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August 13, 2009
GAO Issues Critical Report
of Federal Regulators Enforcement of Fair Lending Laws
The Government Accountability Office (GAO) released a
report yesterday that was critical of federal regulators’ ability
to effectively and efficiently enforce the nation’s fair lending
laws, according to a House Financial Services Committee press release.
In the report, the GAO found that “[f]ederal enforcement agencies
and depository institution regulators face challenges in consistently,
efficiently, and effectively overseeing and enforcing fair lending laws
due in part to data limitations and the fragmented U.S. financial
regulatory structure.” Although depository institution
regulators’ fair lending initial activities to assess evidence of
potential fair lending violations generally have been more comprehensive
than those of the enforcement agencies, the report also found that
differences in the various oversight programs raise questions about the
consistency and effectiveness of their efforts and highlight challenges
associated with a fragmented regulatory system. The House Financial
Services Committee is already considering a number of the GAO’s
recommendations to enhance the data available to detect potential fair
lending violations as part of H.R. 3126, a bill to create a new federal
Consumer Financial Protection Agency, including amending the Equal
Credit Opportunity Act to require collection of race and ethnicity
information and some loan data for small business loans. To view the
full report,
href='http://www.house.gov/apps/list/press/financialsvcs_dem/gao.pdf'>click
here.
Five employees of the Detroit public school system
were charged Wednesday with multiple felonies as part of an
investigation into alleged corruption and the loss of tens of millions
of dollars in school funds, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. The charges come as the Detroit public schools are struggling
with an estimated budget deficit of $259 million and weighing a
potential bankruptcy filing. The allegations include eight felony
embezzlement charges against a district administrative staffer and a
high school teacher's aide who together allegedly embezzled more than
$50,000. Another clerical worker at an elementary school was charged
with writing checks and withdrawing roughly $25,000 of the district's
money. The losses alleged in the charges represent only a fraction of
the improper expenses uncovered since the state sent an emergency
financial manager, Robert Bobb, to straighten out the city's ailing
school system. A probe launched by Bobb uncovered paychecks going to 257
'ghost' employees who have yet to be accounted for. He said that
approximately 500 illegal health care dependents he uncovered have cost
the district millions. A separate Federal Bureau of Investigation probe
in May led to the indictment of a former payroll manager and another
former employee on charges of bilking the district out of about $400,000
over four years.
href='http://online.wsj.com/article/SB125012223083427629.html'>Read
more. (Subscription required.)
Protected from Claims
The U.S. Treasury has asked a bankruptcy judge to
ensure that cash collateral associated with its lien on the assets of
Chrysler LLC's estate is not used to pursue claims against Daimler AG as
creditors of the old Chrysler gear up to sue the debtor's former
parent,
size='3'>Bankruptcy Law360 reported yesterday.
During Chrysler's chapter 11 proceedings, the Treasury provided $4.9
billion in debtor-in-possession financing and was granted liens on
substantially all of the bankruptcy estate's assets, including cash
collateral, the motion said. Currently, about $260 million remains
outstanding under the DIP facility and has been placed in a separate
account to address wind-down expenses, it said. Treasury said that it
did not consent to the use of its cash collateral “for any purpose
associated with pursuing the committee's claims against Daimler or any
other parties.”
href='http://bankruptcy.law360.com/print_article/116286'>Read more.
(Subscription required.)
Bankruptcy Seen as
'Imminent' for Lender Taylor Bean
Lawyers for Taylor, Bean & Whitaker Mortgage
Corp., the 12th-largest U.S. mortgage lender, said in court papers last
week that a 'bankruptcy filing is imminent' for the lender after it was
forced to shut down its mortgage-lending operations, Reuters reported
yesterday. In court papers filed on Aug.6 in the U.S. District Court for
the Northern District of West Virginia, lawyers for Taylor Bean said
that due to recent actions taken against the company by the U.S.
Department of Housing and Urban Development, as well as mortgage
financiers Freddie Mac and the Government National Mortgage Association
(Ginnie Mae), the company is expected to file for bankruptcy shortly.
