The Wall Street Journal reports that Banco Santander SA, one of the largest Madoff "feeders," is the first such fund to offer money to settle possible legal claims brought by Irving Pickard, the bankruptcy trustee for Madoff Investment Securities.
10b-5 Daily reports that the Fourth Circuit reversed a district court's dismissal of a marketing-timing suit against Janus Capital (In re Mutual Funds Investment Litig. 2009 WL 1241574, 4th Cir. May 7, 2009). In the decision, the Circuit Court made several important holdings on fraud-on-the-market and scheme liability post-Stoneridge.
The City of Milan is suing UBS, Deutsche Bank, JPMorgan Chase and Depfa Bank for fraud related to the sale of 35 billion euros of derivatives. An Italian court seized $345 million belonging to the banks. NYT DealBook reports that the banks have decided to drop an appeal of the seizure.
D&O Diary reports that a subprime-related lawsuit against MoneyGram International has survived a dismissal motion. MoneyGram is accused by its shareholders of rigging its balance sheet to make its subprime investment losses look less catastrophic (In re MoneyGram International, Inc. Securities Litigation, 08-CV-00883, US Dist Ct. Dist. of Minn.)
D&O Diary brings to our attention another novel subprime suit that survived a motion to dismiss: Nomura Securities was sued over a securitization transaction it was involved in with LaSalle Bank. Nomura settled with LaSalle and then turned on their law firm (Cadwalader) suing them for malpractice. On May 21st, a New York Superior Court Judge let Nomura's suit against Cadwalader go forward. If you look at the original complaint on Westlaw (2006 WL 5426806) you will notice that Nomura's lawyer was Marc Dreier.
That's what Bernard Madoff told Fairfield Greenwich Advisors LLC. The Massachusetts Securities Division begs to differ. It has commenced a suit under the Commonwealth's blue sky law against the Madoff feeder fund for inadequate due diligence. The complaint and all of the exhibits are available on the Securities Division's website. For those not up to reading the whole thing the New York Times offers "highlights."
In a recent no-action letter, the SEC allowed Alaska Air Group to omit from proxy materials a novel attempt to rein in 10b-5 liability. The proposal would have limited damages in suits that use the fraud-on-the-market theory to show reliance. Alaska Air Group sought to exclude the proposal along with two others submitted by the same shareholder. The SEC never reached Alaska Air's substantive argument against the proposal - they relied on an informal rule that shareholders can make only one proposal per meeting.
Securities Docket reports that the D&O Diary has begun a running list of Stanford-related litigation. D&O Diary presently maintains a list of Madoff litigation.
The most recent issue of Fortune has an interview with SEC Chairman Mary Schapiro. You can read it for free here.
The Corporate Counsel Blog reports that Felicia Kung is the new head of rulemaking at the SEC Division of Corporation Finance.
Reuters also reports that rumored zombie bank Citigroup has taken the top spot in Thomson Reuters' global M&A league table for 2008. It looks like we're talking less Night of the Living Dead and more Land of the Dead.
Race to the Bottom is on a roll (to the bottom, presumably). Today they discussIn Re Digimark Corp. Derivative Litigation (549 F.3d 1223) a Ninth Circuit case where the court found that there is no private right of action under SOX section 304.
Two kinds of securities law causes of action give private parties the right to sue: sections that explicitly create a private right of action, and sections which declare certain actions, “unlawful,” and which have been held by courts to imply a right to maintain a civil action. Section 11 and 12 of the ’33 Act, for instance, create explicit private rights of action. Section 10(b) of the '34 Act has been held to create an implied private right of action. Implied rights of action have a long history in the courts, but they are presently out of favor. It is reasonable to expect that the Supreme Court will not find any new implied rights of action. Presently, there are only 3: 10(b), 14a-9, and 14(e).
The decision is available on RTB's sister site at the University of Denver Law School.
