• Justice Department Examines MBS Ratings Practices.

On August 18th, Bloomberg reported that the Justice Department is investigating the credit ratings Standard & Poor's and Moody's Investor Service gave to mortgage-backed securities. Investigation.

• Alleged Insider Trader Fights Back.

On August 17th, the New York Times' DealBook reported that Toby G. Scammell, whom the SEC accuses of using insider information to trade in Marvel Entertainment prior to Disney Company's acquisition of it, is fighting back. Response.

• Credit Raters.

On August 16th, the Wall Street Journal discussed how credit ratings agencies attained their prominence and what should be done about it. Agency Upgrade. On August 15th The Hill reported that upon its return from its summer recess, the House is likely to vote on H.R. 1539, the Asset-Backed Market Stabilization Act of 2011, which would exempt credit rating agencies from liability if they provide incorrect information in a registration statement or prospectus. Vote.

• Regulatory Nitpicking.

On August 16th, the New York Times' DealBook summarized the testimony of community bankers before a House Financial Services subcommittee. The bankers complained that regulatory inspections have devolved into nitpicking. Testimony.

• Clawback Policies.

On August 15th, CFO.com noted the pros and cons of adopting a corporate compensation clawback policy prior to the SEC's implementation of such rules. Clawbacks.

• Living Wills.

On August 14th, Bloomberg reported on the FDIC's efforts to draft the Dodd-Frank Act's "living wills" provisions. Living Wills.

• FFIEC Announces the Availability of 2010 CRA Data.

On August 18th, the three federal banking agency members of the Federal Financial Institutions Examination Council, the Federal Reserve Board, the FDIC, and the OCC, announced the availability of data on small business, small farm, and community development lending reported by certain commercial banks and savings associations, pursuant to the Community Reinvestment Act. FFIEC Press Release.

• OCC Issues Cost of Funds Report.

On August 15th, the OCC issued the Cost of Funds Reports (Current and Historical), which provides information about funding costs for institutions regulated by the Office of Thrift Supervision as of June 30, 2011. The data in the report is derived from the OTS Monthly Cost of Funds Survey System (OTS Form 1568), which savings associations regulated by OTS (as of July 20, 2011) will continue to file through December 31, 2011. On July 21, 2011, OTS became part of the OCC, and responsibility for collection and publication of this data was assumed by the OCC. The OCC plans to publish the final six reports before the survey is discontinued in 2012. OCC Press Release.

• Syrian Government Assets are Frozen.

On August 12th, the Treasury Department announced that President Barack Obama has signed an Executive Order imposing additional sanctions against the Government of Syria, freezing any assets of the Government of Syria in the United States and banning the importation into the United States of petroleum or petroleum products of Syrian origin. Treasury Department Press Release.

• Treasury Department Funds State Small Business Credit Initiative in 11 States and Washington, D.C.

On August 16th, the Treasury Department announced the approval of applications for State Small Business Credit Initiative ("SSBCI") funding from 11 states and Washington, D.C. Under the SSBCI, all states are offered the opportunity to apply for federal funds for state-run programs that partner with private lenders and investors to increase the amount of credit available to small businesses. Treasury Department Press Release.

• Treasury Department Designations.

On August 16th, the Treasury Department designated Umar Patek, Abdul Rahim Ba'asyir and Muhammad Jibril Abdul Rahman, three senior members of Jemaah Islamiya, the Southeast Asia-based designated terrorist network with links to al-Qa'ida. As a result of the designations, U.S. persons are prohibited from engaging in transactions with these individuals, and assets they may hold under U.S. jurisdiction are frozen. Treasury Department Press Release.

• Swap Data Repositories: Registration Standards, Duties and Core Principles.

On August 15th, the CFTC published the registration requirements, statutory duties, core principles and certain compliance obligations for registered swap data repositories, implementing Section 21 of the Commodity Exchange Act, which was added by section 728 of the Dodd-Frank Act. The new final rules are effective 60 days after publication in the Federal Register, which is expected during the week of August 22.

• Whistleblower Rules.

On August 15th, the CFTC published the new final rules implementing the new whistleblower program authorized by the Dodd-Frank Act. The new final rules are effective 60 days after publication in the Federal Register, which is expected during the week of August 22.

• Suspending an Asset-Backed Securities Issuer's Duty to File Ongoing Securities Exchange Act Reports.

On August 17th, the SEC published new final rules suspending the duty of an issuer of asset-backed securities, under certain conditions, to file ongoing reports, as required by Section 15(d) of the Securities Exchange Act. The new final rule is effective 30 days after publication in the Federal Register, which is expected during the week of August 22. SEC Release No. 34-65148.

• SEC Temporarily Exempts Broker-Dealer Floor Broker Operations from the Automated Controls Requirement of Rule 15c3-5.

