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March 18, 2008
Bush
Backs Fed’s Actions, but Critics
Quickly Find Fault
President Bush welcomed
the Federal Reserve’s sweeping
intervention in the nation’s financial markets as his
administration faced accusations that it had
supported the bailout of a prestigious investment bank while doing
little to address the hardships of Americans
facing foreclosures on their homes, the New York Times
reported today. Treasury Secretary Henry Paulson
dismissed questions of whether the
administration was bailing out a financial giant while homeowners faced
foreclosure, noting that Bear Stearns
shareholders received only $2 a share for stocks that not long ago had
been worth $170.
face='Times New Roman' size='3'>Many Democrats have called on the
administration to do more to support economic
initiatives already on the legislative agenda.
href='http://www.nytimes.com/2008/03/18/business/18bush.html?ref=business'>Read
more.
In related news,
the
w:st='on'>
size='3'>Massachusetts
size='3'>pension fund is reviewing whether to sue
Bear Stearns to recover money it lost as a result of the plunge in the
investment bank's stock, according to
Reuters yesterday. The $54 billion pension fund routinely conducts
analyses of its legal options in such cases,
he said. The fund owned stock valued at $24 million in Bear Stearns,
which has agreed to be bought by JPMorgan
Chase for $2 a share.
Would Boost Funds for
Mortgages
The Bush administration,
in an effort to stabilize the housing
market, is preparing two new initiatives aimed at creating more funding
for mortgages by relaxing constraints on
Fannie Mae, Freddie Mac and the Federal Housing Administration,
the
size='3'>Wall Street Journal reported today.
The Office of Federal Housing Enterprise
Oversight, which regulates Fannie Mae and Freddie Mac, is close to
reducing -- but not eliminating -- an
excess-capital requirement for the government-sponsored entities. This
would give the companies more flexibility
to buy and securitize loans. Fannie Mae and Freddie Mac would both be
expected to raise more capital, providing
more of a shock absorber against potential losses. Separately, officials
at the Department of Housing and Urban
Development have talked recently with the White House's Office of
Management and Budget about a proposal to allow
more people to qualify for mortgages insured by the FHA. HUD's efforts
to date to insure more mortgages have had
a limited impact, mainly because it is hard for financially distressed
homeowners to qualify. Homeowners who have
missed a payment in the past six months aren't eligible for FHA
insurance.
href='http://online.wsj.com/article_print/SB120578728020242975.html'>Read
more. (Registration
required.)
Deal
Reached in American Home Chapter 11
Case
American Home Mortgage
Investment Corp. secured lenders have reached a
deal with unsecured creditors over how to divide up cash raised in the
failed company's bankruptcy liquidation,
the Associated Press reported yesterday. Banks led by Bank of America
Corp. have agreed to take the first $1.02
billion raised in American Home's chapter 11 case, and split anything
above that with creditors. The settlement,
which must be approved by the bankruptcy court, heads off the
threat of protracted litigation between
American Home's banks and the committee that represents unsecured
creditors, a group that also includes leading
Wall Street banks. The pact also aligns unsecured creditors with Bank of
America in calling for the fast sale of
a portfolio of 3,400 mortgages that represent the last major piece of
collateral on about $1.08 billion worth of
href='http://money.cnn.com/news/newsfeeds/articles/apwire/066acdbfb78989e1f9fef8462e2e8129.htm'>Read
href='http://money.cnn.com/news/newsfeeds/articles/apwire/066acdbfb78989e1f9fef8462e2e8129.htm'>
face='Times New Roman' size='3'>
name='4'>Delphi Permitted to
Issue Subpoenas over Short-Selling
Allegations
A bankruptcy judge
yesterday gave
w:st='on'>
size='3'>Delphi permission to subpoena
investors who may have been short-selling the auto parts maker’s
stock or debt, the Associated Press
reported. Lawyers from Togut Segal & Segal LLP, who have been
looking into the matter, said Delphi had
received information that “one or more investors may have been
trading in or shorting one or more of
size='3'>Delphi
outstanding public securities.” A group of investors will pump in
as much as $2.55 billion into
size='3'>Delphi
for equity in the reorganized company. The group includes six major
funds or banks and an unnamed group of
additional investors. The six main investors, led by Appaloosa
Management LP, are not under
href='http://www.battlecreekenquirer.com/apps/pbcs.dll/article?AID=/20080317/NEWS01/303170032'>Read
more.
