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April 19, 2010

SEC Probes Other Soured Mortgage Deals

The Securities and Exchange Commission, after having hit Goldman
Sachs Group Inc. with a civil fraud charge on Friday, is investigating
whether other mortgage deals arranged by some of Wall Street's biggest
firms may have crossed the line into misleading investors, the Wall
Street Journal reported today. The SEC's case against Goldman has
exposed an open secret on Wall Street: As the housing market began to
wobble a few years back, some big financial firms designed products
aimed at allowing key clients, such as hedge funds, to bet on a sharp
housing downturn. Among the firms that created mortgage deals that soon
went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now

owned by Bank of America Corp. It is not known at this time what deals
the SEC is investigating. Read more. (Subscription required.)

In related news, a New York Times analysis looks at some of
the events that led to the SEC filing a civil suit on Friday against
Goldman Sachs. In late 2006, an argument had broken out inside Goldman
Sachs' mortgage unit - a dispute that would reach all the way up to

the executive suite, according to the analysis. One camp of traders at
the time was insisting that the American housing market was safe.
Another thought it was poised for collapse. Among those who saw disaster

looming were Fabrice P. Tourre and his colleague Jonathan M. Egol, the
mastermind behind a series of mortgage deals known as the Abacus
investments. Their elite mortgage unit is now at the center of
allegations that Goldman and Tourre defrauded investors with one of
those complex deals. The Securities and Exchange Commission filed a
civil fraud suit on Friday that essentially says that Goldman built the
financial equivalent of a time bomb and then sold it to unwitting
investors. Goldman has vowed to fight the SEC, but the allegations have
left many on Wall Street wondering how far the investigation might
spread inside Goldman and perhaps beyond. Pressure on Goldman mounted on

yesterday as two members of Congress and Gordon Brown, Britain's prime
minister, called for investigations into the bank?s role in the mortgage

market. Germany also said it was considering legal action against the
bank.

href='http://www.nytimes.com/2010/04/19/business/19goldman.html?hp=&pagewanted=print'>Read

more.

Smurfit-Stone Wins Approval to Tap
Revolving Exit Facility

Bankrupt Smurfit-Stone Container Corp. will seek confirmation of its
reorganization plan just one day after winning approval to access a $650

million revolving exit facility from several lenders to fund its
emergence from chapter 11, the Deal Pipeline reported
on Friday. Under its plan, Smurfit and its subsidiary, Smurfit-Stone
Container Enterprises Inc., will merge to form a new company, and all
existing secured debt against both companies would be paid in full with
cash, new debt instruments or both. Smurfit has already paid down its
entire $750 million debtor-in-possession loan from lenders led by
Deutsche Bank, GE Capital, J.P. Morgan Chase and Bank of America,
according to the plan. 

href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005415894'>Read

more. (Subscription required.)

House Panel to Examine Lehman
Report

The House Financial Services Committee on Tuesday will hold a hearing

titled 'Public Policy Issues Raised by the Report of the Lehman
Bankruptcy Examiner.' The hearing will feature four panels and witnesses

will include Treasury Secretary Timothy F. Geithner, Federal Reserve
Chairman Ben S. Bernanke, Chairman, SEC Chairman Mary L. Schapiro, Anton

R. Valukas of Jenner & Block LLP and the court-appointed examiner in

the Lehman case and Richard S. Fuld, Jr., former chairman and CEO of
Lehman Brothers.

href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrfc_04202010.shtml'>Click

herefor more information on the hearing.

Countrywide Probe Shows Signs of
Life

Federal criminal investigators looking into the collapse of
Countrywide Financial Corp. have been calling witnesses before a grand
jury, suggesting that the investigation of the one-time mortgage giant,
which has been continuing for about two years, could be moving closer to

a resolution, the Wall street Journal reported today.Last June,
the SEC filed a civil suit in Los Angeles federal court against three
former top Countrywide executives, including the company's longtime
chief executive, Angelo Mozilo. The pending SEC suit asserts that the
three men defrauded investors by falsely claiming that Countrywide
underwrote low-risk mortgages at a time when the company was getting
into increasingly risky parts of the lending business, including
subprime mortgages.

href='http://online.wsj.com/article/SB10001424052702304180804575188722277738484.html?mod=WSJ_hps_LEFTWhatsNews#printMode'>Read

more. (Subscription required.)

Judge Confirms Spansion's Reorganization
Plan

Spansion Inc. won confirmation of its reorganization plan on Friday
after overcoming a challenge by junior noteholders who presented a
last-minute alternative plan last week, Reuters reported on Friday. The
world's third-largest maker of flash memory chips was forced to amend
its reorganization plan after Bankruptcy Judge Kevin Carey
rejected the original plan earlier this month, citing excessive
management incentives among other concerns. Holders of junior
convertible securities used that opportunity to propose their plan. They

raised more than $400 million to back their plan and asked for a delay
in the case of up to two weeks to allow consideration of their proposal.

