Financial Services Update______September 12, 2011
Volume 6, No. 33



IN THIS ISSUE

Insights from Winston & Strawn

In the News

Banking Agency Developments

Treasury Department Developments

Commodity Futures Trading Commission

Securities and Exchange Commission

Exchanges and Self-Regulatory Organizations

Judicial Opinions

Winston & Strawn Speaking Engagements and Publications


Insights from Winston & Strawn [Top]

The definition of "broker" is a fundamental concept in the regulation of the securities markets under the Securities Exchange Act of 1934 (the "Exchange Act") and yet the parameters of this definition remain uncertain, at least as it relates to the distinction between "broker" and "finder." Earlier this year, the District Court for the Middle District of Florida, Tampa Division, ruled against the SEC in SEC v. Kramer. The SEC alleged that Kramer acted as an unregistered broker in violation of Section 15(a)(1) of the Exchange Act. Despite the fact that Kramer received nearly $200,000 in transaction-related compensation as part of an arrangement to introduce potential investors to a company, the court ruled that the SEC failed to meet its burden of showing that the defendant "engaged in the business of effecting transactions in securities in the accounts of others" in order to show that he was a "broker" under Section 3(a)(4) of the Exchange Act. The Kramer court held that a multi-factor analysis should be used in determining whether a finder engaged in broker activity with respect to securities transactions. In addition to transaction-based compensation, these factors include negotiation of the terms of the transaction, participation in the transaction at key points and providing advice or valuation as to the merit of the investment. In doing so, the Court rejected the SEC's singular reliance on transaction-based compensation in finding broker activity, and perhaps opened the door for a clearer distinction to be drawn between "brokers" and "finders."
This case centered around Kramer's alleged efforts to solicit investors in the stock of Skyway Communications. Kramer's business partner, Baker, had an established relationship with Skyway: he had previously facilitated a merger on behalf of Skyway and he also had an agreement with Skyway whereby he was compensated for promoting the company to investors. Kramer also began participating in the promotional activities of Skyway and soon facilitated a meeting between Skyway and another broker. That broker then sold $14 million of Skyway's shares to investors, for which Kramer received significant compensation. The Court held that this activity merely consisted of bringing two sides together and that Kramer's receipt of transaction-based compensation, without more, does not make him a "broker." Kramer also received a 20% commission in Skyway shares when a small group of investors, consisting of family, friends, and acquaintances, invested in the company after Kramer told them about Skyway, directed them to the company's website, and suggested that Skyway was a good investment. In finding the absence of broker activity in connection with these transactions, the court said that the nature of Kramer's relationship with these investors was an important factor.
Please note that the court's decision was based on the specific facts and circumstances of this case. We would continue to advise persons acting as "finders" to consult with legal counsel before accepting transaction-based compensation prior to registering as a broker. In addition, the court's apparent finder-friendly decision may have an expiration date as the SEC is seeking a path to appeal. If the SEC is successful, the Eleventh Circuit Court of Appeals will likely have an opportunity to express its views on the gray area between "finder" and "broker." We will keep you up to date on any further developments.
In the News [Top]
  • Bill Would Give FINRA Authority over Investment Advisers.
On September 8th, MarketWatch reported that Senator Spencer Bachus has drafted a bill that would transfer responsibility for overseeing investment advisers from the SEC to the Financial Industry Regulatory Authority. Transfer.
  • Libor Investigation.
On September 7th, the Wall Street Journal, covering a Financial Times article, reported that the CFTC and Justice Department are investigating the setting of the London and Tokyo interbank offered rate. Investigation.
  • Harvard Develops Madoff Case Study.
On September 6th, the New York Times' DealBook reported that convicted Ponzi schemer Bernard Madoff is working with the Harvard Business School to develop a case study based on his career. Case Study.
  • The Non-Confirmation Hearings.
