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December 10,
2009
SEC Proposal May Help Some
of Madoff’s Early Investors Press Their Claims
The Securities and Exchange Commission proposed at a
congressional hearing yesterday that the cash claims of the earliest
investors in Bernard L. Madoff’sPonzi scheme be adjusted for
inflation, the New York Times reported today.
Michael A. Conley, the deputy solicitor for the commission, disclosed
the proposal during testimony before a House Financial Services
subcommittee hearing examining how the claims of Madoff’s victims
were being handled. The claims process is being overseen by the
Securities Investors Protection Corporation, an industry-financed fund
that provides some limited reimbursement to the customers of failed
brokerage firms. Citing a long history of court cases involving Ponzi
schemes, SIPC has been calculating victim loss by subtracting
withdrawals from the amounts initially invested — the so-called
cash in, cash out method. Under that approach, someone who invested
$100,000 but withdrew the same amount over time would not be eligible
for SIPC compensation. The SEC’s proposal, if accepted by the
courts or imposed by Congress, would help some early investors by
increasing the cash-in side of their equation, which might result in
them having a net cash loss that would qualify as a valid claim. Stephen
P. Harbeck, the president of the Securities Investors Protection Corp.,
argued strongly against any legislative steps that would prohibit the
Madoff trustee from filing lawsuits against people who took out
substantially more than they invested in the scheme — money, he
noted, that Madoff had stolen from other investors.
href='http://www.nytimes.com/2009/12/10/business/10sipc.html?_r=1&ref=business&pagewanted=print'>Read
more.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/CMHR_120909.shtml'>Click
here to read the prepared witness testimony.
House Votes in Favor of
Carried Interest Tax
The House of Representatives voted yesterday to
approve another year's extension of tax breaks that are offset by an
upwards assessment of “carried interest” tax and new
measures to counter foreign banks' collusion on tax avoidance and
evasion activities, Tax-News.com reported today. The tax on the hedge
fund and private equity managers' remuneration commonly known as
“carried interest” will increase from the capital gains rate
of 15 percent to the usual rate on income at 35 percent (but soon to
rise to 39.6 percent). This measure alone could bring in $23 billion in
revenue over 10 years. Although this eliminates an anomaly in the tax
system, opponents have described it as a disincentive to investment,
coming just at a time when new start-ups need to be financed to bring
about growth. Proponents of the bill estimate that another measure in
the legislation, which will require foreign banks to report the offshore
account holdings of customers domiciled in America, will bring in a
further $8 billion over 10 years. Although considerable opposition from
the Senate has been signaled, the tax package is likely to pass in some
amended form early in 2010. The tax credits could be extended
retroactively.
href='http://www.tax-news.com/asp/story/Carried_Interest_Tax_Increase_Will_Offset_US_Tax_Break_Extensions_xxxx40612.html'>Read
more.
Deal Allows House Debate to
Begin on Financial Overhaul Legislation
House Democratic leadership yesterday reached a
compromise with moderates on legislation that would revamp the nation's
financial regulatory system, striking an agreement over how far a
proposed consumer protection agency can go in pre-empting state
laws,
size='3'>CongressDaily reported today. The
agreement in principle would establish a pre-emption level set before
the Office of the Comptroller of the Currency (OCC) established its
broad policy in 2004, when the agency issued guidance on a case-by-case
basis at the behest of a national bank. The new language proposed by
Rep. Melissa Bean (D-Ill.) would be included in a manager's amendment.
Additionally, the House will consider an amendment by Rep. Scott Murphy
(D-N.Y.) to narrow the definition of who would be considered as a major
swap participant for derivatives trading under the bill, excluding
companies that aren't primarily financial in nature from additional
regulations. House Financial Services Chairman Barney Frank (D-Mass.)
also has one derivatives amendment that is expected to be made in order
that would allow regulators to set margin requirements for commercial
users on customized trades in the OTC market.
Legislation Introduced to
Tap TARP for Small Biz Loans
Sen. Robert Menendez (D-N.J.) introduced legislation
yesterday to use $20 billion from the $700 billion Troubled Asset Relief
Program for direct loans to small firms through the Small Business
Administration (SBA),
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. Under the bill, $20 billion would be made
available to SBA over two years for small-business loans. This amount
would fill the gap left by the $10.5 billion drop in small-business
lending over the past six months by the 22 banks that received the most
TARP aid, combined with the $10 billion drop in SBA-guaranteed loans
projected for this year compared to the historic norm, according to
Menendez. SBA currently guarantees loans to small businesses but
normally does not make loans itself.
