industries Technique Company, Neka Novin, Parto Sanat, Paya Partov, Simatic, and the Iran Centrifuge Technology Company; and the identification of Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act. The latter action means that the entire Iranian financial sector, including Iran's Central Bank, private Iranian banks, and branches, and subsidiaries of Iranian banks operating outside of Iran pose an illicit finance risk for the global financial system. The Financial Crimes Enforcement Network has also filed a Notice of Proposed Rule Making, which would impose a special measure against Iran. While current U.S. regulations already generally prohibit U.S. financial institutions from engaging in both direct and indirect transactions with Iranian financial institutions, this action would require U.S. financial institutions to implement additional due diligence measures in order to prevent any improper indirect access by Iranian banking institutions to U.S. correspondent accounts. Comments should be submitted on or before January 27, 2012. Treasury Department Press Release.
  • FinCEN Requests Nominations for BSA Advisory Group.
On November 21st, the Financial Crimes Enforcement Network invited the public to nominate financial institutions and trade groups for membership on the Bank Secrecy Act Advisory Group. New members will be selected for three-year membership terms. Nominations should be submitted on or before December 27, 2011. FinCEN Notice.

Commodity Futures Trading Commission [Top]
  • Open Meeting.
The CFTC will hold an open meeting on December 5, 2011 to consider adopting a final rule on the investment of customer funds and funds held in an account for foreign futures and options transactions; and a final rule on the registration of foreign boards of trade. The CFTC will also consider publishing for comment a further notice of proposed rulemaking on the process for making a swap available to trade under Section 2(h)(8) of the Commodity Exchange Act; and a proposed interpretation for retail commodity transactions under Commodity Exchange Act Section 2(c)(2)(D). CFTC Press Release.
  • CFTC Requests Comment on Petition Seeking Guidance Concerning the Segregation of Customer Funds.
On November 22nd, the CFTC requested comment on ICE Clear Credit's request for an order pursuant to Section 4d(f) of the Commodity Exchange Act. ICE's petition requests an order that would set forth terms and conditions under which ICC and its clearing members that are dually registered as futures commission merchants and securities broker-dealers would be permitted to: (1) commingle in an account subject to Section 4d(f) of the Act (a cleared swaps customer account) positions in swaps and security-based swaps and related customer money, securities and property; and (2) portfolio margin the swaps and security-based swaps held in the cleared swaps customer account. Comments should be submitted on or before December 22, 2011. CFTC Press Release.
  • Documenting Derivatives.
On November 22nd, Reuters reported on the difficulties facing the CFTC as it tries to finalize documentation rules for the trading and clearing of derivatives. Documentation.
  • Enforcement.
On November 21st, the New York Times' DealBook reported the CFTC's enforcement division is creating two enforcement units. One will focus on fraud and manipulation generally, and the other will focus on the swaps market. Enforcement.
  • Large Trading Reporting Requirements for Physical Commodity Swaps and Swaptions.
On November 18th, the CFTC's Division of Market Oversight issued a letter to market participants requiring compliance with the new large trader reporting system for physical commodity swaps and swaptions. Clearing organizations and clearing members must begin reporting under the new system on November 21, 2011, and the Division requires fully compliant month-end open interest reports to be collected beginning September 2011 through February 2012 and submitted to the Commission by March 20, 2012. The Division is providing a temporary and conditional safe harbor for less than fully compliant reporting as it launches its XML-based large trader reporting system for swaps. This safe harbor is only for market participants making a good faith effort to comply with the new rules. Parties relying on the safe harbor must also submit an e-mail to the Division for its review that includes information on arrangements being made to come into full compliance with the rules, as well as the expected date of such compliance. CFTC Press Release.