On September 7th, the Los Angeles Times reported that Republican members of the Senate Banking Committee are refusing to confirm President Obama's nominee to lead the Consumer Financial Protection Bureau to protest the Obama Administration's failure to make changes to the Bureau's structure. Protest.
  • Liquidity Coverage Ratio May be Lowered.
On September 5th, Bloomberg, covering a Financial Times article, reported that the Basel Committee on Banking Supervision may lower the liquidity coverage ratio for banks. Lower Targets.
  • Derivatives and Mutual Funds.
On August 31st, The New York Times reported on the SEC's vote to seek public comment on whether to write new rules to better address the risks posed by mutual funds, ETFs and other investment companies that use derivatives. The unanimous decision to solicit input marks an initial step in rule-making by the SEC as it tries to understand how effective current disclosure and leverage rules are as they relate to derivatives.
  • Merger on the Rocks.
On August 31st, National Journal reported on the move by the Justice Department to oppose the proposed merger of AT&T and T-Mobile on antitrust grounds. The government contends that the acquisition of the No. 4 wireless carrier in the country by No. 2 AT&T would reduce competition and thus lead to price increases. An inadvertently released internal document, revealed in a BusinessWeek piece from August 28th, has shed light on the motivation behind AT&T's bid for T-Mobile and has given rise to a scrutiny of the process for vetting large mergers and acquisitions. The importance of the deal to all parties is shown in a September 2nd article by Reuters, describing the two.
  • GAO Issues Report on Pension Plan Investments in Hedge Funds and Private Equity Plans.
On August 31st, the Government Accountability Office (GAO) issued a report examining (1) the extent to which defined benefit plans have invested in hedge funds and private equity, (2) challenges that such plans face in investing in hedge funds and private equity, (3) steps that plan sponsors can take to address these challenges, and (4) the implications of these challenges for plan sponsors and the federal government. GAO Report.
  • Report Issued on "Passive" Investment Management in Defined Contribution Plans.
On August 31, PIMCO issued a report and study on the active fiduciary decision-making required for defined contribution plans (such as 401(k) plans) seeking to implement passive investment management strategies. "No Such Thing As Passive" Report.
Banking Agency Developments [Top]
  • FDIC to Vote on "Living Will" Rules.
On September 8th, Reuters reported that on September 13, 2011, the FDIC will vote on whether to adopt new "living will" rules for banks. The Dodd-Frank Act requires the FDIC and Federal Reserve Board to develop rules requiring certain banks to devise plans for their orderly liquidation in the event of insolvency. Vote.
  • FDIC Launches Investor Match Program.
On September 7th, the FDIC announced the launch of a new program to encourage small investors and asset managers to partner with larger investors to participate in the FDIC's structured transaction sales for loans and other assets from failed banks. The Investor Match Program will help to facilitate partnerships in order to bring together sources of capital and expertise. Participants in the program will use a customized database to identify potential collaborations, which will be identified at the sole discretion of the participating firms. FDIC Press Release.
  • FDIC Consumer Newsletter.
On September 7th, the FDIC published its Summer 2011 issue of FDIC Consumer News, which features tips on how to prepare financially for a natural disaster, a fire or another tragedy, especially one that requires people to evacuate their home and not return for days or weeks. FDIC Press Release.
  • OCC Issues Bulletin on Annual Dollar Trigger for Certain Home Loans.
On September 7th, the OCC issued a Bulletin on the Federal Reserve Board's annual amendment of Regulation Z Commentary related to the dollar amount that triggers requirements for certain home mortgage loans subject to 12 CFR 226.32. Effective January 1, 2012, the points and fees trigger is the greater of $611 or 8 percent of the total loan amount.
  • Federal Reserve Board to Hold Public Meetings on Capital One's Proposed Application of ING Bank; Comment Period Extended.