In related news, the
Equal Employment Opportunity Commission
(EEOC) appealed a bankruptcy court order that expunged the federal
agency's claim against Delphi Corp. arising
from alleged violations of the Americans with Disabilities Act,
size='3'>Bankruptcy Law360 reported yesterday.
Earlier this month, Bankruptcy
Judge Robert D.
Drain denied the EEOC's
motion to file the prepetition claim late because the agency failed to
adequately address why it had let a year
pass between first learning of the allegations against Delphi and filing
the proof of claims in the bankruptcy
case. The EEOC had claimed it could file the untimely claim because of
“excusable neglect,” as
permitted under Bankruptcy Rules. The EEOC filed the class action in
September 2007 in the U.S. District Court
for the Western District of New York, claiming that the auto part
maker's sick-leave policy was illegal.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=50243'>Read
more. (Registration
required.)
Gallery Settles Patent
Dispute
Dotcast Inc. will
withdraw its patent infringement lawsuit against
Movie Gallery Inc. under a new settlement that prevents Dotcast, which
engineers and provides digital broadcast
technologies, from filing any claims against Movie Gallery in its
chapter 11 case, the Associated Press reported
yesterday. It also allows Movie Gallery to reject a licensing agreement
regarding a movies-on-demand service it
no longer operates called MovieBeam. Dotcast disputed the validity of
Movie Gallery's license and filed a lawsuit
against the company in a
w:st='on'>
size='3'>Georgia
size='3'>district court last May alleging patent
infringement. The U.S. Bankruptcy Court in
w:st='on'>
consider the settlement at an April 9
href='http://money.cnn.com/news/newsfeeds/articles/apwire/86d039e703c911076605ab47496df8b2.htm'>Read
more.
name='6'>Northwest Battles Fuel Surcharge Class
Actions
Northwest Airlines Corp.
filed two additional adversary complaints
in a
York bankruptcy court to
prevent purported class action plaintiffs
from pursuing price-fixing claims regarding fuel surcharges,
size='3'>Bankruptcy Law360 reported yesterday.
Northwest claimed that the suits would
interfere with the airline's reorganization in violation of terms of the
court-approved plan. The complaints
relate to two antitrust class actions filed in November in the U.S.
District Court for the Northern District of
California, alleging that Northwest and its affiliated airlines fixed
fuel surcharge prices for trans-Pacific
flights to and from the United States beginning in
2004. Northwest's complaints say that
its reorganization terms are binding on all creditors. The company's
reorganization plan became effective on May
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=50227'>Read
more.
(Registration required.)
In related news, pilots
at Delta Air Lines Inc. notified company
officials that they remain unable to reach agreement with their
counterparts at Northwest Airlines Corp. on how
to integrate pilot ranks if the two airlines combined -- a deadlock that
could scuttle the merger sought by the
two carriers, the Wall
Street Journal
size='3'>reported today. Delta, based in
w:st='on'>
size='3'>Atlanta, and Northwest, based
in
w:st='on'>Eagan,
w:st='on'>
size='3'>Minn., appeared
close to a merger deal last month, but
wanted to get seniority issues worked out with the pilots in advance.
Delta and Northwest hoped their strategy
would minimize pilot infighting, expedite efficiencies once the
combination was consummated and win support of
their most powerful employee groups. Delta said that they wouldn't move
forward with any combination unless the
seniority of their employees was protected.
href='http://online.wsj.com/article_print/SB120578810780243035.html'>Read
more. (Registration
required.)
W.R.
Grace, Feds Strike Deal over Contaminated
Site Cleanup
Bankrupt W.R. Grace &
Co. has struck a deal with the
size='3'>U.S.
size='3'>government that would split the costs of cleaning up hazardous
substances that contaminated a site
near
size='3'>Baltimore,
size='3'>Bankruptcy Law360 reported yesterday.