First, the Ninth Circuit has recently found that ponzi scheme investors are liable to later investors under the state's Uniform Fraudulent Transfers Act (Donell v. Kowell (CA9, 2008), 533 F3d 762 - appeal briefs at 2006 WL 3889907 and 2006 WL 3845685).
Second, a quick survey of readers' quiet period precedures.
Thanks to the Investment Fraud Lawyer Blog for pointing out that at least two investors have sued the underwriters of Lehman Bros subprime-backed securities. See: City of South San Francisco et al v. Citigroup Global Markets Inc., ND Cal., 3:09-CV-00501 and American National Insurance Company v. Fuld et al, SD Tex., 3:09CV00020.
The 100-plus-page American National complaint contains a very through discussion of Lehman's mistakes and distortions as well as an overview of general sub-prime misfeasance.
Reuters reports that a Madoff feeder fund has sued its own auditors, "Maxam Absolute Return Fund LP, a hedge fund, on Friday said it filed a lawsuit against auditors Goldstein Golub Kessler LLP and McGladrey & Pullen LLP to recover losses suffered by its investors in investments held by Bernard L. Madoff Investment Securities LLC." Click here to see the docket.
The Daily Deal's DealScape blog keeps us up to date on how many banks have gone to that big vault in the sky (31).
The Corporate Counsel blog notes the publication of the adopting release for the XLBR rules and offers a guide on what to do now.
The Deal Professor offers an examination of how Bernie Madoff exposed the "Myth of the Sophisticated Investor."
Securities Docket has posted SEC Director of Enforcement Linda Chatman Thomsen's written testimony before the Senate Banking Committee about the merry Madoff mess.
The most recent issue of the BNA Securtities Regulation Law Report contains a wonderful overview of what the first part of 2009 may hold in terms of regulatory reform. (41 SRLR 128)
There's a great story in the New York Times today about how M&T Bank invested $82 million in a Deutsche Bank CDO just moments before the CDO became worthless. The CDO in question, called Gemstone CDO VII, was arranged in several tranches. The tranches M&T bought were rated AAA and AA, respectively. Within the year they had been downgraded several times. The AA tranche was rated CCC-. Ouch. M&T is suing everyone involved (0007064/2008: Supreme Ct., Erie Cty) for fraud, breach of duty, negligent misrepresentation and other claims of the sort employed by them that bought unregistered securities. The complaint (2008 WL 3819736) is a fascinating look at how CDOs were put together and why most of them flew apart immediately.
The incestuous inter-connectedness in the CDO/ABS market is head-spinning. The complaint mentions that quite a bit of the underlying assets in Gemstone weren't mortgage-backed securities - they were credit default swaps written on mortgage-backed securities. Gemstone's criteria for accumulating CDS was the credit rating of the "reference obligation." In other words, the mortgage-backed securities that the CDO wasn't buying. I had a headache before and this isn't making it go away.
The Harvard Corporate Governance blog has posted Francis G. X. Pileggi's rebuttal (complete with sneaky digs, "My cursory review ... is not as scholarly ... I do not have the time (thankfully, due to my busy practice)" to Race to the Bottom's 5 Worst Delaware Cases of 2008.
As I mentioned yesterday, I found five complaints against Madoff and his feeder funds on Westlaw. This morning I spent sometime looking them over. The stories are the same - money invested with a hedge fund changes hands until it comes to rest with Madoff - Madoff steals it. A number of things surprised me: many of the complaints try to use 10(b) to reach the feeder funds. In light of Stoneridge (see this post on Race to the Bottom) this seems a chancy strategy. I was also surprised by how little actual investment management goes on in the hedge fund biz.
For a link to a continuously-updated list of suits, see this post.