The Federal Reserve Board will hold three public meetings on the notice by Capital One Financial Corporation to acquire ING Bank and indirectly acquire shares of Sharebuilder Advisors, LLC, and ING Direct Investing, Inc. The Federal Reserve Board also announced that it is extending the period for public comment on the proposal through October 12, 2011. The three public meetings will occur in Washington, D.C. on September 20, 2011, Chicago, Illinois on September 27, 2011, and San Francisco, California on October 5, 2011. Federal Reserve Board Press Release.
Treasury Department Developments [Top]
  • FinCEN Gives Sellers of Prepaid Access Administrative Relief from Certain BSA Requirements.
On September 9th, the Financial Crimes Enforcement Network ("FinCEN") issued a Notice providing administrative relief to sellers and providers of prepaid access that would otherwise be subject to certain Bank Secrecy Act ("BSA") requirements imposed by a final rule published on July 29, 2011. As a result of this administrative relief, sellers of prepaid access will have until March 31, 2012 to comply with those requirements that are scheduled to go into effect beginning September 27, 2011. Providers of prepaid access will be required to comply with some, but not all, aspects of the Final Rule by September 27, 2011; for the remaining requirements, compliance is extended until March 31, 2012.
  • FinCEN Releases Technical E-Filing Specifications for New CTR and SAR.
On September 8th, the Financial Crimes Enforcement Network ("FinCEN") released Electronic Filing Requirements for FinCEN's Currency Transaction Report ("CTR") and Electronic Filing Requirements for FinCEN's Suspicious Activity Report ("SAR"). These technical specifications are to be used to develop batch files of FinCEN's new CTR (FinCEN Report 112) and SAR (FinCEN Report 111) for upload or transmission to the BSA E-Filing System. FinCEN Press Release.
  • Unblocking Notice.
On September 8th, the Treasury Department's Office of Foreign Assets Control published a notice unblocking the assets of Ali Abdul Mutalib Ali. 76 FR 55739.
  • Treasury Department Fact Sheet on Combating the Financing of Terrorism.
On September 8th, the Treasury Department published a fact sheet on its efforts to combat the financing of terrorists.
  • Treasury Department Designates Four Venezuelan Government Officials.
On September 8th, the Treasury Department's Office of Foreign Assets Control announced the designation of four Venezuelan government officials pursuant to the Foreign Narcotics Kingpin Designation Act for acting for or on behalf of the narco-terrorist organization the Revolutionary Armed Forces of Colombia. As a result of the designations, U.S. persons are generally prohibited from engaging in transactions with the designees and any assets that they may have under U.S. jurisdiction are frozen. Treasury Department Press Release.
  • Treasury Department Designates Three al-Qa'ida Leaders.
On September 7th, the Treasury Department announced the designation of three senior al-Qa'ida leaders based in Pakistan: leader and commander Abu Yahya al-Libi; senior leader 'Abd al-Rahman Ould Muhammad al-Husayn Ould Muhammad Salim; and al-Qa'ida facilitator, courier and operative Mustafa Hajji Muhammad Khan. As a result of the designations, U.S. persons are generally prohibited from engaging in transactions with the designees and any assets they may hold under U.S. jurisdiction are frozen. Treasury Department Press Release.
  • CFPB Seeks Comment on Financial Products for Servicemembers.
On September 7th, the Consumer Financial Protection Bureau announced it is seeking public input on consumer financial products and services tailored to servicemembers and their families. The information provided will help the Bureau's Office of Servicemember Affairs to develop financial education and outreach initiatives for military families. Comments should be submitted within 14 days after publication in the Federal Register, which is expected during the week of September 12. Treasury Department Press Release.
  • FinCEN Examines Identity Theft-Related Suspicious Activity Reports Filed by Securities and Futures Firms.
On September 6th, the Financial Crimes Enforcement Network released an analysis of identity theft suspicious activity reports filed by securities and futures firms, which shows that identity thieves prefer to use stolen account identifiers to take over existing legitimate investment accounts rather than to set up new unauthorized accounts. FinCEN Press Release.
