Wells Fargo Pays $1.2 Billion Settlement, Admits Deception in Certifications

Mortgage Settlement 2Calling the settlement a reproach for “years of reckless underwriting” at Wells Fargo, U.S. Attorney Preet Bharara in Manhattan announced on April 8th that Wells Fargo & Co. formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit. A notable feature of the settlement is Wells Fargo’s specific admission that it deceived the U.S. government into insuring thousands of risky mortgages. The settlement with Wells Fargo, the largest U.S. mortgage lender and third-largest U.S. bank by assets, was filed on Friday in Manhattan federal court. According to the settlement, Wells Fargo “admits, acknowledges, and accepts responsibility” for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.

The lender also admitted that from 2002 to 2010, it failed to file timely reports on several thousand loans that had material defects or were badly underwritten, a process that one of its executives, who was also sued in this litigation, was responsible for supervising. Continue Reading

Lenders & FinTech Companies Now Have an Opportunity to Shape Federal Regulation of FinTech

FinTech 2On March 31, 2016, the Office of the Comptroller of the Currency (“OCC”) issued its much anticipated white paper on the role of financial technology (“FinTech”) in the financial services industry. The paper, titled Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective, opens a two-month window in which banks, FinTech companies and lenders may engage in discourse with the OCC regarding the role of federal agencies in regulating FinTech. Comments on the paper are due by May 31, 2016; the OCC has scheduled a FinTech forum for July 23, 2016, at which industry commentary on the paper presumably will be discussed.

The importance of FinTech has steadily increased over the last five years to the point that it is mentioned almost daily in trade journals, newspapers and other media outlets. It is a hot topic at conferences and foremost on the mind of lenders and financial services providers. As is evident from the white paper’s publication, FinTech has become so interwoven in the financial services tapestry that it now has the dubious honor of being subject to federal government scrutiny. Continue Reading

Caveat Emptor: Non-compliance with a Non-Binding Term Sheet Results in $195 Million Judgment

On December 23, 2015, the Delaware Supreme Court affirmed the Delaware Chancery Court’s award of $195 million to PharmAthene, Inc. (“PharmAthene”) as compensation for lost profits (a/k/a expectation damages) on account of the failure by its counter-party to a term sheet to negotiate a license agreement in good faith.  The judgment was affirmed notwithstanding the fact that the obligation to negotiate in good faith was set forth in a non-binding term sheet.

Term sheets and letters of intent (“LOIs”) are an integral part of our legal practice and an expected component of any sophisticated financing or other corporate transaction. This court decision underscores the importance of clarity in these preliminary documents, even on something as boilerplate as agreeing to negotiate binding deal documentation in good faith.  Moreover, it increases the risk of using non-binding preliminary agreements governed by Delaware law to set forth the terms of prospective transactions. Continue Reading

Fannie and Freddie Adopt IDR Policy for Repurchases

Mortgage RepurchaseAfter years of litigation costing tens of millions of dollars, the Federal Housing Finance Agency has hit upon a way to expedite resolution of breach of representation and warranty claims that, if successful, could minimize costs.

The FHFA announced that Fannie Mae and Freddie Mac will, from now on, purchase loans that provide for independent dispute resolution (IDR) for any alleged breach of representations or warranties. This would be a substantial change from the current process, in which breach claims could spur repurchase demands and rescission requests that can lead to years of argument and sometimes costly resolutions.

Representations and warranties (R/W) are an important component of any lender’s effort to sell its loans to government sponsored entities like Fannie Mae or Freddie Mac. Indeed, GSEs rely on lender’s explicit guarantees that loans purchased are underwritten to Fannie’s or Freddie’s underwriting guidelines – that itself is perhaps the most important representation and warranty. Under the present framework, if a GSE concludes that a R/W was breached, it may pursue repurchase, a “make-whole” agreement, or any number of alternative remedies. But those remedies can lead to months of correspondence and demands for documentation and proof, and may lead to litigation. Continue Reading

Citibank Breaks the Ice with a $23 Million Settlement in LIBOR Class Action

Lawsuit 1Citibank, N.A. has asked a federal district court to bless its $23 million settlement in a class action lawsuit alleging a wide-ranging conspiracy among banks to fix yen-denominated London Interbank Offered Rates (LIBOR) interest rates between 2006 and 2010. The settlement is the first of its kind in the case. The lead plaintiff in the litigation, Jeffrey Laydon, urged the court to approve the settlement, with his counsel describing it as an “ice breaker” that could serve as a “potential catalyst” for other banks to settle.

