• Madoff Trustee Sues Two Former Milberg Weiss Partners.

On November 18th, Bloomberg reported that Irving Picard, the SIPA trustee in the liquidation of Bernard L. Madoff Investment Securities LLC, has filed a clawback suit against former Milberg Weiss partners Melvyn I. Weiss and David J. Bershad. Clawback.

• Congressmen Suggest Separating Securitizers from Mortgage Servicers.

On November 18th, Reuters reported that a group of Congressmen have written to Treasury Secretary Timothy Geithner suggesting that the Financial Stability Oversight Council require firms that securitize home mortgage loans to divest themselves of business units servicing mortgages. Divestiture.

• About 50 Executives of Failed Banks are under Criminal Investigation.

On November 18th, the Washington Post reported that the FDIC Inspector General is assisting the FBI in a criminal investigation of approximately 50 former executives and directors of failed banks. Most of the banks involved failed in 2008 or later. Criminal Probe.

• Institute of International Finance Supports Compensation Reform.

On November 17th, the Institute of International Finance issued a statement urging financial firms to adopt compensation policies that adjust for risk and the cost of capital. These policies defer a substantial component of employee bonuses and include clawback provisions. IIF Press Release and Statement.

• Regulation FD.

On November 15th, Reuters reported that companies continue to circumvent Regulation FD and point favored research analysts to potentially market-moving information. Regulation FD.

• Lobbyists.

On November 15th, the Los Angeles Times reported that the public logs maintained by the FDIC, SEC, CFTC and Federal Reserve Board reveal who is lobbying whom on the implementation of the Dodd-Frank Act, the topics under discussion and the frequency with which the meetings occur. Lobbyists. Reuters published a list of companies and industry representatives who lobbied the CFTC concerning position limits. Position Limits.

• Energy Trader Defrauded 11 Energy Companies.

On November 15th, Reuters reported that a Houston-based natural gas trader defrauded Occidental Petroleum, Royal Dutch Shell and others over an eight-year period in which she made almost $7 million. Trader.

• Whistleblowers.

On November 14th, the New York Times reported the arguments in favor and against the new authority given to the SEC and CFTC to reward whistleblowers. Whistleblowers.

• MERS.

On November 18th, the Washington Post reported that lobbyists representing mortgage servicers and the Mortgage Electronic Registration Service are meeting with Congressional staff to support the system's legitimacy and block legal challenges to it. Opponents criticize the federalization of property law and Representative Marcy Kaptur intends to propose a bill prohibiting Fannie Mae and Freddie Mac from buying any mortgage registered with MERS. MERS.

• House Financial Services Committee Hearings.

On November 18th, the House Financial Services Committee held hearings on the alleged procedural failures related to mortgage servicing and foreclosures. View Hearing Website (with links to archived webcast and witness testimony). Reuters reported that Congressmen leveled most of their criticism at regulators who failed to identify the problems. While everyone appeared to agree that current procedures are inadequate, no one agreed on a solution. Reuters.

• Settlement Provisions.

On November 17th, Bloomberg reported that a settlement between mortgage servicers and state regulators would include a fund that would pay wrongfully foreclosed homeowners. Any settlement would also include undertakings to increase mortgage modifications and to hold in abeyance foreclosure proceedings when mortgage modifications are being negotiated. Settlement.

• Congressional Oversight Panel Reports on Irregularities in the Foreclosure Process.

On November 16th, the Congressional Oversight Panel for the Troubled Asset Relief Program released its report, "Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation". The report considers the possibility that irregularities in the foreclosure process may conceal deeper problems in the mortgage market that could potentially threaten financial stability and undermine foreclosure prevention efforts. The report notes the Treasury Department does not currently believe the foreclosure problems pose any danger to the financial system. It calls upon the Treasury Department to explain the basis for that conclusion and further asks banking regulators to conduct new stress tests to measure banks' ability to deal with a potential crisis. Executive Summary.

• Regulatory Review.

On November 16th, Reuters reported that federal banking regulators should complete their review of bank foreclosure practices by the end of January. Preliminary results may be available later this month. The Financial Stability Oversight Council may also investigate. Regulatory Review.

• Senate Banking Committee Holds Hearings on Mortgage Modification and Foreclosure.

On November 16th, the Senate Banking Committee held hearings on the problems in mortgage financing, from modification to foreclosure. View Hearing Website (with links to witness testimony). Reuters reported that Senators asked mortgage servicers to end the practice of discussing mortgage modifications with a homeowner while simultaneously pursuing foreclosure. Committee Chairman Christopher Dodd urged mortgage servicers to consider principal forgiveness. Senators.