  • Obama Administration Releases August Housing Scorecard Featuring Making Home Affordable Servicer Assessments.
On September 1st, the U.S. Department of Housing and Urban Development and the U.S. Department of the Treasury released the August edition of the Housing Scorecard. Included in the report are detailed assessments for the 10 largest mortgage servicers participating in the Making Home Affordable Program with results from the second quarter of 2011. Treasury Department Press Release.
  • Fifty Community Banks Receive $767 Million to Help Small Businesses Access Capital, Create New Jobs.
On August 31st, the Treasury Department announced that an additional 50 community banks across the country received a total of $767 million as part of the next wave of funding provided through the Small Business Lending Fund. Treasury Department Press Release.
  • Treasury Department Sanctions Additional Syrian Government Officials.
On August 30th, the Treasury Department announced the designations of three senior officials of the Government of Syria: Foreign and Expatriates Minister Walid Al-Moallem, Presidential Political and Media Advisor Bouthaina Shaaban, and Ambassador to Lebanon Ali Abdul Karim Ali. Treasury Department Press Release.
Commodity Futures Trading Commission [Top]
  • CFTC Votes to Propose Swap Compliance Timetables.
On September 8th, the CFTC voted to propose for comment two timetables for phasing in compliance with new rules - which have yet to be adopted - for the clearing and trading of swaps, and the documentation and margin requirements to accompany swaps. The proposed timetables divide market participants into three categories. Compliance with the mandatory clearing requirements, and trading documentation and margin requirements for uncleared swaps will occur in 90, 180, or 270 days. Compliance with the trade execution requirements will be 30 days. See CFTC Open Meeting Webpage.
  • CFTC Rulemaking Timetable.
In his September 8th Open Meeting remarks, CFTC Chairman Gary Gensler outlined when the agency will address the various rules it must adopt to implement the Dodd-Frank Act's requirements concerning swaps. By the end of the year, the CFTC will consider rules related to clearinghouse core principles and position limits; entity and product definitions; swap data recordkeeping and reporting; real-time reporting; and regulations for trading platforms. In 2012, the CFTC will address swap execution facilities; capital and margin requirements; documentation; processing; client clearing; and segregation for uncleared swaps. Gensler Remarks.
  • CFTC Grants CME Clearing Europe Limited Registration as a DCO.
On September 6th, the CFTC granted to CME Clearing Europe Limited, registration as a derivatives clearing organization ("DCO") pursuant to Section 5b of the Commodity Exchange Act. The order allows CME Clearing Europe Limited to clear swaps on energy, agricultural, freight and metals products executed either bilaterally or on or through a swap execution facility, as permitted by the Commodity Exchange Act. CME Clearing Europe Limited may also clear forward contracts on energy, agricultural, freight and metals products. CFTC Press Release.
  • Euronext Brussels' Futures Contract Based on the BEL 20 Index to be Offered and Sold in the U.S.
On September 2nd, the CFTC's Office of General Counsel announced it issued a no-action letter on August 31, 2011, permitting the offer and sale in the United States of Euronext Brussels' futures contract based on the BEL 20 Index (B20). CFTC Press Release.
  • Gensler: CFTC Eager to Clean Up Swap Market.
In an Op-Ed piece published on September 1st by Politico.com, Chairman Gary Gensler wrote "If you play by the rules, Dodd-Frank works to your benefit." Gensler discussed key reforms in the Dodd-Frank Act that involve the CFTC: bringing transparency to the swaps market and lowering the risks of this market to the overall economy. CFTC Press Release.
Securities and Exchange Commission [Top]
New Final Rules
  • Amendments to Form ID.
On September 1st, the SEC published amendments to Form ID to include additional applicant types in order to facilitate processing of the form. Form ID is the application for access codes to file on the Commission's Electronic Data Gathering, Analysis, and Retrieval system. The purpose of introducing these new applicant types is to improve the Commission's internal procedures for processing filings. The amendments are effective immediately. SEC Release No. 33-9256.