The Federal Housing Administration said last week that it had barred the
Ocala, Fla.-based company from making loans that the agency insures for
having failed to submit a required annual financial report and
'misrepresenting' its dealings with an auditor that had discovered
'irregular transactions that raised concerns of fraud.'
href='http://www.nytimes.com/reuters/2009/08/11/business/business-us-taylorbean-bankruptcy.html?dbk=&pagewanted=print'>Read
more.
Federal Reserve Sees
Recession Waning
Almost exactly two years after it embarked on what was
the biggest financial rescue in American history, the Federal Reserve
said yesterday that the recession is ending and that it would take a
step back toward normal policy, the
face='Times
New
Roman' size='3'>New York Times reported today.
The central bank cautioned that the recovery would be slow and that
unemployment was likely to remain high over the next year. It reiterated
that it would keep its benchmark short-term interest rate at virtually
zero for an extended period. However, it also announced that it would
wrap up its program to buy $300 billion worth of Treasury bonds by the
end of October. The program was one of several tools invoked to drive
down long-term interest rates and indirectly reduce the cost of home
mortgages and corporate borrowing.
href='http://www.nytimes.com/2009/08/13/business/economy/13fed.html?_r=1&ref=business&pagewanted=print'>Read
more.
Analysis: Firms Working to
Please Obama’s “Pay Czar”
Energy trader Andrew J. Hall has proposed to Citigroup
Inc. that it modify his contract in a way that would avert a potential
confrontation with the Obama administration's “pay czar” but
likely cut his cash payout next year, according to a
face='Times New Roman'>Wall
Street Journal report today. The discussions
include converting a substantial chunk of Hall's compensation for 2010
to equity from cash. A deal wouldn't affect the head of Citigroup
energy-trading unit PhibroLLC's ability to collect as much as $100
million for this year, but it would expose him to the risk that his
compensation suffers next year. Hall made roughly $100 million for 2008,
and the handling of his future pay under a profit-sharing arrangement
with the financial giant is one of the biggest tests facing Treasury
Department official Kenneth Feinberg as he prepares to vet compensation
at seven companies receiving huge sums of federal aid. The companies
face a Friday deadline to submit their compensation plans to Feinberg,
who has the authority to oversee compensation for the 100 highest-paid
employees at each firm.
href='http://online.wsj.com/article/SB125013107528528167.html'>Read
more. (Subscription required.)
Trump Bondholders Push for
Rival Plan
Bondholders of Trump Entertainment Resorts Inc. are
seeking to submit a rival reorganization plan they say will deliver more
value, filing a motion Tuesday to terminate the debtors' exclusive
period to push a chapter 11 plan,
face='Times
New
Roman' size='3'>Bankruptcy Law360 reported
yesterday. Earlier this month, Trump Entertainment Resorts filed a
chapter 11 reorganization plan that would restructure $486 million in
first-lien debt to Beal Bank while providing nothing for holders of
$1.25 billion in senior secured notes and $3.3 million in unsecured
claims. The plan, filed Aug. 3, also calls for Beal and founder Donald
Trump to invest $100 million in Trump Entertainment in exchange for all
the stock in the reorganized company. The company's existing stock would
be canceled. According to a disclosure statement filed along with the
debtors' plan, Atlantic City, N.J.-based Trump Entertainment's value
isn't enough to cover Beal's claims, which are secured by substantially
all of the company's assets. That leaves no collateral for the senior
notes, which are secured by second priority liens on certain casino and
hotel properties, the noteholders said.
href='http://bankruptcy.law360.com/print_article/116225'>Read
more. (Subscription required.)