Seek Conversion to Chapter 7
A group of Colonial BancGroup Inc. creditors has asked
a judge to convert the failed bank holding company's chapter 11 case to
chapter 7, saying that there was no way to reorganize the company and
that liquidating it with the help of a trustee would yield more returns
for creditors, Bankruptcy Law360 reported
yesterday. Atlanta-based Colonial filed for chapter 11 protection on
Aug. 25. Colonial listed a total of $45 million in assets and $380
million in debts in its bankruptcy petition. Earlier that month,
Colonial's Alabama-based holding Colonial Bank had been closed and taken
over by the Alabama State Banking Department for failing to meet capital
requirements. Colonial had also been facing investigations into alleged
misconduct from state and federal officials, as well as a lawsuit from
Bank of America NA, a major creditor, in the weeks leading up to the
bankruptcy.
href='http://bankruptcy.law360.com/print_article/138310'>Read
more. (Subscription required.)
Citigroup Moves to Return
Bailout Funds
Citigroup is working to reach an agreement with
federal officials to return a portion of its bailout funds, which would
free the company from the government's most restrictive limits on
executive pay, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The financial giant, which has received $45
billion in taxpayer funds, will seek to repay $20 billion raised at
least in part through a stock offering. While the deal is not yet
finalized, Citigroup has been in discussions about returning money that
it has received from the government. The $20 billion that the bank is
seeking to return covers what was given under the targeted investment
program portion of Treasury Department's Troubled Assets Relief Program
for large institutions whose failure could threaten the stability of the
financial system. Firms receiving such 'exceptional' assistance are
subject to pay limits on their top 25 earners, as dictated by the Obama
administration's pay czar, Kenneth Feinberg.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/09/AR2009120903765_pf.html'>Read
more.
Chapter 11 Plan Pile Up
The trustee overseeing Edge Petroleum Corp.’s
pre-packaged chapter 11 case and the Texas Comptroller of Public
Accounts have filed objections to the energy company’s proposed
plan, alleging that it gives too much weight to company insiders and
fails to account for certain tax claims,
face='Times
New
Roman' size='3'>Bankruptcy Law360 reported
yesterday. Trustee Charles McVay’s objections center on Edge's
proposed $1.8 million employee incentive plan, which offers severance
and other incentives to employees who stay with the company until the
effective date of its liquidation plan. McVay says more than 70 percent
of the $1.8 million is illegally slated for seven Edge
“insiders.” The Texas Comptroller also objected to the plan
on Tuesday because of its treatment of priority tax claims. The
comptroller noted plans to file a claim soon for Edge’s unpaid
natural gas taxes; the deadline for government entities to file claims
has not passed.
href='http://bankruptcy.law360.com/print_article/138352'>Read
more. (Subscription required.)
Spansion Creditors Aim to
File Rival Chapter 11 Plan
The unsecured creditors of Spansion Inc. yesterday
asked to be allowed to file a rival chapter 11 plan for the flash memory
chip maker, arguing that an amended restructuring plan filed by
Spansion, with the consent of a consortium of convertible debt-holders,
is an attempt to punish the unsecured creditors,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
The unsecured creditors committee’s motion claims that Spansion's
amended restructuring plan strips them of the right to appoint any
directors to the reorganized company's board despite being awarded 100
percent of shares in the new company. Under the original plan, the
unsecured creditors were given the right to name four of the nine
directors on Spansion's new board, according to the objection. In
addition, the unsecured creditors were able to designate an additional
two members of the board in conjunction with the convertible senior debt
noteholders. The amended plan shrinks the board to seven members, and
Spansion and the consortium will nominate six of the members, with the
seventh being the CEO of the new company, the unsecured creditors
contend.
href='http://bankruptcy.law360.com/print_article/138304'>Read
more. (Subscription required.)
FairPoint Looks for
Extension to File Chapter 11 Plan
FairPoint Communications Inc. is looking for an
extension to file its reorganization plan, the AP reported today. The
troubled telecommunications company said yesterday, a day before its
filing deadline, that it will submit the plan by Jan. 15. The company is
pushing back the deadline to finalize settlements with lenders, unions
and other parties involved in the reorganization process, FairPoint
said. Meanwhile, FairPoint asked the court to put on hold an order from
the Maine Public Utilities Commission that it pay rebates totaling $8
million over the next 12 months to its Maine customers because of poor
service.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/09/AR2009120903447_pf.html'>Read
more.
Court Expected to Approve
Pilgrim's Pride Reorganization
Chicken producer Pilgrim's Pride Corp. said yesterday
that it expects a court to approve its reorganization plan, most likely
by later this month, the AP reported yesterday. The Pittsburg,
Texas-based company filed for chapter 11 protection last year as it was
hobbled by debt and struggled to pay high feed costs. Brazilian beef
company JBS said in September that it would buy a majority stake in
Pilgrim's Pride for $800 million in a transaction that would include
paying off Pilgrim's Pride's creditors in full and distributing new
shares to current holders. The entire deal is valued at $2.8 billion,
and it and another announced last month would make JBS the world's
biggest meat maker.
href='http://www.google.com/hostednews/ap/article/ALeqM5h8T7ceCmPRUpzwT9spJks2Fh4m3wD9CFTHJ00'>Read
more.
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