• Paperwork Flaws Reveal Legal Gray Areas.

On November 15th, Bloomberg reported on the legal gray areas being exposed by concerns over flawed foreclosures. Gray Areas.

• Federal Reserve Board Proposes Rules for Proprietary Trading Conformance Period.

On November 17th, the Federal Reserve Board voted to propose for comment amendments requiring banks to begin to conform with the Dodd-Frank Act's prohibition against proprietary trading. Comments should be submitted within 45 days after publication in the Federal Register which is expected during the week of November 22. Federal Reserve Board Press Release.

• Guidelines for Capital Action Proposals by Large Bank Holding Companies.

On November 17th, the Federal Reserve Board issued guidelines for evaluating proposals by large bank holding companies to undertake capital actions in 2011, such as increasing dividend payments or repurchasing or redeeming stock. As part of the regular supervisory process, the Federal Reserve also requested that the largest bank holding companies submit comprehensive capital plans by early next year, regardless of whether a capital action is planned. Federal Reserve Board Press Release.

• OCC Issues Bulletin on Flood Insurance.

On November 17th, the OCC issued a Bulletin on the Federal Emergency Management Agency's announcement that Preferred Risk Policy eligibility will be extended for two years effective January 1, 2011, or the effective date of the flood map revision, whichever is later, for some policies covering buildings newly mapped within a Special Flood Hazard Area by a flood map revision effective on or after October 1, 2008. OCC Bulletin 2010-40.

• FDIC Names Banks Participating in Case Study.

On November 16th, the FDIC named the nine banks participating in a case study to help the agency identify best practices of banks offering safe and low-cost transactional and savings account products, particularly those that are responsive to the needs of underserved consumers. FDIC Press Release.

• Countries with Strategic AML/Counter-Terrorist Financing Deficiencies.

On November 18th, the Financial Crimes Enforcement Network issued guidance to financial institutions based on the Financial Action Task Force publication on anti-money laundering and counter-terrorist financing risks posed by Angola; Antigua and Barbuda; Bangladesh; Bolivia; Ecuador; Ethiopia; Ghana; Greece; Honduras; Indonesia, Kenya; Morocco; Burma (Myanmar); Nepal; Nigeria; Pakistan; Paraguay; Philippines; Sao Tome and Principe; Sri Lanka; Sudan; Syria; Tanzania; Thailand; Trinidad and Tobago; Turkey; Turkmenistan; Ukraine; Venezuela; Vietnam; and Yemen. FIN-2010-A-013.

• AML/Counter-Terrorist Financing Risks Posed by Iran and North Korea.

On November 18th, the Financial Crimes Enforcement Network issued guidance to financial institutions based on the Financial Action Task Force public statement on anti-money laundering and counter-terrorist financing risks. FIN-2010-A-012.

• Treasury Department Designates North Korean Entities.

On November 18th, the Treasury Department designated Korea Daesong Bank and Korea Daesong General Trading Corporation for being owned or controlled by Office 39 of the Korean Workers' Party. Office 39 is a secretive branch of the government of the Democratic People's Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. The designations freeze any assets the entities have within U.S. jurisdiction and prohibit U.S. persons from conducting financial or commercial transactions with these entities. Treasury Department Press Release.

• SEC Votes to Propose Adviser Registration Rules and Amendments.

On November 19th, the SEC voted to propose new rules and rule amendments increasing the statutory threshold for registration by investment advisers with the SEC, requiring advisers to hedge funds and other private funds to register with the SEC, and addressing reporting by certain investment advisers that are exempt from registration. The Commission also voted to propose a second set of rules and rule amendments implementing new exemptions from the registration requirements of the Investment Advisers Act of 1940 for advisers to venture capital funds and advisers with less than $150 million in private fund assets under management in the United States. These proposed rules also clarify the meaning of certain terms included in a new exemption for foreign private advisers. SEC Press Release and Fact Sheet; See also Schapiro Remarks.

• SEC Votes to Propose Swaps Rules.

On November 19th, the SEC voted to propose new rules and rule amendments governing the security-based swap data repository registration process, the duties of such repositories, and the core principles applicable to such repositories. SEC Press Release on Swap Repositories. See also Schapiro Remarks on Swap Repositories. The Commission also voted to propose Regulation SBSR to provide for the reporting of security-based swap information to registered security-based swap data repositories or the Commission, and the public dissemination of security-based swap transaction, volume, and pricing information. SEC Press Release on Regulation SBSR. See also Schapiro Remarks on Regulation SBSR; Aguilar Remarks.

