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June 20, 2008
Government Cracks Down on Mortgage
Fraud
The Justice Department announced yesterday that 406 people had been
indicted since March on charges of mortgage fraud involving the sale of
individual properties, including about 60 who were arrested on
Wednesday, the New York Times reported today. The sweep, called
Operation Malicious Mortgage, focused primarily on three types of crime:
lending fraud, foreclosure rescue frauds and mortgage-related bankruptcy
schemes, the department said. Operation Malicious Mortgage represents
the joint collaborative efforts of the FBI, U.S. Postal Inspection
Service, IRS, U.S. Immigration and Customs Enforcement, U.S. Secret
Service, U.S. Trustee Program, Department of Housing and Urban
Development, Department of Veterans Affairs and the Federal Deposit
Insurance Corp. The indictments stemmed from 144 cases that resulted in
more than $1 billion in estimated losses. The FBI has more than 40 task
forces around the country that are working with other federal, state and
local law enforcement agencies on mortgage fraud issues. Its caseload
has nearly doubled in the last three years, from 721 mortgage fraud
cases in 2005 to more than 1,400 cases that are currently
pending.
href='http://www.nytimes.com/2008/06/20/business/20mortgage.html?sq=bankruptcy&st=nyt&scp=3&pagewanted=print'>Read
more.
Click
here to read the Department of Justice press release on
Operation Malicious Mortgage
Bush Administration Opposes Provisions
of Senate Housing Assistance Package
The Bush Administration issued a Statement of Administration Policy
yesterday opposing various provisions of the Senate housing assistance
package. As it has stated previously, the Bush Administration strongly
opposes a program to provide block grants that would allow State
governments to purchase foreclosed properties. The Administration
said that it believes the principal beneficiaries of this type of plan
would be private lenders - who are now the owners of the vacant or
foreclosed properties - instead of struggling homeowners who are working
hard to stay in their homes. It also opposes provisions within the
Senate legislation increasing the conforming loan limit beyond a
reasonable level based on median area home prices, as calculated by the
Office of Federal Housing Enterprise Oversight, as well as a provision
to grant explicit legal protection to servicers that follow certain
prescribed steps.
href='http://www.whitehouse.gov/omb/legislative/sap/110-2/saphr3221-s.pdf'>Click
here to read the Bush Administration's Statement of Administration
Policy for H.R. 3221.
Fremont General Files for
Bankruptcy
Financial services firm Fremont General Corp. said Wednesday night
that it filed for bankruptcy protection as part of its plan to
sell its retail banking assets to CapitalSource Inc., the Associated
Press reported yesterday. The bankruptcy filing was necessary to allow
CapitalSource, a commercial lender, to complete the purchase of Fremont
General's retail banking operations. The filing will have no effect on
operations at the bank or its branches. Fremont General said that both
the California Department of Financial Institutions and Federal Deposit
Insurance Corp. approved CapitalSource's acquisition of the retail
banking operations. Fremont General previously was one of the largest
originators of subprime mortgages.
href='http://biz.yahoo.com/ap/080619/fremont_general_bankruptcy.html?.v=1'>Read
more.
U.S. Trustee Objects to Linens 'N Things
Severance Plan
Acting U.S. Trustee Roberta A. DeAngelis objected to
Linens 'n Things Inc.'s motion for approval of a severance plan for
certain noninsider store-level employees, arguing that it lacks adequate
details and that the debtors have not acknowledged relevant legal
precedent on severance pay, Bankruptcy Law360 reported
yesterday. The debtors did not attach a copy of the severance plan to
the motion, or include information about the identity of the specific
individuals the plan would cover, the participants' respective salaries,
the length of their tenure with the company, or whether the participants
are covered under any other bonus programs, the trustee contends. In
addition to failing to provide enough information to properly evaluate
the plan, the objection said that the debtors aren't acknowledging the
new limitations imposed by the Bankruptcy Code, or controlling Third
Circuit law that bars or limits the debtors from paying employees
severance as an administrative expense based on a length-of-service
calculation, where the work that forms the basis of the payment occurred
prepetition.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=59655'>Read
more. (Registration required.)
Deepening Insolvency Claim against
Deloitte & Touche Upheld
In a claim by the Pennsylvania Insurance Department against accounting
firm Deloitte & Touche, the Commonwealth Court of Pennsylvania has
ruled that deepening insolvency is not an independent cause of action
unless a plaintiff alleges other causes of action such as professional
negligence, the Legal Intelligencer reported yesterday. The court issued
an unpublished opinion authored by Senior Judge James Gardner Colins in
Ario v. Deloitte & Touche denying in part the firm's motion for
summary judgment based on the 3rd U.S. Circuit Court of Appeals' 2006
decision in In re CitX Corp., where the federal court ruled deepening
insolvency is not a valid theory of damages for an independent cause of
action. 'Deepening insolvency is an organic theory that reflects the
dynamic nature of this global economy,' Colins wrote. 'It recognizes the
expertise of professionals to perform to the highest standards. And,
where there is failure, if pled and proven, the deepening insolvency
theory allows for the imposition of liability upon those professionals
who through their failure to perform their duties, plunge institutions
into financial despair, leaving regulatory agencies and bankruptcy
courts to try and put 'humpty dumpty' back together again.'
href='http://www.law.com/jsp/article.jsp?id=1202422379034&pos=ataglance'>Read
more.
