October 142009

 

Financial Services
Regulation Fuels Clash as House Committee Considers
Legislation

A public clash over proposals for financial-services
regulation is intensifying between the White House and the nation's
largest business lobby as a House committee begins considering
legislation today, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The U.S. Chamber of Commerce yesterday rejected

a new version of an Obama administration proposal to create a federal
regulator for consumer financial products. The House Financial Services
Committee will hold a hearing today to mark up legislation creating a
Consumer Financial Protection Agency, the first step in enacting the
administration's proposed overhaul. On Friday, President Barack Obama
attacked the Chamber for spending millions of dollars to defeat the
legislation, and said some of the allegations made in Chamber
advertisements are 'completely false.' The Chamber's advertising
campaign, which began a month ago, says the new federal agency would
have too much authority. Its first ad featured a picture of a butcher
with the line: 'Virtually every business that extends credit to American

consumers would be affected -- even the local butcher and the credit he
extends to his customers.' 
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href='http://www.house.gov/apps/list/speech/financialsvcs_dem/markup_100809.shtml'>Click

here to access related documents and watch a Webcast of the House
Financial Services Committee mark-up hearing.

Analysis: Turmoil in
Arbitration Empire Upends Credit Card Disputes

New York financier J. Michael Cline set out to build a

billion-dollar empire in the realm of consumer debt disputes, but his
plans have unraveled and turned the world of consumer arbitration on its

head, the

size='3'>Wall Street Journal reported today.
In 2006, Cline and his private-equity firm, Accretive LLC, set out to
acquire a stake in the National Arbitration Forum, the nation's largest
consumer-debt-arbitration body. At the same time, Cline was quietly
making another big bet on the debt business as Accretive created a
separate debt-collecting business. In a July complaint, the Minnesota
attorney general's office alleged that NAF deceived consumers and
engaged in false advertising. Consumers didn't realize NAF was
financially affiliated with 'one of the country's major debt collection
enterprises,' the complaint alleged. NAF settled the case with Minnesota

Attorney General Lori Swanson in July without admitting the charges. It
agreed in the settlement to stop arbitrating credit card cases
nationwide. The case has made waves as another consumer-debt-arbitration

body, the American Arbitration Association, which handled far fewer of
the cases than NAF, has also stopped hearing such cases. In August, Bank

of America Corp., which had used NAF to handle disputes, said credit
card holders now are free to go to court rather than being forced into
arbitration. J.P. Morgan Chase & Co., citing recent events, ceased
filing new arbitration creditcard claims in July and is evaluating
whether to continue to include an arbitration clause in consumer
contracts. Congress is also looking at the issue of mandatory
arbitration as Sen. Russell Feingold (D-Wis.) introduced S. 931,
the “Arbitration Fairness Act of
2009.” 

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here to read the text of S. 931.

LandAmerica Disclosure
Statement Garners Court Approval

Bankruptcy Judge

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size='3'>Kevin Huennekens yesterday approved
the disclosure statement of real estate services and financing company
LandAmerica Financial Group Inc., paving the way for a confirmation
vote, Bankruptcy Law360
reported yesterday. Tuesday's hearing was heavily
contested, with about a dozen “1031 exchange” customers
alleging that the plan infringed their right to litigate over an alleged

auction rate securities fraud, according to Rachel Strickland, a partner

at Willkie Farr & Gallagher LLP who is representing LandAmerica and
its affiliated debtors. Under the plan, a liquidation trust responsible
for distributing assets to creditors would bring those suits, but the
exchange customers want to bring the suits themselves. According to the
disclosure statement, unsecured creditors of the subsidiary LandAmerica
1031 Exchange Services Inc. will take home an estimated recovery of 37.1

percent, along with proceeds from the litigation. Meanwhile, unsecured
creditors of LandAmerica the parent company will take home an estimated
recovery of 28.3 percent, along with proceeds from the
litigation. 
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SEC Broadens Inquiry into
Bank of America's Merger with Merrill

The Securities and Exchange Commission is broadening
its inquiry into the merger of Bank of America Corp. and Merrill Lynch
& Co. Inc., Law.com reported today. Specifically, the SEC will go
beyond the issues of Merrill's bonus pool to look into Merrill's
accelerating pre-merger losses and Bank of America's threat to use an
escape clause to cancel the merger. This latest development came after
Bank of America's board of directors recently decided to waive
attorney-client privilege of internal discussions during the merger,
after facing demands to do so from both the SEC and the office of New
York Attorney General Andrew Cuomo. Bank of America CEO Kenneth Lewis
has admitted that he sought advice of counsel on several disclosure
issues involved in the merger. The issues include not disclosing the
size and timing of a $5.8 billion Merrill bonus pool, the magnitude of
Merrill's growing losses in the fourth quarter of 2008 and Lewis'
discussion with federal regulators about considering an escape clause to

cancel the merger before it closed on Jan. 1, 2009. 