• SEC Investigating Mutual Fund Sales Practices.

On November 17th, the New York Times reported on the SEC's investigations into how mutual funds marketed their retail investment products. Sales Practices.

• Litigation Disclosure.

On November 16th, Reuters reported the remarks of Wayne Carnall, Chief Accountant, Division of Corporation Finance. Carnall said that issuers should provide greater disclosure concerning their litigation exposure. Litigation.

• CFTC Votes to Propose Rules Regarding Swaps.

On November 19th, the CFTC voted to propose rules concerning swap data repositories; real-time public reporting of swap transaction data; the protection of collateral of counterparties to uncleared swaps, and treatment of securities in a portfolio margining account in a commodity broker bankruptcy; and data recordkeeping. See CFTC Press Release. Reuters summarized Commissioner remarks at their meeting on the proposal. Remarks. Separately, Reuters reported the proposal's provisions. Provisions.

• Compliance Rules.

On November 19th, the CFTC published for comment proposed rules regarding the compliance activities of certain registrants. The proposed rules require each futures commission merchant, swap dealer, and major swap participant to designate a chief compliance officer. The proposed rules also prescribe qualifications and duties of the chief compliance officer and require that the chief compliance officer prepare, certify, and furnish to the Commission an annual report containing an assessment of the registrant's compliance activities. Comments should be submitted on or before January 18, 2011. 75 FR 70881.

• Registration of Foreign Boards of Trade.

On November 19th, the CFTC published for comment proposed rules establishing a registration requirement for foreign boards of trade that wish to provide their identified members or other participants located in the United States with direct access to their electronic trading and order matching systems. Comments should be submitted on or before January 18, 2011. The Commission is not inclined to grant extensions of this comment period. 75 FR 70974.

• Implementation of Conflicts of Interest Policies and Procedures by Futures Commission Merchants and Introducing Brokers.

On November 17th, the CFTC proposed for comment new rules establishing conflicts of interest requirements for futures commission merchants and introducing brokers. Comments should be submitted on or before January 18, 2011. 75 FR 70152.

• ICE Applies for DCO Registration.

The Commodity Futures Trading Commission (CFTC) is seeking public comment on an application by ICE Trust U.S. LLC for registration as a derivatives clearing organization. Comments should be submitted on or before December 17, 2010. CFTC Release No. 5936-10.

• SEC Approves Amendments Regarding Registration and Qualification Requirements.

On November 12th, the SEC approved the Chicago Board Options Exchange's proposal to amend its registration and qualification requirements for individual trading permit holders and their associated persons. The CBOE is amending its rules to make them substantially similar to the registration, examination and continuing education requirements of the Financial Industry Regulatory Authority. The amendments require all individual TPHs and TPH associated persons, regardless of whether they conduct a public customer or proprietary securities business, to register, qualify and comply with continuing education requirements. SEC Release No. 34-63314.

• DTC Proposes to Amend Fast Automated Securities Program.

On November 16th, the SEC provided notice of The Depository Trust Company's proposed amendment to its Fast Automated Securities program, which would eliminate the requirement for certain transfer agents to custody a balance certificate. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of November 22. SEC Release No. 34-63320.

• SEC Approves "Know Your Customer" and "Suitability" Rules.

On November 17th, the SEC granted accelerated approval to the Financial Industry Regulatory Authority's proposed adoption of FINRA Rules 2090 (Know Your Customer) and 2111 (Suitability) in the Consolidated FINRA rulebook. The proposal was designed to retain the core features of these obligations in current NYSE and NASD rules, while strengthening and clarifying them. SEC Release No. 34-63325.

• Amendments Would Restrict Association with Disqualified Persons.

On November 15th, the SEC provided notice of the Financial Industry Regulatory Authority's proposal to adopt FINRA Rule 1113 (restrictions pertaining to new member applications) and to amend FINRA Rule 9520 Series (eligibility proceedings). The proposed rule would require rejection of an application for FINRA membership where the applicant or an associated person is subject to a statutory disqualification and would preclude members from sponsoring a disqualified persons that is directly or indirectly a beneficial owner of more than five percent of the sponsoring member. Comments should be submitted within 21 days after publication in the Federal register, which is expected during the week of November 22. SEC Release No. 34-63316.

• Extension of OATS Reporting Requirements to All NMS Stocks Is Approved.

