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June 5, 2009
size='3'>
size='3'>SEC Accuses Countrywide’s Ex-Chief
of Fraud
size='3'>Angelo R. Mozilo, the former CEO of Countrywide Financial, has
been charged with securities fraud and insider trading in a civil suit
brought by the Securities and Exchange Commission, the
face='Times New Roman'>New York
Times reported today. Citing e-mail messages
in which Mozilo referred to Countrywide loan products as
“toxic” and “poison,” SEC officials said that he
had misled investors about growing risks in the company’s lending
practices from 2005 through 2007. During this time he also generated
$140 million in profits by selling stock in the company, the SEC said.
“This is the tale of two companies,” said Robert Khuzami,
enforcement director at the SEC. “Countrywide portrayed itself as
underwriting mainly prime-quality mortgages, using high underwriting
standards. But concealed from shareholders was the true Countrywide, an
increasingly reckless lender assuming greater and greater
risk.”
href='http://www.nytimes.com/2009/06/05/business/05insider.html?_r=1&ref=business&pagewanted=print'>Read
more.
href='http://news.findlaw.com/nytimes/docs/sec/sec-mozilo-countrywide60409cmp.html'>Click
here to read the text of the SEC’s complaint.
Autos
Chrysler, GM Asset Sales
Likely to Survive Creditor Challenges
Chrysler LLC and General Motors Corp. will likely
succeed in spinning off their best assets to new entities, according to
bankruptcy experts, because the law favors them over creditors trying to
block the deals, Bloomberg News reported today. Indiana pension funds
fighting Chrysler won the right to be heard by a U.S. appeals court
today in New York, where they’ll oppose a transfer of Jeep,
Chrysler and Dodge brands to a newly created company to be run by
Italy’s Fiat SpA. GM bondholders are objecting to its plan for a
similar spinoff, which company officials plan to complete within 60
days. The Indiana funds, holding $42.5 million of $6.9 billion in
Chrysler secured loans, failed to convince a bankruptcy judge that the
carmaker’s spinoff plan is illegal. “Because of the
difficulty of appealing 363 sales, my guess is the appeals won’t
go through,” said former ABI Resident Scholar Prof.
face='Times New Roman'>David
Skeel of the University of Pennsylvania School
of Law. “The funds’ cause of action would be against old
Chrysler,” which won’t be able to pay them much, said
Prof. Stephen Lubben of Seton Hall
University School of Law.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=abVKxjiNx6dQ'>Read
more.
To hear more bankruptcy experts views on the automaker
href='http://www.abiworld.org/webinars/2009/GM_Bankruptcy_Filing/index.html'>ABI’s
media teleconference on the GM filing.
Small Parts Suppliers
Fight to Survive
The high-profile bankruptcies of Chrysler, General
Motors Corp. and a few big suppliers have overshadowed the financial
peril now facing the hundreds of small sub-suppliers whose fate is also
tied into the auto industry, the
face='Times New Roman'
size='3'>Wall Street Journal reported
today. Kimberly Rodriguez, who
heads the automotive practice at consulting firm Grant Thornton LLP,
said these smaller Tier 2 and Tier 3 suppliers are in distress. 'There's
no support going their way.' Most small suppliers have already made deep
cuts in order to stay in business. However, at least a dozen small
suppliers have liquidated so far this year, according to Craig
Fitzgerald, a partner at consulting firm Plante & Moran PLLC. The
Treasury Department's Auto Supplier Support Program allocated $5 billion
to insure the receivables of direct suppliers doing business with GM and
Chrysler, but that aid has yet to have a big effect on those suppliers'
vendors.
href='http://online.wsj.com/article/SB124416065630387245.html#mod=article-outset-box'>Read
more. (Subscription required.)
Ford to Provide $125
Million to Visteon in Chapter 11
Ford Motor Co. will provide $125 million or more in
debtor-in-possesion financing to Visteon Corp. as the automotive parts
supplier reorganizes under chapter 11 protection, the Associated Press
reported yesterday. In a Securities and Exchange Commission filing
Thursday, Visteon, which filed for bankruptcy protection last week, said
that its former parent company would provide aid and also take
assignment of Visteon's asset-backed loans under a revolving credit
facility. Visteon is Ford's main supplier, and both companies are
looking to other creditors to help subsidize Visteon's operations while
it is under bankruptcy protection, according to the filing.
href='http://www.chicagotribune.com/news/local/wire/chi-ap-us-fordvisteonfinanc,0,412184.story'>Read
more.