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Homeowner Group Can Sue
Developer after Stay Lifted

A homeowners association and the trustee charged with
liquidating the estate of developer Empire Land LLC have agreed to
modify the automatic bankruptcy stay to allow the association to sue
Empire Land for construction defects,

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size='3'>Bankruptcy Law360 reported yesterday.

At least one other homeowners association already has received
permission to pursue construction defect litigation against Empire Land
since the developer filed for bankruptcy in April 2008. This April, the
Quailwood Meadows Townhouse Community Association Inc. won a
modification of the stay to pursue the action. The Ontario, Calif.-based

company and its affiliates owned about 11,800 lots in 14 separate land
projects, including 12 in California and two in Arizona, when it filed
for bankruptcy. It claimed total assets of about $106.4 million in book
value. Empire Land initially filed for chapter 11 protection, but the
case was converted to chapter 7 after its unsecured creditors’
committee questioned $17.5 million in transfers that were made to a
nondebtor affiliate shortly before the filing. 
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Federal Pay Czar Tries Again

to Trim AIG Bonuses

Federal pay czar Kenneth Feinberg is trying to force
American International Group to reduce $198 million in bonuses promised
to employees of its trading unit, whose problems posed a threat to the
global financial system last year, the

face='Times




















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size='3'>New York Times reported today.
Feinberg, however, is running into legal hurdles because those bonuses
fall outside new rules against bonus payments at companies receiving
government assistance. The bonus agreements at issue were struck before
last year’s emergency rescues by the Treasury and the Federal
Reserve, and thus are not directly covered by the new rules.To
strengthen his hand, Feinberg is threatening to reduce the compensation
packages he does control. That could mean shrinking the pay of other AIG

executives — including its new chief, Robert Benmosche — if
the firm does not claw back part of the bonuses for the people in its
trading unit, known as AIG Financial Products. 

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Cubs Win Court Approval of
Sale to Ricketts Family

The Chicago Cubs won court approval to transfer
control of the baseball team to the family of Joe Ricketts, TD
Ameritrade Holding Corp.’s founder, one day after the sports
franchise filed for bankruptcy, Bloomberg News reported yesterday. Using

a process previously approved by Bankruptcy Judge
face='Times New Roman'>Kevin
Carey, Tribune will transfer the Cubs to a new

entity controlled by the family. Chicago-based Tribune is to keep a 5
percent stake in the team. Wrigley Field and nearly all other assets of
the Cubs will be transferred as part of the deal, according to court
papers. The deal promises to bring Tribune creditors $740
million. 

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Private Equity Had Role in
Economic Crisis, Says Carlyle Co-Founder

Carlyle Group co-founder David M. Rubenstein
acknowledged yesterday that the private-equity industry helped drive the

recent financial bubble, whose eventual implosion contributed to the
credit crisis and the current recession, the

face='Times New Roman' size='3'>Washington Post
size='3'>reported today. Rubenstein referred to the rise in prices that
Carlyle and other private-equity firms paid to buy assets, offers driven

by cheap credit and loose loan terms that allowed private equity to put
up very little of its own money. “It was intoxicating to get debt
with no covenants,' Rubenstein said. 'People wanted to do more and more
deals, and there was a greater focus on very large deals.' Carlyle is
one of the world's largest private-equity firms, with more than $86
billion under management. Lately, the firm has been investing in banks,
but Carlyle and a partner recently bought out bankrupt manufacturer
Metaldyne for $450 million. 

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UAW and Ford Reach Tentative

Labor Deal

The United Automobile Workers union is asking 41,000
members who work at the Ford Motor Company to approve a tentative deal
that gives the automaker some of the same concessions that General
Motors and Chrysler have already received, the

face='Times New Roman' size='3'>New York Times
size='3'>reported today. The deal contains a six-year freeze on wages
for newly hired workers, combines some job classifications and limits
the union’s ability to strike. In return, workers would get a
$1,000 bonus next year and Ford would make future product commitments at

five assembly plants, according to a summary distributed by the union
yesterday to its local leaders. 

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In related news, Ford Motor Co. said that it is
expanding a recall by an additional 4.5 million vehicles, its largest
ever such action, to fix a fire hazard, the

face='Times




















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size='3'>Wall Street Journal reported. The
recall involves a faulty cruise-control deactivation switch made by
Texas Instruments Inc. With Tuesday's move, a total of 16 million Ford
cars and trucks have been recalled since 1999 due to the switch, the
National Highway Traffic Safety Administration said. 

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