Lawsuits

  • 18 Dec 2012 at 1:46 PM

Should Banks Be Protected From Homeowner Lawsuits?

Here’s a little nugget that should make the handful of remaining Wall Street Occupiers’ heads explode: Read more »

It’s easy to make fun of the SEC for wanting to sue Netflix over a Facebook post. Netflix, Facebook, and the SEC are all a little funny, and bring them all together and you get a delightful orgy of hip-five-years-ago clumsiness. Also, like, olds, get over yourselves, everyone is on Facebook, why should I call Grandma on her birthday, or 8-K my operational stats? Social! 2.0!

And yet I’m a little sympathetic to the SEC here, mostly because I am old and afraid of Facebook. The agency notified Netflix yesterday that it’s planning to bring a civil action claiming that Netflix violated Reg FD by posting operational numbers – that Netflix viewing had exceeded 1 billion hours of Netflix June – on CEO Reed Hasting’s Facebook wall without press releasing or 8-King those numbers. Reg FD prohibits an issuer from “disclos[ing] any material nonpublic information regarding that issuer or its securities” to any investor or analyst without simultaneously disclosing that information through a “method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”

So if you’re Netflix you have two ways to win this: either the information was not material, or it was disclosed publicly in compliance with Reg FD. Perhaps strangely, Netflix is taking both angles. From its response yesterday: Read more »

This New York Attorney General lawsuit against Credit Suisse is mostly the same as all the other lawsuits by all the other regulators against all the other banks. Here is a summary, based on the complaint:

  • Some mortgage originators made crappy loans, because that was the style at the time.
  • They sold them to Credit Suisse to bundle into MBS.
  • Credit Suisse’s due diligence was of the form “hi, is this a loan? APPROVED,” in part because they sucked or whatever but mostly because there were competitive pressures where if they didn’t buy the loan someone else would1 and if you’re the guy whose job is to buy loans and you buy zero loans and say “well the thing is, they were all bad loans,” you are fired, so your incentives are not socially optimal.
  • The offering documents for the MBS said things like “ooh our due diligence is so good, so good,” though no specific falsifiable claims are made about the quality of the mortgages or the diligence, and every claim of the form “we only approve good mortgages” is followed immediately by “unless we decide to approve bad ones.”2
  • Dumb emails were sent because, you know how mortgage traders are with their email.3
  • The MBS lost value for an assortment of reasons, some due to Credit Suisse’s bad diligence, some not.
  • That all certainly seems fraudy, so New York is suing CS “for making fraudulent misrepresentations and omissions to promote the sale of residential mortgage­-backed securities (RMBS) to investors.”
  • Credit Suisse has a nontrivial argument that it didn’t break the letter of the law, fraudulent-misrepresentation-wise, since it never specifically said “these loans are good” but only things of the form “we have pondered the goodness of these loans in our heart, except when we haven’t.”
  • But its loans, and its diligence process, and its emails, are all sufficiently dumb that there’ll probably be a settlement with a high-8/low-9-figure dollar amount and no admission of guilt.

Whatever, boring, the end. But then I came to this: Read more »

The SEC settled cases today with JPMorgan and Credit Suisse over “misleading investors in offerings of residential mortgage-backed securities” for a total of about $400 million, which the SEC plans to hand out to those misled investors. There’s been a lot of this sort of thing recently, so here’s a quick cheat sheet on who is suing whom over what mortgages:

  • Everyone is suing every bank over all of their mortgages.

So fine but is that not weird? Two things to notice about big banks is that they are (1) big and (2) banks, both attributes that tend to accrue lawyers. And a thing that lawyers are supposed to do is stop stupid cowboy bankers from doing stupid illegal things. If you told me that one or two banks decided to go without lawyers for cost-cutting and/or risk-increasing reasons, I would be skeptical but perhaps willing to play along, but all of them? I am certain that JPMorgan has lawyers.1

The mystery is resolved and/or deepened if you look at most of what is being settled in these cases, which in highly schematic outline was:

  • banks wanted to hose investors,
  • they asked their lawyers if that was okay,
  • the lawyers checked the documents and said “yes,”
  • so they did.

In ever so slightly less schematic outline: Read more »

Remember Christine Mancision? To recap, she’s the hedge fund investor relations lady who, back in October 2009, sued both the Hyatt Morristown and James Graeber, for an incident that took place on the evening of November 22, 2008, that incident being Graeber approaching her on the dance floor of his sister’s wedding, grabbing her arm, taking her for a spin, and then “flinging” her off to the side, causing Mancision to make a hard crash landing on her wrist, which was “bent the complete opposite way” when she stood up. Her injuries were so extensive that they required surgery, a metal plate and three screws (as well as “eight months of grueling rehabilitation”) and while she blames Graeber first and foremost, she also believes the Hyatt played a part in overserving the guy when he was, she says, “visibly intoxicated,” and therefore added “fuel to the fire” in Graeber’s dancing feet. Unfortunately for Mancision, Judge Robert Sweet has ruled that while she can go after Graeber for what happened that night, she cannot collect damages from the hotel, because there is not enough evidence to prove that the Hyatt served her dancing partner alcohol “when he was in a visibly intoxicated state” or that he was drunk at all at any point during the ceremony or reception, a conclusion he came to in part based on: Read more »

And management is going to fire you without pay over it, realize they did so in error, not show any remorse and tell you to shoot HR a cover letter and résumé if you’d like the opportunity to try and get your old job back. Read more »

  • 22 Oct 2012 at 4:22 PM

Timberwolf Continues To Stalk Goldman Sachs

Financial product salespeople, if they know what’s good for them, should be thankful for car dealers. Not used car dealers, either, new car dealers: because of the world’s familiarity with their business model, if you sell a client a product at 100 and then tell them the next day that it’s worth 95, you have at least some outside shot at pacifying them by explaining, slowly and patronizingly, “it’s like buying a car: the price drops as soon as you drive it off the lot.”

I mean, that’s true of buying a toaster or a bunch of carrots, too, but nobody marks those to market, so. I guess people do mark their cars to market? That seems to be a thing. In any case, “mumble mumble mumble drive it off the lot” sounds much better than the alternative, which goes something like “yeah, we thought it was worth 95 but we sold it to you at 100, problem?”

Remember Timberwolf? Timberwolf was an RMBS CDO that Goldman Sachs marketed. It was also “one shitty deal,” in Tom Montag’s immortal words, and some of it was sold it to some Australians with the buzzword-salad name Basis Yield Alpha Fund (Master), and Tom Montag was right, so, that worked out poorly for Basis Yield Alpha Fund (Master). Working out poorly was a feature of a lot of Basis Yield Alpha Fund (Master) investments; before they bought Timberwolf they bought another MBS CDO called Point Pleasant, also from Goldman, and whereas a Timberwolf will of course rip your face off – that’s just evolution – the face-ripping they experienced from a Point Pleasant seems to have come as some surprise.1 Anyway, they sued, and while Goldman has engaged in marvelous jurisdictional kerfufflery that got it tossed from federal court, they are still in New York state court, which refused to toss it late last week.

Here, from the opinion refusing to toss the case, is Basis Yield Etc.’s core allegation: Read more »