In 2012, Mr. Laydon sued more than twenty financial institutions, alleging violations of the Commodity Exchange Act and Sherman Act, among others. In a 300 page complaint, he detailed an alleged conspiracy among banks that sit on LIBOR and Tokyo Interbank Offered Rate (TIBOR) panels of conspiring to fix these rates by submitting agreed-upon estimates. As a result of the defendants’ actions, Laydon claims that he suffered thousands of dollars of damages in connection with his shorting derivatives of Euroyen TIBOR futures contracts. Continue Reading

Big Win for Loan Originators/Sellers in Federal Appeals Court

Gavel 1Six victories that clients of ours had won over Lehman and Aurora in the U.S. District Court for the District of Colorado got affirmed on January 27 by the Tenth Circuit Court of Appeals in Denver after hotly-contested rounds of appellate briefing and oral argument.  In a 37-page written opinion, the appellate panel unanimously affirmed the loan originators/sellers’ victories on statute of limitations grounds.

In so doing, the federal appeals court rejected, among other arguments, Lehman and Aurora’s contentions that their claims were really “indemnification” claims that did not accrue until they paid Fannie Mae or Freddie Mac with respect to the loans at issue.  The court agreed with our argument that the claims in fact accrued as soon as the loans were sold (in 2006 and 2007).

This has potentially significant implications for loan originators and sellers across the country facing buyback or “indemnification” claims from their investors.  Though case precedents vary from jurisdiction to jurisdiction, we have always strongly believed that claims of damage related to a loan seller’s alleged misrepresentations when they sold a loan must, as a matter of logic and common sense, accrue at the time the alleged misrepresentation was made: on the date of the sale.  It is nice to see this assessment further vindicated by the Tenth Circuit Court of Appeals in its detailed and well-considered opinion.

Happy Holidays To Our Readers!

As we reflect on 2015, we are especially thankful for all of the connections that we have made this year. We are thankful for our clients, our colleagues, our friends, and all of our readers. Thus, for our holiday video we wanted to focus on the power of relationships because our relationships are the foundation for who we are as a firm. When we come together with our partners we have seen incredible things happen, and it is because of all of you that we are proud to be judged by the company we keep.

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iGlobal Forum’s 5th Specialty Finance Summit

Stock Market

On January 12-13, 2016, iGlobal Forum will host the 5th Specialty Finance Summit in New York. The first day is a Pre-Summit series of topical morning and afternoon workshops. The actual Summit begins on January 13, 2016 and will provide all attendees with the opportunity to hear directly from leading dealmakers in the industry, advising on the most effective strategies to close deals and find the best lending opportunities in an increasingly competitive marketplace.

At the opening of the Summit, Robert M. Siegel, Bilzin Sumberg Partner and Chair of the Commercial Finance Practice, will interview keynote speaker, Art Peponis, Head of Private Equity & Special Situations at Angelo Gordon. During their discussion, they will explore the regulatory environment, challenges of the current credit cycle, and the effects of online marketplace lending on the specialty finance sector. Their discussion will also explore how private equity players evaluate specialty finance businesses and monitor them post acquisition, growth opportunities for specialty finance players, as well as the outlook of the industry for 2016. Continue Reading

Tougher Scrutiny on Cybersecurity at Banks in 2016

cyber secCybersecurity has been a focus as part of bank exams for years. Now the Federal Deposit Insurance Corp. (FDIC) is increasing its scrutiny of banks’ cybersecurity practices to ensure that the issue is getting appropriate attention from bank executives and boards. Bank regulators are planning to make cybersecurity a higher priority during bank exams as early as the second quarter of next year. The FDIC will revise its community bank examination program to break cybersecurity out as its own separate issue in examination comments.

Regulators want to ensure that there is an understanding of “cyber risk as it overlays into business decisions that you make at the board level,” an FDIC risk management official recently commented. Though outdated data security systems have typically been viewed as a “budget capital improvement” matter, the threat environment has changed. Now, the FDIC’s approach has changed along with it. Continue Reading

Alphabet Soup and Data Security

Data Security 2In the span of two days, mobile device users learned of two data breaches that could compromise their personal data. In one, Experian (a credit reporting agency) reported that it was hacked, potentially putting 15 million American consumers’ data at risk. Many of those consumers were T-Mobile customers who needed to submit to a credit check before signing up for a mobile plan. T-Mobile’s CEO John Legere issued a press release, stating that he was “incredibly angry about this data breach,” and that T-Mobile takes “customer and prospective customer privacy VERY seriously.” The second, far larger breach, affects approximately one billion Android mobile devices. The “Stagefright 2.0” security flaw—so-named because of another, similar “Stagefright” vulnerability from several months ago—allows hackers to access Android devices through disguised MP3 or MP4 media files—or even through logging into the same wifi network. Google will be rolling out patches to make devices more secure, but until then, users should be wary.

T-Mobile and Google are, no doubt, concerned about lawsuits, but must also consider the potential regulatory consequences of data breaches. We have previously discussed the FTC’s role in enforcing cybersecurity, and how it will likely assert its authority in more cases than ever before in the wake of its successes in the FTC v. Wyndham case. But the FTC is not the only regulatory body with a role in enforcing data security. As the list below shows, federal (and state) agencies are expanding their reach into the realm of data, and that reach will almost certainly only grow over time. Continue Reading