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December 16,
2009
Analysis: Prosecution Drop
May Embolden Bankruptcy Fraud as Filings Surge
U.S. authorities prosecuted the fewest number of
people and companies for criminal bankruptcy fraud this year since at
least 1986, even as filings continue to rise amid the worst economic
crisis since the Great Depression, Bloomberg News reported today.
Federal prosecutors classified cases involving 82 companies or
individuals as bankruptcy fraud in the fiscal year that ended Sept. 30,
the fewest since at least 1986, according to the U.S. Department of
Justice. The Federal Bureau of Investigation says that it added agents
to investigate crimes associated with mortgage fraud and the financial
crisis as caseloads increased. Bankruptcy fraud isn’t among the
top five white-collar crime threats, said Sharon Ormsby, the FBI’s
financial-crimes section chief in Washington. Even so, Ormsby said that
the FBI pursues bankruptcy fraud “aggressively” and that
other agencies also may investigate. According to a 2003 Justice
Department inspector general report, the FBI estimated that about 10
percent of bankruptcy filings involve fraud.
href='http://www.bloomberg.com/apps/news?pid=20601109&sid=axj2RkbzBxak&pos=14'>Read
more.
Autos
“Old Carco”
Plan Earmarks Nothing for Repayment of TARP Funds
The U.S. Treasury will not recover any portion of the
$3.7 billion still outstanding in loans it made to automaker Chrysler
under the Troubled Asset Relief Program, according to the terms of a
plan filed with the bankruptcy court, Reuters reported yesterday. The
U.S. government has filed proofs of claim for unpaid principal,
interest, fees and expenses, but 'will receive no recovery on account of
such claim,' according to the disclosure statement filed on behalf of
Old Carco LLC, the units of Chrysler that remain under bankruptcy
protection while they are liquidated. The case is
face='Times New 

Roman'>
face='Times New Roman'
size='3'>In re Old Carco LLC, U.S. Bankruptcy
Court, Southern District of New York, No. 09-50002.
href='http://www.reuters.com/article/idUSN1523084220091215'>Read
more.
GM Chief Promises to
Repay Bailout Funds
Fourteen days after taking the helm as CEO of General
Motors, Edward E. Whitacre Jr. said that the giant automaker plans to
repay loans from the U.S. and Canadian governments by the end of June,
the
size='3'>Washington Post reported today. After
a rapid bankruptcy restructuring and government bailout, it owes the
U.S. government about $6.7 billion out of $50 billion in assistance it
received from the U.S. and Canadian governments. The loans had a
scheduled maturity date of July 2015, and as part of its deal, the U.S.
government has a 61 percent stake in the automaker. Whitacre said he
doesn't have a timetable for when GM might once again go public.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121502340_pf.html'>Read
more.
House Panel to Examine
Employee Protections in Airline Bankruptcies
The House Judiciary Subcommittee on Commercial and
Administrative Law will hold a hearing today titled “Protecting
Employees in Airline Bankruptcies.” Witnesses at the hearing,
scheduled for 2:30 p.m. ET, include Chesley B.
Sullenberger of U.S. Airways, Arnold D. Gentile of the U.S. Airline
Pilots Association, Bob Coffman of the Coalition of Airline Pilots
Associations, Marshall S. Huebner of Davis Polk &
Wardwell, LLP, Robert Roach, Jr. of the International Association of
Machinists and Aerospace Workers and Stephen Nagrotsky of the
International Brotherhood of Teamsters.
href='http://judiciary.house.gov/hearings/hear_091216_2.html'>Click
here to view the prepared witness testimony.