Requests for Comment
  • SEC Seeks Comments on How to Review its Regulations.
On September 6th, the SEC requested comments to assist it in its consideration and development of a plan for the retrospective review of its regulations. Comments should be submitted on or before October 6, 2011. SEC Release No. 33-9257; SEC Press Release.
  • SEC Seeks Comment on Treatment of Asset-Backed Issuers and REITs.
On August 31st, the SEC issued a concept release advising that it is considering proposing amendments to Rule 3a-7 under the Investment Company Act of 1940, the rule that provides certain asset-backed issuers with a conditional exclusion from the definition of investment company. Amendments to Rule 3a-7 that the Commission may consider could reflect market developments since 1992, when Rule 3a-7 was adopted, and recent developments affecting asset-backed issuers, including the passage of the Dodd-Frank Act and the SEC's recent rulemakings regarding the asset-backed securities markets. The SEC is withdrawing its 2008 proposal to amend Rule 3a-7, which was published at 73 FR 40124 (July 11, 2008). Comments should be submitted on or before November 7, 2011. SEC Release No. IC-29779; SEC Press Release.
  • SEC Seeks Comment on Proposed Changes to Derivatives Rules.
On August 31st, the SEC requested comment on issues raised by the use of derivatives by mutual funds and other investment companies regulated under the Investment Company Act. The SEC will use the comments it receives to help determine whether regulatory initiatives or guidance is needed that would continue to protect investors and fulfill the purposes underlying the Investment Company Act. Comments should be submitted on or before November 7, 2011. SEC Release No. IC-29776; SEC Press Release.
  • Companies Engaged in the Business of Acquiring Mortgages and Mortgage-Related Instruments.
On August 31st, the SEC requested information about companies that are engaged in the business of acquiring mortgages and mortgage-related instruments and that rely on the exclusion from the definition of investment company in Section 3(c)(5)(C) of the Investment Company Act, and how Section 3(c)(5)(C) of the Act is interpreted by, and affects investors in, these companies. The SEC solicits commenters' views about the application of the Investment Company Act to mortgage-related pools, including suggestions on the steps that the SEC should take to provide greater clarity, consistency or regulatory certainty. Comments should be submitted within 60 days after publication in the Federal Register, which is expected during the week of September 12. SEC Release No. IC-29778.
Other Developments
  • SEC Close to Settling with Fannie Mae and Freddie Mac.
On September 8th, the New York Times' DealBook reported that the SEC is close to settling its enforcement action against Fannie Mae and Freddie Mac, summarizing the settlement's terms and discussing its implications. The SEC had alleged the two made misleading statements concerning their exposure to sub-prime mortgages. Settlement.
  • Wells Notices, the Dodd-Frank Act, and Time Limits.
On September 6th, Bloomberg discussed a little-known requirement included in the Dodd-Frank Act. After the SEC sends a Wells Notice advising that it believes it has sufficient evidence to institute enforcement proceedings, it must sue or close the case within 180 days. An unintended consequence of that time limit may be that the SEC simply decides not to send Wells Notices. Time Limits.
  • SEC Will Not Challenge Court's Shareholder Access Decision, But Shareholder Proposal Rule Will be Implemented.
On September 6th, the SEC announced that it will not seek rehearing of the decision by the D.C. Circuit Court of Appeals vacating SEC Rule 14a-11, which would have required companies to include shareholders' director nominees in company proxy materials in certain circumstances, nor will the SEC seek Supreme Court review of the decision. However, the SEC noted that Rule 14a-8, the shareholder proposal rule, which was adopted at the same time as Rule 14a-11, was not challenged and will go into effect. Under that rule, eligible shareholders may require companies to include shareholder proposals regarding proxy access procedures in company proxy materials. Through this procedure, shareholders and companies have the opportunity to establish proxy access standards on a company-by-company basis. SEC Press Release.