On November 12th, the SEC approved the Financial Industry Regulatory Authority's proposed amendment of its Order Audit Trail System rules to extend the recording and reporting requirements to all NMS stocks and to exclude certain firms that have limited trading activities. SEC Release No. 34-63311.

• Cash Adjustments Proposed for Elimination.

On November 10th, the SEC provided notice of the Fixed Income Clearing Corporation's proposal to eliminate cash adjustments that are currently processed by the Mortgage-Backed Securities Division. Comments should be submitted on or before December 8, 2010. SEC Release No. 34-63301.

• MSRB Proposes To Apply Existing Rules to Municipal Securities Activities.

On November 12th, the SEC provided notice of the Municipal Securities Rulemaking Board's proposal to apply to municipal securities activities Rule G-5, on disciplinary actions by appropriate regulatory agencies, and Rule G-17, the Board's basic fair practices rule. Comments should be submitted on or before December 9, 2010. SEC Release No. 34-63309.

• Proposed Revisions to Series 52 Examination Are Immediately Effective.

On November 12th, the SEC granted immediate effectiveness to the Municipals Securities Rulemaking Board's proposed revisions to the study outline and selection specifications for the municipal securities representative qualification examination (Series 52) program. The revisions regroup certain topics to allow more detailed testing of certain product knowledge and MSRB rules and eliminate redundancy; delete dated references to certain topics in the current outline; provide detail about products covered in the examination; and incorporate generic terms instead of proprietary names. Comments should be submitted on or before December 9, 2010. SEC Release No. 34-63310.

• Proposed Application of Existing Rulemaking Procedures to Municipal Advisers Is Immediately Effective.

On November 12th, the SEC granted immediate effectiveness to the Municipal Securities Rulemaking Board's proposal to apply the same procedures that the MSRB uses to engage in rulemaking for brokers, dealers, and municipal securities dealers to municipal advisors, and to provide a mechanism for the assessment of reasonable fees to defray a portion of the increased costs and expenses associated with the operation and administration of the Board attributable to the Board's regulation of municipal advisors. The proposed rule change only authorizes the MSRB to engage in rulemaking concerning municipal advisors and to impose fees and charges. The proposed rule change does not actually prescribe rules for, or impose fees or charges on, municipal advisors. Comments should be submitted on or before December 8, 2010. SEC Release No. 34-63307.

• SEC Approves Amendments Regarding the Registration of Municipal Advisors.

On November 12th, the SEC granted immediate effectiveness to the Municipal Securities Rulemaking Board's proposal completing the rulemaking that is necessary for the registration of municipal advisors with the MSRB and to define certain terms that are necessary to the MSRB rules governing rulemaking concerning municipal advisors and the process of registering municipal advisors with the MSRB. The proposed rule change consists of an amendment to Rule D-11 to provide that the term "municipal advisor" in MSRB rules shall include the associated persons of such municipal advisor unless otherwise specified; a new Rule D-13 that defines "municipal advisory activities" with respect to the activities of municipal advisors described in Section 15B(e)(4)(A)(i) and (ii) of the Act; a new Rule D-14 that defines "appropriate regulatory agency" to have the meaning set forth in Section 3(a)(34) of the Act with respect to a broker, dealer, or municipal securities dealer and to mean the Commission with respect to a municipal advisor; and amendments to Rule G-40 concerning the provision of electronic mail contacts by municipal advisors. Comments should be submitted on or before December 8, 2010. SEC Release No. 34-63308.

• Proposal Would Permit Multiple Affiliations.

On November 16th, the SEC provided notice of NASDAQ OMX PHLX's filing of a proposal deleting and amending certain provisions to its rules to provide that a Series A-1 permit holder may affiliate with two member organizations under common ownership. The purpose of the proposal is to eliminate and reserve Exchange Rule 793 titled Affiliations-Dual or Multiple and adopt a simple standard for multiple affiliations. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of November 22. SEC Release No. 34-63318.

• Proposal Related to Specialist Evaluations and Timely Electronic Quotations Is Filed.

On November 10th, the SEC provided notice of NASDAQ OMX PHLX's proposal to amend By-Law Article XI Section 11-1; Phlx Rules 507, 508, 510, 511, and 515; and OFPA C-8 to enhance the ability to gauge specialist performance in a competitive electronic trading environment; ensure timely electronic quotations by Streaming Quote Traders and Remote Streaming Quote Traders; ensure the ability of the exchange to control allocation transfers; and consolidate and delete unnecessary and obsolete rules and processes. Comments should be submitted on or before December 8, 2010. SEC Release No. 34-63305.