General Growth’s
Restructuring Plan Approved
Bankruptcy Judge
face='Times New Roman' size='3'>Allan Gropper
size='3'>approved mall owner General Growth Properties Inc.'s plans to
restructure $10.25 billion of mortgages, clearing the way for the 103
properties covered by those loans, including 85 malls, to exit
bankruptcy protection by the end of this month, the
face='Times New Roman'>Wall
Street Journal reported today. Judge Gropper
also scheduled a hearing for Friday in which he will consider approving
the restructuring of another $1.75 billion in mortgages covering another
10 General Growth malls. That would leave General Growth with roughly $3
billion in secured debt and $7 billion in unsecured debt remaining to be
restructured. Judge Gropper on Friday will also consider General
Growth's request to issue up to $100 million in dividends to retain its
status as a real estate investment trust.
href='http://online.wsj.com/article/SB10001424052748704398304574598503264682552.html'>Read
more. (Subscription required.)
Senate Banking Committee
Looks to Mark Up Regulatory Bill Next Month
The Senate Banking Committee is aiming to mark up its
revamp of the nation's regulatory system next month, as the Obama
administration has been making a concerted push to get key Republicans
on board to help smooth passage in the Senate, CongressDaily
reported today. An announcement of an intention to mark
up the bill could come as early as Thursday during its final meeting of
the year, when the panel votes to confirm Federal Reserve Chairman Ben
Bernanke for another term as chairman. It is expected that the markup
would come, at the earliest, the week of Jan. 25. Sen. Richard Shelby
(D-Ala.) noted that the talks have been going well since Senate Banking
Committee Chairman Christopher Dodd (D-Conn.) took his discussion draft
'off the table' and appointed working groups among committee members to
handle some of the thornier provisions of the package. Staff will work
on resolving issues over the Christmas break.
WaMu Seeks to Investigate
U.S. Regulators, Others
Bank holding company Washington Mutual Inc. has asked
a federal court for the power to make the Federal Reserve, the U.S.
Treasury and a long list of other parties turn over documents and
witness interviews related to the bank's 2008 collapse, the Associated
Press reported yesterday. In papers filed Monday, WaMu said that it
wants to review e-mails and other materials to determine if suitor
JPMorgan Chase & Co. undermined its value by disclosing confidential
information that may have contributed to the nation's biggest bank
failure ever. WaMu has already launched a separate investigation of
JPMorgan. WaMu lawyers allege JPMorgan used that information to convince
regulators to seize the bank and sell off its assets so it could buy
WaMu's assets at fire-sale prices.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121504508_pf.html'>Read
more.
A Tax Break for Citigroup
with Payback of Bailout
A day after Citigroup won approval to escape the
government bailout program, a special tax break that the bank received
to pave the way for its exit could become a point of contention in
Washington, D.C., the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. After months of discussions, the Internal
Revenue Service granted an exemption late Friday that allowed Citigroup
to preserve a $38 billion tax benefit it stood to lose if it repaid the
government. The decision essentially waived a longstanding rule that
disqualified certain tax breaks if a significant ownership stake changed
hands in an effort to discourage outside investors from buying tax
benefits. The Treasury Department’s plans to begin selling its
one-third ownership in Citigroup, along with the bank’s planned
$17 billion stock offering, would have been such an ownership change.
Without the waiver, the bank would have stood to lose much of those tax
benefits as it recovered and it could have been significantly weakened,
if not imperiled. Of the $38 billion of tax benefits, it has been
allowed to count about $13 billion toward its regulatory capital
requirements.
href='http://www.nytimes.com/2009/12/16/business/16citi.html?_r=1&ref=business&pagewanted=print'>Read
more.
Commentary: Out from under
TARP, Banks Are Now Free to Fail Again
The Obama administration not only gave up political
leverage and additional profit from large banks in allowing them to
repay bailout money, but took the government also took the risk that one
or more of the banks may find that it can't make it on its own,
according to a commentary in the
face='Times New Roman' size='3'>Washington Post
size='3'>today. While the financial system has rebounded quickly,
potential threats still loom -- a further collapse of commercial real
estate, for example, or a string of sovereign debt defaults. The
political reality, according to the commentary, is that no matter how
large or interconnected, no bank will be bailed out again anytime soon.