The government had wanted the specialty
chemicals firm to pay $102 million for cleaning up W.R.
Grace’s
w:st='on'>
size='3'>Curtis
face='Times New Roman' size='3'>Bay
site, where monazite sand
was processed in the 1950s under a contract with the U.S. Atomic Energy
Commission. Without admitting any
liability, W.R. Grace said the Army Corps will have an allowed
administrative expense claim of $750,000 for all
post-petition past costs. The
w:st='on'>
size='3'>has agreed to pay 60 percent of
any other costs incurred during the performance of response actions to
the site, and W.R. Grace will pay for 40
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=50293'>Read
more. (Registration required.)
name='8'>Nacchio Conviction Is Overturned by
Court
A federal appeals court
overturned the insider-trading conviction
of Joseph Nacchio, the former CEO of Qwest Communications International
Inc., citing a judge's error for
excluding an expert defense witness, the
size='3'>Wall Street
Journal reported today. The 2-1 decision from
the 10th Circuit Court of Appeals
in
size='3'>Denver
size='3'>called federal judge Edward Nottingham 'wrong' to prevent the
expert testimony of key defense witness,
Daniel Fischel, a private consultant and former dean of the law school
of the
w:st='on'>
size='3'>University
size='3'>of
size='3'>Chicago.
Fischel's testimony as an expert 'might have
changed the jury's mind,' said the ruling, and the court ordered a new
judge for the trial. The decision is
something of a setback for the government's crackdown on corporate
misdeeds that began earlier this decade.
However, legal experts cautioned that the ruling wasn't a complete win
for the defense, as Nacchio could be tried
again for the same grounds. The appellate ruling spelled out that there
appeared to be sufficient evidence to try
Nacchio again.
href='http://online.wsj.com/article/SB120577599298342331.html'>Read
more. (Registration required.)
International
name='9'>Canadian Investor Group Files for
Bankruptcy
An investors' group
trying to restructure nearly C$32 billion in
Canadian commercial paper that hasn't traded since August sought
bankruptcy protection for the investment trusts
after missing a March 14 deadline to complete the plan, Bloomberg News
reported yesterday. The group, led
by
size='3'>Toronto lawyer
Purdy Crawford, applied for creditor
protection in the Ontario Superior Court of Justice under the Companies'
Creditors Arrangement Act, the group
said. The group has been working since September on a proposal to swap
the short-term debt for longer-term notes,
and aimed to submit the plan by March 14 to investors.
The group has been working to
restructure the debt after trading of the commercial paper halted in
August as investors were concerned about
possible ties to
w:st='on'>
size='3'>U.S.
size='3'>subprime mortgages.
href='http://rds.yahoo.com/_ylt=A9j8eu3rtt9HKEoB5RjQtDMD;_ylu=X3oDMTBjb3ZrYjNkBHBvcwM0BHNlYwNzcg--/SIG=12onop2tc/
EXP=1205930091/**http%3a//www.bloomberg.com/apps/news%3fpid=20601082%26sid=aByivrS_Ub0Y'>Read
more.
w:st='on'>
size='3'>French
Court Releases
Rogue Trader
A French appeals court
ruled Tuesday that Jérôme
Kerviel, the former trader that Société Générale has
blamed for nearly $7.7 billion in
losses, should be released from jail while the investigation into his
alleged fraud continues, the
New York Times
size='3'>reported today.
Kerviel was to be placed
under judicial supervision and was forbidden
to leave
face='Times New Roman'
size='3'>France
size='3'>for the duration of the inquiry.
The
size='3'>Paris
size='3'>prosecutor’s office had opposed his release on
the grounds that he could flee or otherwise interfere with important
witnesses or evidence in the case. Legal
experts said the court’s decision was a recognition that Kerviel,
who has already admitted to fabricating
trades and forging documents to hid his activities, could only harm his
chances for leniency if he failed to
href='http://www.nytimes.com/2008/03/18/business/worldbusiness/18cnd-socgen.html?ref=business&pagewanted=prin
t'>Read more.
href='http://www.nytimes.com/2008/03/18/business/worldbusiness/18cnd-socgen.html?ref=business&pagewanted=prin
t'>