Fresh Billions to Buy Delphi
Flush with $30 billion in new capital from the U.S.
government, General Motors Corp. has agreed to finance a private-equity
firm's buyout of bankrupt auto-parts company Delphi Corp., the
size='3'>Wall Street Journal reported today.
GM will provide more than $2.5 billion of the $3.6 billion necessary for
Beverly Hills, Calif.-based buyout firm Platinum Equity to gain control
of Delphi. Under the terms of the transaction, Platinum is expected to
invest no more than $750 million and GM would provide the balance in
financing. Those financing commitments may or may not be drawn upon in
the future, depending on how Delphi performs. The terms of the GM loans
were not disclosed.
href='http://online.wsj.com/article/SB124415849847687023.html#mod=testMod'>Read
more. (Subscription required.)
GM Restructuring Officer
Tackles Tough Challenge
Albert A. Koch, a vice
chairman of the firm AlixPartners, is taking on the role of chief
restructuring officer at General Motors, where he will oversee the
process of selling the pieces of the carmaker that are left after its
most desirable assets are separated into a new government-backed
company, according to a
face='Times New Roman' size='3'>New York Times
size='3'>profile today. Koch estimates the task could take as long as
five years. Over the course of a 40-year career in the restructuring
business, Koch has helped manage some of the biggest bankruptcies on
record, including the 2002 filing of Kmart, where he was the
retailer’s chief financial officer. “GM is a very, very
complicated company,” Koch said. “The magnitude of
understanding the company, what needs to be done, the number of people
you need to work with, is very, very striking.” Since December,
Koch and a core team of about 60 AlixPartners employees have been
cramming to learn the inner workings of GM. Koch reports to GM CEO Fritz
Henderson, and when GM’s asset sale is completed and the new GM
emerges from bankruptcy, he will become the head of what’s known
internally as “OldCo,” a collection of plants, equipment and
href='http://www.nytimes.com/2009/06/05/business/05auto.html?ref=business&pagewanted=print'>Read
more.
Banks Put Off Plans to Sell
Toxic Assets
The rush of capital into the banking industry over the
past month is allowing firms to postpone the painful process of selling
devalued mortgages and other troubled assets, a step many financial
experts still consider necessary to fully revive lending, the
size='3'>Washington Post reported today. The
Federal Deposit Insurance Corp. said Wednesday that it would suspend
indefinitely the launch of a program to finance investor purchases of
banks' troubled loans because few companies were interested in selling.
A related Treasury Department program to finance purchases of
mortgage-related securities remains on the drawing board months after
both were announced with fanfare. The FDIC decision marked a victory for
the banking industry, which has argued that such a program would
transfer profit from banks to investors at public expense.
'It is preferable to get them to sell assets in
combination with raising capital in order to get the banks to be in a
better position to start lending again,' said FDIC Chair Sheila Bair.
'Getting them off the books is a cleaner posture for the banks.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/06/04/AR2009060404436_pf.html'>Read
more.
at Citigroup
The Federal Deposit Insurance Corp. is pushing for a
shake-up of Citigroup Inc.'s top management, imperiling CEO Vikram
Pandit, the
size='3'>Wall Street Journal reported today.
The FDIC's willingness to take an increasingly tough position toward one
of the nation's largest and most troubled financial institutions is
setting up a bitter clash between regulators -- some of whom disagree
with the FDIC's position -- and between the FDIC and Citigroup, whose
officials have argued that FDIC Chair Sheila Bair is overstepping her
authority. FDIC officials in particular are concerned about the lack of
senior executives with experience in commercial banking. Pandit himself
comes from an investment-banking background, but most of the bank's
current problems stem from troubled consumer loans. Federal officials
have reached out to Jerry Grundhofer, the former U.S. Bancorp CEO who
recently joined Citigroup's board, to gauge his interest in the top
job.
href='http://online.wsj.com/article/SB124417114172687983.html#mod=testMod'>Read
more.