Sunnyvale, Calif.-based Spansion argued on Friday that unless the plan
were confirmed as quickly as possible, it would continue to bleed
employees and lose potential customers.
href='http://www.reuters.com/article/idUSN1613444520100416'>Read
more.

Senators Rip into Regulator for WaMu
Failure

Senators on Friday ripped into former Office of Thrift Supervision
(OTS) officials as the Senate Homeland Security and Governmental Affairs

Permanent Subcommittee on Investigations continued looking into the
causes of the financial crisis, CongressDaily reported on Friday.

Senate Homeland Security and Governmental Affairs Permanent Subcommittee

on Investigations Chairman Carl Levin, D-Mich., called OTS 'a feeble
regulator' for its handling of the collapse of Washington Mutual Bank.
The hearing is the second in a series of four to be held this month.
Former OTS Director John Reich defended OTS' actions during the collapse

of the bank, blaming the failure on a run on the bank by its depositors.

The bank was a victim of bad timing, he added. However, Reich also said
that he regretted not taking action at the time when Washington Mutual
was pursuing a strategy of originating more high-risk loans that relied
on borrowers' stated income without asking for official financial
statements.

Florida Judge Bashes Bank in Foreclosure
Case

A Florida state-court judge said in a ruling that a major national
bank perpetrated a fraud in a foreclosure lawsuit, raising questions
about how banks are attempting to claim homes from borrowers in default,

the Wall Street Journal reported today. The ruling, made last
month in Pasco County, Fla., comes amid increased scrutiny of
foreclosures by the prosecutors and judges in regions hurt by the
recession. Judges have said in hearings they are increasingly concerned
that banks are attempting to seize properties they don't own. The
Florida case began in December 2007 when U.S. Bank N.A. sued a
homeowner, Ernest E. Harpster, after he defaulted on a $190,000 loan he
received in January of that year. The Law Offices of David J. Stern,
which represented the bank, prepared a document called an 'assignment of

mortgage' showing that the bank received ownership of the mortgage in
December 2007. The document was dated December 2007. However, Circuit
Court Judge Lynn Tepper ruled that the document couldn't have been
prepared until 2008 and she ruled that the bank couldn't prove it owned
the mortgage at the time the suit was filed.

href='http://online.wsj.com/article/SB10001424052702303491304575188943977777722.html?mod=WSJ_business_IndustryNews_DLW#printMode'>Read

more. (Subscription required.)

Heartland Publications' Bankruptcy Plan
Approved

Regional newspaper publisher Heartland Publications said on Friday
that a federal court had approved its plan to emerge from bankruptcy,
which it plans to do within two weeks, Reuters reported on Friday. The
company said it expected the plan, which had been pre-negotiated with
creditors, to take effect around April 30, at which time it will emerge
from bankruptcy. The company, which operates 50 paid-circulation
newspapers and other free distribution products in nine states, said
that its management and publications would remain in place. Heartland
filed for bankruptcy protection in U.S. Bankruptcy Court for the
District of Delaware in December. The case is In re Heartland
Publications LLC, U.S. Bankruptcy Court, District of Delaware, No.
09-14459.

href='http://www.reuters.com/article/idUSN1613572320100416?type=marketsNews'>Read

more.

Erickson Retirement Communities Exits
Chapter 11

Erickson Retirement Communities LLC emerged from chapter 11
protection on Friday after a Texas bankruptcy court confirmed the
company's reorganization plan and $365 million sale to Redwood Capital
Investments, Reuters reported on Friday. Erickson, which runs a network
of 19 retirement communities in the United States, filed for bankruptcy
protection in Texas last October as tight credit markets and falling
home prices took a toll. 'The conditions of Redwood Capital's successful

bid required that a consensual plan of reorganization be agreed to by
Erickson's numerous creditors holding in excess of $2 billion of debt no

later than April 30, 2010,' DLA Piper, which represented Erickson in the

bankruptcy case, said in a statement. The case is In re Erickson
Retirement Communities LLC, U.S. Bankruptcy Court, District of
Northern Texas, No 09-37010.
href='http://www.reuters.com/article/idUSSGE63F0J220100416'>Read
more.

Mesa Air Gets Four Month Extension to
File Bankruptcy-Exit Plan

Bankruptcy Judge Martin Glenn on Thursday granted Mesa Air
Group Inc. an extension through Sept. 2 to file its bankruptcy-exit
plan, Dow Jones Daily Bankruptcy Review reported today. The
extension prevents creditors from offering rival restructuring proposals

while the company works to complete its own. Mesa said that it has been
in restructuring-plan talks with its lenders, unsecured creditors,
customers and employees since it sought chapter 11 protection in
January. The company is also trying to resolve a dispute with Delta Air
Lines Inc. , one of its biggest customers. Delta and Mesa have been
bogged down in a fight over their code-sharing agreement and Mesa's
on-time performance. A Mesa unit provides regional flight services to
Delta under the Delta Connection brand name.

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