Lawsuits

Sayeth the SEC: Read more »

The judge hearing the Justice Department’s CDO-rating lawsuit against S&P refused to dismiss it yesterday, rejecting S&P’s much-mocked theory that its pre-crisis claims of independence and objectivity and, like, plausible ratings were just “puffery” that no one should have taken seriously. Here is the story, and here is his opinion, and here is a rhetorical question:1

At the hearing on this matter, Defendants repeatedly asserted that no reasonable investor would have relied on S&P’s claims of independence and objectivity. Regarding the question of materiality, S&P argued that, since the issuer banks had access to the same information and models that S&P analysts did, they could not have been fooled by faulty credit ratings. This begs the question: if no investor believed in S&P’s objectivity, and every bank had access to the same information and models as S&P, is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?

Well so I mean do you want an answer? How much value do you think they added?

The S&P case is a pretty weird beast because it’s brought under the FIRREA, a law designed to protect federally insured banks, and so the government has to assert that: Read more »

This lawsuit is mostly about the (alleged!) unapologetic Antisemitism of Knight Capital managing director Brendan Joseph McCarthy, which former employee and plaintiff Robert Morris Milloul claims caused him and others to lose their jobs in the algorithmic trading unit of the firm; we don’t need to summarize the allegations but we did think it was important to highlight the motivational technique he was said to use around the office. Read more »

  • 14 Jun 2013 at 5:02 PM

Bonus Watch ’12: Bank Of America

Bank of America Corp., the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents. Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012…Loan collectors who put at least 10 customers into foreclosure, including those who were in trial modifications, were given a $500 bonus, said Gordon, who worked at Bank of America for more than four years. Other rewards included gift cards for retailers including Target and Bed, Bath and Beyond, she said. [Bloomberg]

I find the story of Dragon Systems hilarious and horrifying so I’m never going to miss an opportunity to tell you about it and one occurred today. The story, quickly, is (1) Dragon Systems, a closely held speech-recognition company, hired Goldman to advise it on a merger with Lernout & Hauspie, (2) Goldman assigned Dragon an extremely JV team of bankers, (3) Dragon sold itself to L&H in June 2000 in an all-stock deal, (4) L&H soon turned out to be a massive fraud, and (5) L&H filed for bankruptcy in November 2000 and Dragon’s shareholders lost $300 million. Dragon sued, Goldman won a trial in January, and today they won some more, for reasons I’m not clear on. That is, I’m not sure why they had to win again – the judge issued an opinion finding in favor of Goldman, even though a jury did the same thing in January. Also it’s not much of a stirring win: Read more »

There’s an alternative theory of the 2007-2008 financial crisis in which it was just a minor hiccup that would have worked out fine for all concerned if the meddling U.S. government hadn’t been so trigger-happy in bailing out basically sound but momentarily embarrassed financial institutions.1 I mean, you probably won’t actually run into anyone who believes this theory, because it is a pretty loony theory. And yet! It keeps coming up in court, which I guess means the courts are full of loonies, QED.

Obviously Hank Greenberg is the most vocal and delightful proponent of this theory, since he’s been suing the government for ever and ever for taking over AIG when AIG actually would have been just fine with a little eleven-digit low-interest loan from the government. But Fannie Mae and Freddie Mac shareholders have come on strong of late, with weird lobbying for re-privatization of their shares and, now, a lawsuit filed yesterday seeking $41 billion in damages over their bailout.

The theory here should be familiar if you’ve been following along with AIG; it goes something like this: Read more »

So that’s nice. Read more »