• Effective Date of Changes to NFA's Enhanced Supervisory Requirements.

On November 16th, the National Futures Association reminded that several changes to NFA Compliance Rule 2-9's Interpretive Notice entitled "Enhanced Supervisory Requirements" will become effective on January 3, 2011. NFA Notice I-10-26.

• NFA Launches AML Website.

On November 16th, the National Futures Association announced it has launched a web-based Anti-Money Laundering Procedures System to assist NFA Member FCMs and IBs and applicants in developing an AML program that meets the requirements of the Bank Secrecy Act and NFA Compliance Rule 2-9(c). NFA Notice I-10-25.

• NYSE Regulation Reminds NYSE Amex Members of Certain FINRA Filing Deadlines.

On November 15th, NYSE Regulation advised members designated to NYSE Amex for financial responsibility purposes of due dates for certain filings with the Financial Industry Regulatory Authority's Risk Oversight & Operational Regulation Financial Regulation Department; how to request an extension of time to file; and what happens when reports are not filed on a timely basis. NYSE Regulation Information Memo 10-47.

• Second Circuit Affirms the Dismissal of Suit Filed by Refco Trustee against the Company's Former Advisers.

On November 18th, the Second Circuit, after the New York Court of Appeals answered certified questions, affirmed a district court dismissal of a suit brought by the trustee of a bankrupt corporation's litigation trust against third parties who allegedly assisted corporate insiders in defrauding the corporation's creditors. The trial court properly concluded that the adverse interest exception to in pari delicto is not satisfied by showing that the insiders intended to benefit themselves and that the exception only applies when the misconduct harms the corporation. Kirschner v. KPMG LLP.

• RESPA Ruling Creates Circuit Split.

On November 17th, the Fifth Circuit, disagreeing with the Second Circuit, held that lenders do not violate Sec. 8(b) of the Real Estate Settlement Procedures Act by charging unearned and undivided fees to borrowers at closing. To be actionable, the challenged fee must be split with another party. RESPA prohibits only kickbacks and referral fees, not unearned fees by a sole provider of settlement services. Freeman v. Quicken Loans, Inc.

• Summary Judgment Order Dismissing Securities Fraud Lawsuit Against Oracle Is Affirmed.

On November 16th, the Ninth Circuit affirmed the entry of summary judgment dismissing plaintiffs' securities fraud lawsuit against Oracle and its executives. Plaintiffs did not develop evidence that would allow a jury to conclude that defendants' earnings forecasts or statements were material misrepresentations or omissions. Plaintiffs also failed to develop sufficient evidence to permit a jury to conclude that plaintiffs' losses were caused by defendants' alleged fraud. In re Oracle Corp. Securities Litigation.

• Lehman Brothers Sues Mortgage Lender over Faulty Loans.

On November 15th, Lehman Brothers Holdings Inc. sued Nationsfirst Lending for breach of contract and warranty. LBHI alleges it bought mortgage loans from Nationsfirst which failed to meet the underwriting standard required by the parties' Loan Purchase Agreement and Nationsfirst failed to repurchase the loans as required by the Agreement. Lehman Brothers Holdings Inc. v. Nationsfirst Lending Inc.

• Risk Management Controls for Brokers or Dealers with Market Access - Effective January 14, 2011.

The Securities and Exchange Commission is adopting new Rule 15c3-5 under the Securities Exchange Act of 1934. Rule 15c3-5 will require brokers or dealers with access to trading securities directly on an exchange or alternative trading system ("ATS"), including those providing sponsored or direct market access to customers or other persons, and broker-dealer operators of an ATS that provide access to trading securities directly on their ATS to a person other than a broker or dealer, to establish, document, and maintain a system of risk management controls and supervisory procedures that, among other things, are reasonably designed to (1) systematically limit the financial exposure of the broker or dealer that could arise as a result of market access, and (2) ensure compliance with all regulatory requirements that are applicable in connection with market access. 75 FR 69791.

• Winston & Strawn Sponsors KPMG's Fall 2010 Audit Committee Roundtable.

Winston & Strawn will serve as KPMG's law firm partner for the Fall 2010 Audit Committee Roundtable in Los Angeles on December 2, 2010. This seminar will explore how audit committees and boards are helping to guide their companies forward in the current environment. Event.

• Winston & Strawn Sponsors Northwestern's 2011 Kellogg Private Equity and Venture Capital Conference.

Winston & Strawn will sponsor Northwestern's 2011 Kellogg Private Equity and Venture Capital Conference to be held February 9 in Chicago. Event.

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