Here's a quick summary:
12/18/08, 2008 WL 5267855, SDNY, 1:08cv11002
plntf: The Calibre Fund LLP def: J. Ezra Merkin atty: Susman Godfrey LLP Calibre Fund gave Merkin's Ascot Partners Fund $10 million which Merkin gave to Madoff. Calibre is trying to prevent Ascot from distributing any money. claims: - fraud - negligence - breach of fiduciary duty - breach of contract
12/16/08, 2008 WL 5243584, SDNY, 1:08cv10922
plntf: New York Law School defs: Ascot Partners LLP, Merkin, Bdo Seidman LLP atty: Abbey Spanier Rodd & Abrams LLP This is a class action complaint. NYLS gave $3 million to Ascot which it gave to Madoff. claims: - 10(b) - 20(a) - fraud - negligent misrepresentation - breach of fiduciary duty
12/16/08, 2008 WL 5243585, SDNY, 1:08cv10930
plntf: Scott Barrie defs: Gabriel Capital LP, Merkin, Bdo Seidman LLP atty: Abbey Spanier Rodd & Abrams LLP This is a class action complaint. It was produced by the same law firm as the NYLS complaint. - 10(b) - 20(a) - fraud - negligent misrepresentation - breach of fiduciary duty
12/15/08, 2008 WL 5267808, CD Cal, 2:08cv08260
plntf: Michael Chaleff defs: Bernard Madoff, Bernard Madoff Investment Securities, Stanley Chais, Brighton Company atty: Hagens Berman Sobol Shapiro LLP This is a class action complaint. Michael Chaleff invested with an LA hedge fund called CMG, ltd. CMG gave his money to Stanley Chais who gave it to Madoff. Apparently, Chais funneled $250 million to Madoff. Chaleff obviously believes theres some money to be got from Madoff himself. claims: - 10(b) - 20(a)
12/12/08, 2008 WL 5231154, EDNY, 2:08cv05026
plntf: Irwin Kellner defs: Bernard Madoff, Bernard Madoff Investment Securities, John Does 1-100 atty: Ruskin Moscou Faltischek PC This is a class action complaint. Kellner invested $3 million directly with Madoff. Kellner's lawyers used every arrow in their quiver. claims: - RICO - 10(b) - 12 - fraud - negligent misrepresentation - breach of fiduciary duty - conversion - unjust enrichment - deceptive practices under NY Genl Bus Law - fraudulent transfer under NY Debtor & Creditor Law
Last week my alma mater, New York Law School, sued (complaint here) J. Ezra Merkin the Chairman of the Board of GMAC LLC (you know, the bank). Merkin's day job is managing hedge funds, but it appears he had lots of free time because all he did was hand money to Bernie Madoff. New York Law School was a limited partner in a Merkin fund called Ascot Partners LP. Some of Merkin's other academic clients include Tufts, NYU and Yeshiva University.
Complaints against Madoff, his feeder funds and any auditors within reach are proliferating. Many of them have made their way into the FED-FILING-ALL database on Westlaw. A search for BERNARD /3 MADOFF turned up six:
New York Law School v J Ezra Merkin, Ascot Capital & BDO Seidman (2008 WL 5243584) The Calibre Fund v J Ezra Merkin & Ascot Capital (2008 WL 5267855) Scott Barrie v Gabriel Capital, J Ezra Merkin & BDO Seidman (2008 WL 5267808) Michael Chaleff v. Stanley Chais & The Brighton Company (2008 WL 5267808) Irwin Keller v Madoff & Does 1-100 (2008 WL 5231154) SEC v. Madoff (2008 WL 5197070)
A docket search turned up:
USA v Madoff (SDNY 1:08MJ02735) NYU v Gabriel Capital (NY Supreme Ct., 603803/2008)
*These figures alone will enable the economic historian of the future to describe the unhealthy prosperity of 1929 and the inevitable grief and suffering that followed in the succeeding years--grief and suffering that overwhelmed and carried away not merely the speculative gains of those who participated in the speculative debauch ... but eventually the operating profits of every business in the country no matter how unrelated to stock exchanges.
Sam Rayburn's introdution to H.R. Rep 73-1383, 73rd Cong. 2nd Sess. 1934, 1934 WL 1290