  • Leveraged ETFs.
On September 6th, the Wall Street Journal reported that the SEC is examining whether leveraged exchange-traded funds contributed to market volatility last month. Leveraged ETFs.
  • Shredding Saga Continues.
On September 6th, the Washington Post reported that an SEC employee contends that the agency is continuing to improperly destroy documents, contrary to its statement that it has ended the practice. Document Destruction. See also Redlines, where the Post explored how that statement changed during its drafting. On September 7th, the Washington Post reported that the SEC's general counsel has issued a memo directing staff to retain all documents from closed cases until further notice. Document Retention.
  • Revised Financial Reporting Manual.
On September 1st, the SEC's Division of Corporation Finance issued a revised version of its Financial Reporting Manual.
  • Fee Rate Advisory.
On August 31st, the SEC announced that in fiscal year 2012 the fees that public companies and other issuers pay to register their securities with the SEC will be set at $114.60 per million dollars. A copy of the SEC's order, including the calculation methodology, is available at http://www.sec.gov/rules/other/2011/33-9255.pdf. SEC Press Release.
Exchanges and Self-Regulatory Organizations [Top]
BATS Exchange
  • Auction Rules Proposed.
On September 6th, the SEC provided notice of BATS Exchange's proposed rules applicable to auctions conducted by the exchange for exchange-listed securities. Comments should be submitted within 21 days after publication in the Federal Register which is expected during the week of September 12. SEC Release No. 34-65266.
Financial Industry Regulatory Authority
  • FINRA Issues Election Notices.
On September 7th, the Financial Industry Regulatory Authority issued notices advising of upcoming nominations and elections for FINRA District Committees and the FINRA Small Firm Advisory Board.
  • SEC Approves Amendments Clarifying Certain Exceptions Under Trade Reporting Rules.
On August 29th, the Financial Industry Regulatory Authority advised that the SEC has approved amendments to FINRA rules, which clarify that, for purposes of the exception from the trade reporting requirements for transactions that are part of a distribution of securities, the term "distribution" has the meaning set forth under SEC Regulation M. FINRA Regulatory Notice 11-40.
ICE Clear Credit
  • ICC Proposes to Clear Emerging Market Sovereigns.
On September 2nd, the SEC provided notice of ICE Clear Credit's filing of a proposal to add rules related to the clearing of emerging markets sovereigns. The rule change would adopt new rules providing the basis for ICC to clear additional credit default swap ("CDS") contracts. Specifically, ICC is proposing to add Sections 26D and 26E to Chapter 26 of its rules, providing for the clearance of Emerging Markets Standard Sovereign CDS ("Standard Emerging Sovereign Single Names" or "SES Contracts"). Comments should be submitted on or before September 30, 2011. SEC Release No. 34-65259.
Municipal Securities Rulemaking Board
  • Municipal Advisors.
The SEC has recently provided notice of the Municipal Securities Rulemaking Board's filing of several proposed rules and amendments affecting municipal advisors.
  • SEC Release No. 34-65292 addresses a proposed interpretive notice concerning the application of MSRB Rule G-17 to municipal advisors. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of September 12.
  • SEC Release No. 34-65282 addresses proposed Rule G-36, on the fiduciary duties of municipal advisors, and a proposed interpretive notice concerning the application of proposed Rule G-36 to municipal advisors. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of September 12.
  • SEC Release No. 34-65255 addresses proposed Rule G-42 on political contributions and prohibitions on municipal advisory activities; proposed amendments to Rules G-8 on books and records, G-9 on preservation of records, and G-37 on political contributions and prohibitions on municipal securities business; proposed Form G-37/G-42 and Form G-37x/G-42x; and a proposed restatement of a Rule G-37 interpretive notice. Comments should be submitted on or before September 30, 2011.