Judge Rejects Bally
Workers’ Class Action Suit
U.S. District Judge Jed Rakoff on Tuesday upheld a
previous decision by a bankruptcy court to reject a bid by Bally Total
Fitness Corp. employees in California to reverse a bankruptcy court's
refusal to allow their wage-and-hour violation claims to proceed against
the struggling gym operator,
face='Times
New
Roman' size='3'>Bankruptcy Law360 reported
yesterday. The plaintiffs filed their lawsuit in the California Superior
Court three years prior to Bally’s bankruptcy filing in December,
the gym operator’s second chapter 11 proceeding in less than two
years. The suit, which involves between 3,180 and 5,000 current and
former employees who worked at about 65 Bally clubs in California,
sought recovery of unpaid overtime, compensation for failure to provide
meal and rest periods, and recovery for forfeited commissions, among
other things. After Bally filed for chapter 11 in December, Bankruptcy
Judge Burton
Lifland denied the plaintiffs' request that
the amount of their claims be liquidated, a move that the plaintiffs
argued “effectively expunged the claims of thousands of
employees.”
href='http://bankruptcy.law360.com/articles/116361'>Read
more. (Subscription required.)
Former Baseball Player
Receives Extension in Bankruptcy Case
Bankruptcy Judge
face='Times
New
Roman' size='3'>Geraldine Mund put off until
Sept. 1 a decision on whether to take control of the chapter 11
bankruptcy away from bankrupt former baseball player Lenny Dykstra, or
perhaps convert it to a chapter 7 liquidation, CNBC reported yesterday.
The hearing yesterday was brought by one of Dykstra's creditors, who
claims the former New York Mets star does not have insurance on his
multi-million dollar mansion and that he lied on a court document
claiming it was insured. There were conflicting accounts over whether
the home is insured, so Judge Mund wants proof of insurance brought to
court by Sept. 1. She also wants proof that Dykstra has listed the home
for sale by then, along with another home he owns worth anywhere from $5
million to $8 million. That second home has been vacant for months as
Dykstra has been battling insurer Fireman's Fund to clean up a mold
problem. Most importantly, the judge says she wants proof that Dykstra
has an income plan next time she sees him. His own attorney says Dykstra
has no income, and his entire Major League Baseball pension is going to
his estranged wife by court order.
href='http://www.cnbc.com/id/32377251'>Read more.
Dissolving Hedge Fund
Braces for SEC Inquiry
When Arthur J. Samberg abruptly announced the closing
of his $3 billion hedge fund in May, Wall Street buzzed that regulators
were coming after him for alleged improper trading, the
face='Times New Roman'>New York
Times reported today. Those rumors were
confirmed this week when Samberg told his clients that federal
regulators intended to bring a civil action against him and his firm,
Pequot Capital Management. It was unclear whether Pequot was trying to
reach a settlement with the SEC, but Samberg, in his letter to Pequot
clients, said that the allegations were “without merit” and
that Pequot would defend itself vigorously. The investigation centers on
Pequot’s trades in Microsoft securities in 2001. That move
followed revelations that Samberg had paid $2.1 million to a former
Microsoft employee, David Zilkha, in 2007. Samberg is liquidating his
core funds, which have about $2 billion of assets under management. The
firm’s other funds, which manage about $1 billion in assets, will
be spun off.
href='http://www.nytimes.com/2009/08/13/business/13pequot.html?ref=business&pagewanted=print'>Read
more.
Reinsdorf, Top Coyotes
Creditor Reach Agreement
A group headed by Jerry Reinsdorf has taken a
significant step in its bid to buy the bankrupt Phoenix Coyotes by
reaching an agreement in principal with the franchise's largest secured
creditor, the Associated Press reported yesterday. Steven Abramowitz,
attorney for SOF Investments, announced the agreement at a hearing in
U.S. Bankruptcy Court in Phoenix on Tuesday. He said that the deal
included a 'substantial buydown' of the $80 million SOF is owed, with
the rest rolled over into an ongoing debt. SOF Investments had
previously declined to back the Reinsdorf bid, saying it supported the
proposal by Canadian billionaire Jim Balsillie, who has offered $212.5
million, contingent on moving the team to Hamilton, Ontario.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/11/AR2009081103345.html'>Read
more.
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