The next time the government is forced to step in, that bank's
shareholders will be wiped out, its executives and directors sent
packing and its operations wound down or sold off to competitors. Most
significantly, creditors and counterparties who were bailed out in the
past will get only what they would have gotten from an orderly
liquidation. The rules governing this wind-down process are still being
hammered out as part of the regulatory reform bill now making its way
through Congress.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121504939_pf.html'>Read
more.
House Panel Mulls
Framework for Covered Bonds
Witnesses urged the House Financial Services Committee
yesterday to institute a framework for covered bonds that could
replicate the success the debt instruments have had in stabilizing the
European mortgage market,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. They told the panel that they support
legislation by Financial Services Capital Markets Subcommittee ranking
member Scott Garrett (R-N.J.) to establish a statutory framework for the
market. Covered bonds are bank-issued debt backed by a pool of loans.
The bill would spell out which classes of debt are eligible, including
those beyond home mortgages and give the Treasury Department the
authority to regulate the offerings. They differ from the securitization
process, in which banks group a bundle of loans and sell the package off
in pieces to investors, that is more common in the United States. One
advantage is that the underlying claim for a covered bond would extend
to the loan originator if a mortgage defaults, making it a more secure
investment because the lender has 'skin in the game.'
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/fchr_121509.shtml'>Click
here to read the prepared witness testimony.
Bank Agency Boosts Budget
35 Percent
The Federal Deposit Insurance Corp. in the next year
plans to add more than 1,600 staffers, mostly to handle bank failures,
and is pushing its budget up 35 percent as the number of tottering banks
climbs, the
size='3'>Wall Street Journal reported today.
More than 130 banks have failed this year, and the agency's inventory of
assets in liquidation has more than doubled from the beginning of the
year to $36.8 billion through the end of November. The FDIC has also
agreed to share future losses on the assets of more than 80 failed
banks, representing $108 billion in additional exposure. In the agency's
2010 operating budget, released Tuesday, the FDIC would spend $2.5
billion to fund its bank failure operations out of a total budget of $4
billion. The agency's entire operating budget for 2009 was roughly $2.6
billion.
href='http://online.wsj.com/article/SB126092583249292987.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
Latest Lyondell Plan
Proposes $2.8 Billion Rights Issue
LyondellBasell Industries AF SCA is seeking bankruptcy
court approval for an amended reorganization plan that proposes a $2.8
billion rights issue, even as it mulls a nonbinding cash offer from
India’s Reliance Industries Ltd. for a controlling stake in the
Dutch chemical giant,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Under the terms of the plan, Houston-based
Lyondell will repay its $8 billion bankruptcy loan in full and give an
equity stake in the reorganized company to lenders, including sponsors
of the rights offering. The reorganization plan comes as Lyondell is in
the midst of evaluating Reliance's unsolicited offer to acquire a
controlling interest in the reorganized company once the debtors emerge
from chapter 11 protection. The November offer by Mumbai-based Reliance
could potentially derail Lyondell lenders' plan to convert billions in
debt into a controlling equity share in the reorganized chemical
manufacturer.
href='http://bankruptcy.law360.com/print_article/139528'>Read more.
(Subscription required.)
Government Objects to
Pisces Energy’s Proposed Chapter 11 Plan
The U.S. Department of the Interior's Minerals
Management Service (MMS) has objected to Pisces Energy LLC’s
reorganization plan, claiming that the bankrupt oil and gas company must
guarantee that it can cover nearly $119 million in decommissioning costs
at its Gulf of Mexico operations or risk losing certain leases,
size='3'>Bankruptcy Law360 reported yesterday.
In an objection filed on Monday in the U.S. Bankruptcy Court for the
Southern District of Texas, MMS said that Pisces had failed to meet
regulations that it hold surety bonds or government-backed securities to
cover its decommissioning responsibilities, as mandated by the Outer
Continental Shelf Lands Act. Without the bonds, Pisces faces having its
oil and gas operations covered by seven leases shut down by the MMS, an
action that the agency said would throw off the company's chances of
having its plan confirmed.
href='http://bankruptcy.law360.com/print_article/139420'>Read more.
(Subscription required.)
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