Securities and Exchange Commission [Top]
  • Chairman Schapiro Testifies about the Implementation of the Dodd-Frank Act's Derivatives Provisions; Comments on MF Global.
On December 1st, SEC Chairman Mary L. Schapiro summarized the SEC's efforts to implement the Dodd-Frank Act's provisions concerning derivatives. The SEC will address the international aspects of derivatives in a single proposal. After all of the agency's proposals have been submitted for public comment, it will then suggest a timetable for when the various proposals will become effective. Schapiro Prepared Testimony. Business Week reported that Schapiro, in response to questions, told members of the Senate Agriculture Committee that the SEC, in consultation with the FASB, is considering whether additional disclosure is needed with respect to repurchase-to-maturity agreements. Some believe that such "repos" were used by MF Global to improve the appearance of its balance sheet. CFTC Chairman Gary Gensler, who also testified, said that his agency will reexamine how it defines segregated accounts. Gensler further noted that the CFTC has fewer than 20 examiners while there are 125 futures commission merchants ("FCMs"). The CFTC relies entirely on self-regulatory organizations for FCM examinations. Responses. See also Gensler Prepared Testimony.
  • SEC and FINRA Issue Risk Alert on Broker-Dealer Branch Office Inspections.
On November 30th, the SEC's Office of Compliance Inspections and Examinations and the Financial Industry Regulatory Authority issued a Risk Alert and a Regulatory Notice on broker-dealer branch inspections, and offered suggestions to help securities industry firms better perform this supervisory function. SEC Press Release.
  • OIG Issues Semiannual Report.
On November 30th, the SEC's Office of the Inspector General published its Semiannual Report to Congress. Summarizing the report, the Washington Post noted the conflicts of interest that are created when SEC staff leave the agency for the private sector. The Washington Post also reported that the apparent close relationship between one SEC attorney and a hedge fund manager compromised an agency investigation. Conflicts.
  • SEC Seeks Greater Penalty Authority.
On November 29th, Bloomberg reported that SEC Chairman Mary Schapiro has asked Congress to allow the agency to seek higher civil penalties. Schapiro proposes raising the limit for fines against individuals to $1 million per violation and against firms to $10 million per violation; seeks the flexibility to seek penalties based on investor losses as well as on violator's gains; and asks to be able to triple penalties for recidivists. Penalties.
  • EDGAR Updates.
On November 21st, the SEC updated the EDGAR system to Release 11.3 and, as such, the EDGAR Filer Manual was updated to share the appropriate information with filers. The revisions were being made primarily to support the updates to submission form types ABS-15G and ABS-15G/A, to support changes in XBRL validations for filings containing Exhibit 101 documents, to update the OMB information on EDGARLite Form TA-W, and to add a new applicant type to the Form ID. In addition, the filer manual was also revised to address changes previously made in EDGAR. SEC Release No. 33-9281.

Exchanges and Self-Regulatory Organizations [Top]
Joint Actions
  • SEC Extends Time Period for Addressing Proposed Changes to Trading Halt Rules.
On November 17th, the SEC extended to December 30, 2011, the period of time in which it will act upon 15 exchanges' and the Financial Industry Regulatory Authority's individually submitted proposed rule changes relating to trading halts due to extraordinary market volatility. SEC Release No. 34-65770.
The Depository Trust Company
  • DTC Proposes Amendments to Receiver Authority Delivery Function.
On November 28th, the SEC provided notice of The Depository Trust Company's filing of a proposed rule change that would enhance the risk management controls associated with DTC's Receiver Authorized Delivery function. Comments should be submitted on or before December 23, 2011. SEC Release No. 34-65831.
Financial Industry Regulatory Authority
  • 2012 Annual Audit and FOCUS Report Filing Deadlines.
On December 1st, the Financial Industry Regulatory Authority reminded firms of their obligation to file annual audit and Financial and Operational Combined Uniform Single ("FOCUS") reports by the required due dates. FINRA Information Notice.
  • FINRA Revises S201 Regulatory Element Program.
On November 28th, FINRA announced that on January 2, 2012, it will implement a redesigned version of the S201 Regulatory Element Program in an effort to improve and keep the Continuing Education Program current and relevant. The S201 Regulatory Element Program (i.e., the Supervisors Program) is required for supervisory/principal registrants. FINRA Information Notice.
  • SEC Approves Amendments to TRACE Reporting Requirements.
On November 21st, FINRA announced that the SEC has approved amendments to FINRA Rule 6730 regarding member firms' obligations when reporting transactions in TRACE-eligible securities other than asset-backed securities. FINRA amended the reporting requirements in connection with the consolidation of all TRACE-eligible securities transaction processing and data management on a single technology platform. FINRA Regulatory Notice 11-53.
National Futures Association
  • CFTC Approves Proposed Forex Dues and Assessments.
On November 28th, the National Futures Association advised that the CFTC has approved amendments to NFA Bylaws 1301 and 1302 and the related Interpretive Notice entitled Forex Transactions. These amendments, which modify the current dues and assessment fee structure applicable to Forex Dealer Members ("FDMs") and non-FDM Forex Members, are effective February 1, 2012. NFA Notice I-11-21.
Options Clearing Corporation
  • Jurisdictional Clarification Proposed for Relative Performance Indexes.
On November 22nd, the SEC provided notice of the Options Clearing Corporation's amended proposal to remove any potential cloud on the jurisdictional status of relative performance indexes. NASDAQ OMX PHLX has proposed to trade options on indexes ("Alpha Index Options") that measure the relative total returns of a stock or exchange-traded fund ("ETF") against another stock or ETF, including where one of the reference ETFs measured by the index is a gold- or silver-based ETF. Generally, a relative performance index should be considered to be an index of securities since the components of a relative performance index are ETFs or other securities. However, the OCC would like to confirm the jurisdictional treatment of relative performance indexes in situations in which one of the reference securities of an underlying relative performance index is an ETF designed to measure the return of gold or silver. Comments should be submitted on or before December 20, 2011. SEC Release No. 34-65807.