On August 15th, the SEC issued an order exempting until November 30, 2011, the floor broker operations of broker-dealers with market access that handle orders on a manual basis from the automated controls requirement of Securities Exchange Act Rules 15c3-5(c)(1)(ii)and (c)(2). The SEC received a request from NYSE Amex, NYSE Arca, and the New York Stock Exchange to extend the compliance date for the automated controls requirement because more time is needed to complete the implementation of the automated controls required by Rules 15c3-5(c)(1)(ii) and (c)(2) for orders handled on a manual basis. SEC Release No. 34-65132. See also NYSE Euronext Information Memo 11-24.

• SEC Requests Comments on Whether Stable Value Contracts are Swaps.

On August 18th, the SEC and CFTC requested comments on whether stable value contracts ("SVCs") should be considered swaps. The Dodd-Frank Act mandates that the CFTC and SEC conduct a study on SVCs and, if the agencies conclude that SVCs are swaps, determine whether they should be exempted from swap regulations. Comments should be submitted within 30 days after publication in the Federal Register, which is expected during the week of August 22. SEC Release No. 34-65153; Joint Press Release.

• SEC to Continue "Prompt Disclosure" Requirement for Ratings Changes.

On August 17th, Reuters reported that the SEC does not intend to change its existing policy requiring credit rating agencies to promptly disclose a ratings change. European regulators require ratings firms to give government issuers a 12-hour notice before a ratings change and may lengthen that notice period to three days. The SEC fears that delayed announcements could facilitate insider trading. Notice.

• FINRA Offers Guidance on the Use of Social Media.

On August 18th, FINRA provided guidance to firms regarding the use of social media. FINRA Regulatory Notice 11-39.

• SEC Approves Proposal Clarifying the Application of the Operations Professional Requirements.

On August 15th, the SEC granted accelerated approval to FINRA's clarification of the application of the Operations Professional requirements to certain employees of foreign broker-dealers whose activities are limited to facilitating the clearance and settlement of foreign securities transactions. The proposed rule change would amend supplementary material .06 to FINRA Rule 1230(b)(6) to provide that employees of foreign broker-dealers whose activities relating to transactions in foreign securities on behalf of customers of FINRA members are limited to facilitating clearance and settlement will not be required to register as Operations Professionals pursuant to FINRA Rule 1230(b)(6)(A) where: (1) the member sending the order for a transaction in foreign securities on behalf of the customer to the foreign broker-dealer is not a direct participant of the applicable foreign clearing system; and (2) in executing such order in the foreign market, the foreign broker-dealer accepts the member's customer's instructions to settle the transaction in foreign securities on a DVP/RVP basis through the foreign clearing system and settle directly with a custodian for the customer. Comments should be submitted on or before September 9, 2011. SEC Release No. 34-65137.

• SEC Approves Proposal Regarding the Appointment of Competitive Market Markers.

On August 11th, the SEC approved the International Securities Exchange's proposed rule change revising the manner in which Competitive Market Makers ("CMMs") are appointed to options classes. The proposal allows CMMs to seek appointment in the options classes listed on the ISE across the groups of options assigned to particular Primary Market Makers. SEC Release No. 34-65100.

• CFTC Approves Amendments to NFA's Forex Requirements Including NFA's Jurisdiction Over Members Engaging in Forex Activities.

On August 16th, the National Futures Association advised that the CFTC has approved a number of amendments to NFA Requirements that govern the retail forex activities of NFA Members. These amendments to NFA Bylaws 301 and 306, NFA Compliance Rules 2-10, 2-36 and 2-39, Code of Arbitration Section 1 and Interpretive Notices 9053, 9058 and 9060 will become effective October 1, 2011. NFA Notice I-11-14.

• SEC Approves Additions to Listed Company Manual.

On August 12th, the SEC approved the New York Stock Exchange's proposed addition of new section 907.00 to the Listed Company Manual, setting forth certain complimentary products and services that are offered to currently and newly listed issuers. SEC Release No. 34-65127.

• OCC Proposes Revisions to Definition of "Clearing Fund."

On August 12th, the SEC provided notice of the Options Clearing Corporation's proposal to revise its By-Laws and Rules to establish the size of OCC's clearing fund as the amount that is required within a confidence level selected by OCC to sustain possible loss under a defined set of scenarios as determined by OCC. Comments should be submitted on or before September 7, 2011. SEC Release No. 34-65119.

• Ninth Circuit Dismisses Federal and State Credit Card Claims.

On August 19th, the Ninth Circuit withdrew an earlier opinion after the U.S. Supreme Court reversed it. On remand, the Ninth Circuit affirmed a trial court's dismissal of plaintiff's claim that the defendant bank violated the Truth in Lending Act and breached its contract by failing to notify plaintiff of an increase to his credit card interest rate. In light of its sister courts' opinions, and the actions of the Delaware legislature, the Ninth Circuit also held that defendant was permitted to raise its interest rates in the event of a customer default. McCoy v. Chase Manhattan Bank USA.

• Third Circuit Affirms Dismissal of ERISA Case.

On August 19th, the Third Circuit held that defendants did not breach their ERISA fiduciary duties by inadequately selecting a mix of investment options for the Unisys 401(k) plan, in which plaintiffs participated. The plan's directed trustee was immune from liability since it lacked discretion, took its directions from the plan, and did not participate in Unisys's selection of investment options. In light of the reasonable mix of investment options in the Unisys plan, the plaintiffs' factual allegations about Unisys's conduct did not support their claims. Renfro v. Unisys Corp.