Hancock Fabrics' Disclosure Statement,
Backstop Deal Approved
Bankruptcy Judge Brendan L. Shannon approved Hancock
Fabric Inc.'s disclosure statement for its recently filed chapter 11
plan and its backstop agreement related to the debtor's planned public
offering, Bankruptcy Law360 reported yesterday. Judge Shannon
authorized the backstop agreement between Hancock and Sopris Capital
Partners LP, Berg & Berg Enterprises LLC and Trellis Management, in
connection with Hancock's plan to publicly offer $20 million in secured
notes and warrants to buy 8 million shares of its stock. The three firms
will buy any of the notes and warrants left over after the public
offering within certain limits. Objections to the chapter 11 plan are
due July 15 and the confirmation hearing on the plan is set for July
22.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=59667'>Read
more. (Registration required.)
Adelphia Lenders Win Bid to Toss $4
Billion in Claims
Hundreds of banks that are accused of playing a role in the collapse of
Adelphia Communications Corp. have prevailed in their efforts to strike
more than $4 billion in claims in a lawsuit brought by the company's
creditors, Bankruptcy Law360 reported yesterday. The cable company's
creditors, represented by the Adelphia Recovery Trust, are accusing 380
commercial and investment banks - including Citigroup Inc., Deutsche
Bank and Bank of America Corp. - of looking the other way while
Adelphia's founding family looted the company of over $2 billion. Their
537-page amended complaint, filed last October, asserted 57 claims
against the defendants, including claims to recover billions of dollars
in loan obligations owed the banks by Adelphia's subsidiaries.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=59622'>Read
more. (Registration required.)
Two Former Bear Stearns Hedge Fund
Managers Indicted
A federal grand jury in Brooklyn, N.Y., indicted two former Bear Stearns
Cos. Hedge fund managers, alleging that they misled investors when their
fund was in peril, lied about their financial interest in the portfolios
and destroyed evidence in the investigation, the Wall Street
Journal reported today. The high-profile criminal case, along with
a parallel civil securities-fraud action by the Securities and Exchange
Commission, marks the first criminal securities-fraud charges stemming
from the mortgage-market crisis. The 27-page indictment paints a picture
of the scramble by the managers, Ralph Cioffi and Matthew Tannin, to
keep their hedge funds alive. The U.S. attorney for New York's Eastern
District highlighted emails and meetings where the fund managers
appeared to reveal their severe doubts about the health of the
funds.
href='http://online.wsj.com/article_print/SB121388575563688539.html'>Read
more. (Registration required.)
Moody's Cuts Bond Insurer
Ratings
Moody's Investors Service stripped the insurance arms of Ambac Financial
Group and MBIA of their AAA ratings yesterday, citing their impaired
ability to raise capital and write new business, Reuters reported today.
Moody's said this month that it was likely to cut the ratings of the
insurance units, Ambac Assurance and MBIA Insurance, as plunging share
prices and the high cost of accessing the debt markets made it difficult
for the two largest bond insurers to raise capital. Demand for their
bond insurance service has also dried up.
href='http://www.nytimes.com/2008/06/20/business/20bond.html?ref=business&pagewanted=print'>Read
more.
Fallout from Bad Loans Rocks
Regional Banks
Regional banks across the nation are being shaken to the core
by the current credit crisis as home mortgages and other loans that the
banks made in good times are souring so fast that many of the lenders
are scrambling to remain in business, the New York Times
reported today. If the pain worsens - and many analysts say it will -
some of these banks may eventually seek out suitors, most likely large
national rivals. “Everybody is trying to figure out where the
bottom is,” said Jennifer Thompson, a regional bank analyst for
Portales Partners in New York. The regional banks' descent in the stock
market has been remorseless, as weakening housing and construction
markets in regions like the Midwest, Southeast and Southwest have hit
lenders in those areas hard. While small and midsize lenders are in far
less danger than they were during the 1980s and early 1990s, the breadth
and depth of the current troubles have caught bank executives by
surprise. Federal regulators are particularly concerned about the
exposure of smaller banks to the commercial real estate market, which
has softened in some parts of the country.
href='http://www.nytimes.com/2008/06/19/business/19bank.html?ei=5087&em=&en=f945783c14c4a6ef&ex=1214020800&pagewanted=print'>Click
here to read the full article.
Legislation Looks to Ease Scale for
Rating Municipal Bonds
House Financial Services Committee Chairman Barney Frank (D-Mass.) said
that he plans to propose legislation today that could force bond-rating
companies to take a more positive stance toward state and municipal
bonds, the Wall Street Journal reported today. The $2.5
trillion municipal-bond market is currently rated on a risk scale that
is generally tougher than the one used for corporate bonds or
national-government debt. Moody's has found that investment-grade
corporate bonds between 1970 and 2000 had a 10-year default rate of
about 2.3 percent, far higher than the 0.03 percent default rate of
investment-grade munis. Muni-bond issuers and politicians across the
country have argued that the tougher ratings treatment is basically a
hidden tax on cities, states and the public. Bond-rating firms, however,
may argue that the bill comes too close to legislating their
methodologies, something that Congress has been reluctant to do in the
past.
href='http://online.wsj.com/article_print/SB121392702655890897.html'>Read
more. (Registration required.)
High Fuel Costs Are Squeezing Low
Air Fares
Jet fuel costs - up more than 80 percent over last year - are forcing
low-fare airlines to sharply raise some fares, and reinvent themselves
to appeal to not just bargain hunters, but also business travelers, the
New York Times reported today. Airlines like Southwest, JetBlue
and AirTran have been able to offer cheap fares for years because of
their lower operating costs, for reasons that include simpler jet
fleets, work rules and less-sprawling route networks. Their low prices
and rapid growth forced the largest carriers to cut fares whenever they
entered a market. They still offer deals for passengers who book trips
well in advance, travel off-season and at less popular times. However,
bargains are getting harder to find, as low-fare carriers join the
bigger airlines in raising fares, which are up about 18 percent
industrywide this year.
href='http://www.nytimes.com/2008/06/20/business/20air.html?sq=bankruptcy&st=nyt&scp=2&pagewanted=print'>Read
more.