  • SEC Release No. 34-65234 addresses proposed amendments to MSRB Rule G-20 (Gifts and Gratuities) and related amendments to MSRB Rules G-8 (Books and Records) and G-9 (Preservation of Records), and clarifies that certain interpretations by the Financial Industry Regulatory Authority and the National Association of Securities Dealers would be applicable to municipal advisors. Comments should be submitted on or before September 28, 2011.
  • Municipal Securities Underwriters.
On September 6th, the SEC provided notice of the Municipal Securities Rulemaking Board's proposed interpretive notice concerning the application of MSRB Rule G-17 on conduct of municipal securities and municipal advisory activities, to underwriters of municipal securities. Comments should be submitted on or before September 30, 2011. SEC Release No. 34-652563.
NASDAQ OMX PHLX
  • Changes to Quarterly Trading Requirements are Proposed.
On September 2nd, the SEC provided notice of NASDAQ OMX PHLX's proposed rule change relating to the quarterly trading requirements applicable to Registered Options Traders. The proposed rule changes are aimed at strengthening the exchange's quarterly trading requirement to encourage liquidity-providing activity by market makers on the exchange. Comments should be submitted on or before September 30, 2011. SEC Release No. 34-65257.

Judicial Opinions [Top]
  • Court Affirms Insider Trading Conviction.
On September 9th, the Second Circuit addressed a securities fraud conviction based on the misappropriation theory of insider trading holding that the defendant, a "tipper," could claim that he lacked the requisite intent to commit securities fraud. In defining the nature of his relationship with the "tippee," defendant could use language found in Rule 10b5-2, claiming that the exchange of information was based on a past pattern and history of sharing confidences such that the tipper expected the tippee to keep the information private. Because the trial court gave an instruction that was substantially similar to the one that the defendant requested, the defendant suffered no prejudice and the conviction was affirmed. U.S. v. Gansman.
  • "Delaware Carve-Out" Does Not Exempt Mutual Fund Shareholders' Lawsuit from SLUSA.
On September 8th, the Sixth Circuit affirmed the dismissal of a state-law class action filed by mutual-fund shareholders against various fund affiliates. The district court held that the Securities Litigation Uniform Standards Act ("SLUSA") barred the claims, and the Sixth Circuit agreed. The "Delaware carve-out," which preserves a class action otherwise facing SLUSA preclusion if it involves the purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of equity securities of the issuer, did not exempt this lawsuit because the plaintiffs did not purchase or sell their shares. Instead, they continued to hold them. Moreover, plaintiffs' complaint alleged misrepresentations and omissions, which are precluded by SLUSA. Atkinson v. Morgan Asset Management, Inc.
  • Janus and Potential Individual Liability.
On September 7th, the Northern District of Ohio applied the Supreme Court's decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), to partially dismiss a shareholder lawsuit. Shareholders of Dana Corp. sued its former executives alleging that they falsified the firm's financial information in violation of Rule 10b-5. In light of the Supreme Court's opinion in Janus, the District Court held that the proper inquiry for whether an individual defendant might be liable is whether that defendant had ultimate authority over the false statements in question. Hawaii Ironworkers Annuity Trust Fund v. Cole.
  • Ninth Circuit Discusses MERS.
On September 7th, the Ninth Circuit addressed the origination and foreclosure procedures for home loans maintained within the Mortgage Electronic Registration System ("MERS"). It holds plaintiffs cannot establish that they were misinformed about MERS, relied on any misinformation, or were injured by the misinformation. The Court also notes that the deeds of trust explain MERS' role. The Court therefore affirmed dismissal of plaintiffs' complaint which alleged that defendants used MERS to perpetrate a fraud. Cervantes v. Countrywide Home Loans, Inc.
  • Amended Complaints and the Right to Compel Arbitration.