• Collusive Trading Allegations Stated Securities Fraud Claims.

On August 18th, the Seventh Circuit reinstated AnchorBank's and Plumb Trust's securities fraud complaint. Plaintiffs allege that defendant, an employee of AnchorBank, collusively traded the units of a fund for which Plumb Trust was the trustee and offered by AnchorBank's retirement plan. Defendant's collusive trading resulted in amplified and dramatic fluctuations in AnchorBank's stock price. Reversing the dismissal of the securities fraud complaint, the Seventh Circuit holds that plaintiffs adequately pleaded scienter and loss causation. It is sufficient that plaintiffs pleaded that at least a part of their losses were attributable to defendant's activities. AnchorBank, FSB v. Hofer.

• Second Circuit Backs Madoff Trustee.

On August 16th, the Second Circuit affirmed the method by which the Securities Investors Protection Act ("SIPA") trustee overseeing the liquidation of Bernard Madoff's broker-dealer calculated investors' net equity. The trustee properly used the "net investment method," which credited the amount of cash deposited by the investor less any amounts withdrawn. Although SIPA does not prescribe a single means to calculate net equity, the method selected in the instant case is more consistent with SIPA than any other method advocated. In re Bernard L. Madoff Investment Securities LLC.

• Court Affirms FDIC's Treatment of Accounts at Failed Bank.

On August 16th, the Tenth Circuit affirmed the FDIC's finding that two of petitioner's accounts at a failed bank should be aggregated as corporate accounts. The FDIC reasonably applied its regulations to reach its conclusion. The account signature cards indicated a corporation owned the accounts for business purposes and the bank's ledgers described the accounts as operating accounts. A depositor cannot simply claim that an account was held to fund annuity payments to arrive at a different result. Aviva Life & Annuity Co. v. FDIC.

• Third Circuit Vacates TILA Jury Verdict.

On August 16th, the Third Circuit vacated a jury verdict in favor of a lender in a lawsuit alleging violations of the Truth in Lending Act ("TILA"). The plaintiff alleged that E*Trade violated TILA by failing to properly advise her of her right to cancel her home mortgage. Because the trial court's jury instructions were faulty, the Third Circuit vacated the verdict finding that E*Trade did not violate TILA. The trial court improperly advised the jury that because plaintiff's signature was on the notice of right to cancel, plaintiff had to show more than just her testimony to rebut the presumption of notice. Cappuccio v. Prime Capital Funding LLC.

• Bank Did Not Owe a Duty to Disclose to Investors.

On August 16th, the Eighth Circuit affirmed the entry of summary judgment dismissing real estate investors' claims that the bank financing a real estate development project fraudulently concealed certain details concerning the financing. The Eighth Circuit held that the bank did not owe a special duty to the investors requiring disclosures. Although the offering memorandum said that the bank was the escrow agent, there was no evidence that the bank was the escrow agent or knew that the offering memorandum named it the escrow agent. Badger Capital, LLC v. Chambers Bank of North Arkansas.

• Boston Scientific Prevails in Securities Fraud Lawsuit.

On August 15th, the First Circuit addressed what adverse events associated with medical devices an issuer must disclose, affirming the entry of summary judgment dismissing a Rule 10b-5 securities fraud lawsuit. Given the statements and disclosures made, Boston Scientific had no obligation to disclose an improvement that would reduce the very small number of complaints it had received about the device, but had not disclosed. In addition, plaintiffs failed to produce evidence supporting an inference that defendants intentionally or recklessly made misleading statements about the risk that the device might be recalled. While a statement of risk does not insulate from liability, it does not create liability by not disclosing all of the factors that contribute to the risk assessment. Mississippi Public Employees' Retirement System v. Boston Scientific Corp.

• Gareth Morgan to Speak at Legal Week Corporate Counsel Forum Europe.

Winston & Strawn London partner Gareth Morgan will be among the speakers during Legal Week Corporate Counsel Forum Europe to be held September 13-14, 2011 in Bedforshire, UK. Winston & Strawn will sponsor the gala reception dinner on September 13. Event.

• Winston to Speak and Sponsor Thomson Reuters' 17th Annual LPC Loan Conference.

Winston & Strawn corporate finance partners will speak at the 17th Annual Thomson Reuters LPC Loan Conference to be held Thursday, September 22, 2011 in New York. The theme of this year's conference is "Boom to Bust and Back: The Global Loan Market Moves Forward." Event.

• Winston & Strawn Sponsors TMA's 2011 Annual Convention.

Winston & Strawn will sponsor the 2011 Turnaround Management Association (TMA) Annual Convention, to be held October 25-27, 2011 in San Diego. Twitter co-founder Biz Stone is the keynote speaker. Event.

• Winston & Strawn Sponsors 16th Annual LSTA Conference.

Winston & Strawn is sponsoring the 16th Annual Loan Syndications and Trading Association's (LSTA) Conference to be held on November 2, 2011 in New York. 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.