Coyotes Bankruptcy
Three U.S. professional sports leagues have received
permission to weigh in on the bankruptcy of the National Hockey League's
Phoenix Coyotes,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The National Football League, National
Basketball Association and Major League Baseball asked the court to
allow them to file a single 10-page amicus brief in a motion filed
Wednesday in the U.S. Bankruptcy Court for the District of Arizona. The
leagues will likely oppose any push that would weaken the control of
major sports leagues and owners over who owns the franchise and where it
is based. The case is
face='Times New Roman'
size='3'>Dewey Ranch Hockey LLC, case number
09-09488, in the U.S. Bankruptcy Court for the District of
Arizona.
href='http://bankruptcy.law360.com/print_article/104707'>Read more.
(Subscription required.)
U.S. Trustee Objects to
PPI Holdings' Tax Adviser Pick
Acting U.S. Trustee
face='Times New Roman'
size='3'>Roberta A. DeAngelis objected to PPI
Holdings Inc.'s bid to retain Grant Thornton LLP as its tax adviser and
auditor, arguing that the auto supplier's payments to the financial
giant before entering bankruptcy could compromise the firm's
neutrality, Bankruptcy Law360 reported
yesterday. DeAngelis filed the objection on Wednesday saying that the
debtor had not provided enough information to show that an actual
conflict of interest did not exist. She argued that PPI Holdings had not
met the “extraordinary circumstances” laid out by the Third
Circuit that would warrant hiring Grant Thornton
face='Times



New
Roman'>nunc pro tunc
or retroactively.
href='http://bankruptcy.law360.com/articles/104697'>Read
more. (Subscription required.)
A federal judge ruled yesterday that a jury should
hear the claims in a case between the American International Group and
Starr International, the company controlled by Maurice R. Greenberg,
Reuters reported yesterday. District Judge Jed S. Rakoff said that the
trial would go ahead as scheduled on June 15 after a disagreement
between the parties over whether some claims should be heard by a jury
or the judge alone. AIG had asked the judge to exclude evidence about
its controversial bonuses for employees, which drew public ire. The
court battle is one of numerous lawsuits outstanding between AIG and
Greenberg, the former chief executive of AIG, and the entities he
controls. The insurer, which was bailed out by the government last year
after it nearly collapsed because of bad mortgage bets, is seeking the
return of the AIG stock still held by Starr, as well as the proceeds
from sales of AIG stock in the intervening years.
href='http://www.nytimes.com/2009/06/05/business/05aig.html?ref=business&pagewanted=print'>Read
more.
FDIC Shuts Down Silverton
Bank
The Federal Deposit Insurance Corp. has shut down
failed Atlanta bank Silverton Bank, instead of selling it to
private-equity investors, the
face='Times New Roman'
size='3'>Wall Street Journal reported today. A
consortium including Carlyle Group had been in discussions with federal
regulators about a deal. Last month, Carlyle, along with three other
private-equity firms, acquired the banking operations of Florida's
BankUnited Financial Corp. from federal regulators. That transaction
seemed to demonstrate the government's willingness to sell banks to
private-equity firms. But regulatory hurdles and restrictions on
ownership are still making it difficult to get these deals done.
Silverton provides services to other banks and doesn't take consumer
deposits. After seizing the bank on May 1, regulators created a 'bridge
bank' to operate Silverton while it looked for a buyer. The same
happened with IndyMac Bank of Pasadena, Calif., which the FDIC sold to a
group of investors earlier this year.
href='http://online.wsj.com/article/SB124419992049388685.html'>Read
more. (Subscription required.)
Regulators File Complaint
Against UBS
New Hampshire securities regulators filed a civil
complaint against a unit of UBS AG on Wednesday, alleging that it failed
to pass along a warning to clients about the safety of structured
financial products that were underwritten by Lehman Brothers Holdings
Inc., the
size='3'>Wall Street Journal reported today.
The New Hampshire Bureau of Securities Regulation accused UBS Financial
Services, Inc. of unfair sales practices and said that it didn't
adequately supervise employees who sold structured products underwritten
by the now-defunct Lehman. Regulators are seeking an unspecified fine
from UBS, plus restitution for investors, whom authorities said lost
$2.6 million. UBS sold 64 Lehman-structured products to 42 investors in
New Hampshire, state regulators said. Mark Connolly, New Hampshire's
director of securities regulation, said in a statement that UBS 'failed
to alert customers as to the declining financial condition of Lehman
Brothers, which would affect the principal protection on the
investment.'
href='http://online.wsj.com/article/SB124408143336883907.html'>Read
more. (Subscription required.)
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