On September 7th, the Eleventh Circuit addressed the effect that an amended complaint has on the waiver of the right to compel arbitration, an issue of first impression within that circuit. The instant plaintiff filed a putative class action complaint stemming from her lender's decision to freeze her home equity line of credit. The Court held that the plaintiff's amendment of that complaint to significantly expand the proposed class revived the lender's right to compel arbitration in accordance with the loan's terms, notwithstanding its previous waiver of that right. Krinsk v. SunTrust Banks, Inc.
  • Effort to Stop Foreclosure is Revived.
On September 7th, the Eleventh Circuit vacated a district court's dismissal of a complaint seeking to forestall the foreclosure of a home. The plaintiff originally filed an emergency petition in state court to enjoin the foreclosure. Because the plaintiff's petition referenced federal lending laws, the defendants removed the case to federal court where it was dismissed. Vacating the district court decision, the Eleventh Circuit held that the federal court lacked jurisdiction because although the petition referenced federal laws, none of the claims relied on federal law. Madzimoyo v. The Bank of New York Mellon Trust Co., N.A. (Not Published).
  • Mutual Funds and ERISA Fiduciary Duties.
On September 6th, the Seventh Circuit affirmed the dismissal of a lawsuit filed by participants in Exelon Corporation's 401(k) plan. The plaintiffs alleged that the plan administrators violated their ERISA fiduciary duties by offering retail (instead of institutional) mutual funds, which provided participants the same terms but also the same expenses as those experienced by the general public, and by requiring participants to bear those fund fees. In an opinion clearly laying out the structure and expenses of the different types of mutual funds offered, the Court held that ERISA does not require fiduciaries to find and offer the cheapest possible funds and does not require employers to make pension plans more valuable to participants by paying fund fees. The Court further affirmed the award of costs to the defendants under Federal Rule of Civil Procedure 54(d)(1). Loomis v. Exelon Corp.
  • Delaware LLC Law.
On September 6th, the Delaware Supreme Court addressed the effect of the derivative standing provisions of the Delaware Limited Liability Company ("LLC") Act. The plaintiff, who loaned a now insolvent LLC $40 million, claimed that the statute does not deprive creditors of standing to bring derivative actions on behalf of insolvent LLCs. The Court disagreed, finding that the plain language of the act limits derivative standing to members and assignees, and that limitation is constitutional. CML V, LLC v. Bax.
  • Bank Citizenship.
On September 2nd, the Eighth Circuit held that a national bank is a citizen only of the state in which its main office is located. The appellate court affirmed a Minnesota trial court holding of diversity of citizenship based on the fact that the bank's main office was in South Dakota. Wells Fargo Bank v. WMR e-PIN, LLC.
Winston & Strawn Speaking Engagements and Publications [Top]
  • Gareth Morgan to Speak at Legal Week Corporate Counsel Forum Europe.
Winston & Strawn London partner Gareth Morgan will be among the speakers during Legal Week Corporate Counsel Forum Europe to be held September 13-14, 2011 in Bedforshire, UK. Winston & Strawn will sponsor the gala reception dinner on September 13. Event.
  • Winston to Speak and Sponsor Thomson Reuters' 17th Annual LPC Loan Conference.
Winston & Strawn corporate finance partners will speak at the 17th Annual Thomson Reuters LPC Loan Conference to be held Thursday, September 22, 2011 in New York. The theme of this year's conference is "Boom to Bust and Back: The Global Loan Market Moves Forward." Event.
  • Winston & Strawn Sponsors TMA's 2011 Annual Convention.
Winston & Strawn will sponsor the 2011 Turnaround Management Association (TMA) Annual Convention, to be held October 25-27, 2011 in San Diego. Twitter co-founder Biz Stone is the keynote speaker. Event.
  • Winston & Strawn Sponsors 16th Annual LSTA Conference.
Winston & Strawn is sponsoring the 16th Annual Loan Syndications and Trading Association's (LSTA) Conference to be held on November 2, 2011 in New York. Event.

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