Judicial Opinions [Top]
  • Ninth Circuit Reinstates Rescission Case.
On December 2nd, a divided Ninth Circuit panel held that a plaintiff suing under Section 10(b) of the Securities Exchange Act who seeks rescission must demonstrate economic loss, and that the alleged misrepresentation caused the loss. Where, as here, rescission is not feasible, a court may consider rescissionary damages. The Court therefore partially vacated the trial court's order entering summary judgment dismissing the case. In addition, because the Supreme Court issued its decision in Merck & Co., Inc. v. Reynolds, 130 S. Ct. 1784 (2010), after the trial court's order, on remand the trial court should apply Merck & Co.'s statute of limitations analysis. Strategic Diversity, Inc. v. Alchemix Corp.
  • Homeowner's Challenge of Foreclosure Fails.
On December 1st, the Eighth Circuit addressed a "show-me-the-note" challenge to a home foreclosure. Plaintiff challenged the validity of the foreclosure of his home because Chase initiated foreclosure based on the assignment of the mortgage. Affirming the entry of summary judgment dismissing the claim, the Court held that Minnesota law does not require Chase to possess the promissory note at the time it commences foreclosure by advertisement, and even if Minnesota law imposed such a requirement, the undisputed facts establish Chase possessed the note. Stein v. Chase Home Finance, LLC.
  • Court Denies Proposed SEC-Citigroup Consent Judgment; Orders Case to Trial.
On November 28th, the Court overseeing the SEC's lawsuit against Citigroup concerning the latter's allegedly fraudulent sale of collateralized debt obligations refused to approve the parties' proposed consent judgment, consolidated the matter with the SEC's case against a mid-level Citigroup executive who is the only individual charged in the case, and ordered the case to trial on July 16, 2012. The strongly worded opinion questions the SEC's settlement practices and concludes that the proposed consent judgment is neither fair, nor reasonable, nor in the public interest. It calls the proposed $95 million civil penalty pocket change and finds it has not been provided with any proven or admitted facts upon which to exercise even a modest degree of independent judgment. SEC v. Citigroup Global Markets Inc. See also SEC's Response. On November 30th, the Washington Post summarized the potential consequences of the Court's denial, including possible settlement alternatives. Alternatives. On December 1st, SEC Enforcement Division Director Robert Khuzami offered a spirited defense of the Commission's settlement policies. He noted that the penalties sought by the agency are limited by statute. In addition, the SEC may only institute civil contempt proceedings against a recidivist who is actively violating an injunction. If the violative conduct has ended, it cannot move for contempt. Khuzami Remarks.
  • Seventh Circuit Addresses the Statute of Limitations in Private Securities Fraud Actions.
On November 22nd, the Seventh Circuit held that a securities fraud violation occurs when the misrepresentation is made, not when the plaintiff suffers the harms. The statute of limitations, therefore, begins on the earlier date. McCann v. Hy-Vee, Inc.
  • First Amendment does not Protect Credit Raters.
On November 12th, a Federal District Court granted in part and denied in part defendants' motions to dismiss a securities fraud lawsuit. Investors in mortgage-backed securities allege defendants made a variety of misrepresentations relating to the investments, misleading plaintiffs as to the true risks involved. Among other things, the Court holds that the allegedly false and misleading credit ratings at issue are not protected by the First Amendment. The ratings are commercial speech and may therefore be subject to regulation. Genesee County Employees' Retirement System v. Thornburg Mortgage Securities Trust 2006-3.

Winston & Strawn Speaking Engagements and Publications [Top]
  • 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.

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