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MF Global Holdings Ltd. settled a U.S. government lawsuit, agreeing to pay $1.2 billion in restitution and a $100 million fine for customer losses tied to the company’s 2011 collapse, Bloomberg News reported on Friday. The U.S. Commodity Futures Trading Commission sued MF Global and company officials including former Chief Executive Officer Jon Corzine last year for failing to properly supervise employees as the firm spiraled toward bankruptcy. U.S. District Judge Victor Marrero in Manhattan signed an order earlier this week approving the pact. Customers have already received most of what they are owed, according to the CFTC, the main regulator of MF Global’s failed brokerage unit, MF Global Inc. The agency claimed that MF Global Holdings is responsible for the brokerage’s failure to notify the agency of deficiencies in customer accounts, false statements and improper investments.

Hedge-fund managers are putting a new twist on credit-default swaps, using the contracts to fortify bets on troubled companies, the Wall Street Journal reported today. The swaps, which work like insurance policies when companies default on bonds and loans, fell out of favor after Wall Street’s outsize bets on the swaps soured during the financial crisis. Now, investors are increasingly combining credit-default-swaps trades with elements of activist investing to push companies toward default in some cases and away in others. The average market capitalization of the five most actively traded nonfinancial companies in the credit-default-swaps market has been about $6 billion since March, according to data from Depository Trust & Clearing Corp. and S&P Capital IQ. That’s down from $20 billion at the end of 2013 and well below the $16 billion average since July 2010, when DTCC began collecting the data. Swaps trades have “been more prevalent in the distressed-credit world recently,” said Michael Henkin, co-head of restructuring at investment bank Guggenheim Securities. The trend has renewed a debate about the swaps, which are rarely disclosed by those who use them. It is also making it harder for companies that have fallen on hard times to gauge the motives of shareholders and creditors, because they seldom know who owns credit-default swaps, or CDS, and might benefit from a default.

Colorado's Attorney General John Suthers has sued two more law firms in the state for fraud, accusing them of inflating foreclosure costs charged to homeowners, Reuters reported yesterday. As part of an ongoing investigation, Suthers has filed eight civil law enforcement actions against Colorado foreclosure law firms in 2014, five of which resulted in settlements totaling nearly $12 million. The firms targeted earlier this year included the state's two largest, which were accused of defrauding homeowners, investors and taxpayers by grossly hiking costs and padding bills with unauthorized expenses. On Monday, Suthers' office named the latest two firms as Robert J. Hopp & Associates and The Hopp Law Firm, and The Vaden Law Firm, including the firms' principals and their affiliated title companies.

Debt raters failed to follow their own methodologies, let senior credit officers view market-share data and allowed a trade group to affect criteria changes, according to a U.S. Securities and Exchange Commission report, Bloomberg News reported yesterday. The SEC’s Office of Credit Ratings didn’t name specific companies in its fourth annual examination released yesterday, which looked at practices in 2013. The report refers to the raters as either larger firms, such as McGraw Hill Financial Inc.’s Standard & Poor’s, Moody’s Corp.’s Moody’s Investors Service and Fitch Ratings, or smaller ones, including DBRS Inc. The regulator also didn’t identify firms in prior reports. One large company and four smaller firms didn’t follow their own methodologies in determining ratings, the SEC said in its report on Nationally Recognized Statistical Rating Organizations.

The home office of Doral Bank, the San Juan, P.R.-based lender struggling to meet regulatory mandates, was raided by the FBI in a search for evidence related to “several ongoing investigations,” the agency said, Bloomberg News reported yesterday. Federal Bureau of Investigation agents entered the bank’s offices yesterday in San Juan to collect information including computers and documents, said Special Agent Moises Quinones. Doral Bank is part of San Juan-based Doral Financial Corp., which in July was trying to sell off parts of its business to maintain compliance with capital requirements. The Federal Deposit Insurance Corp. has downgraded Doral from an earlier finding of “undercapitalized,” the company said in a regulatory filing in October. It was told to “immediately” increase the bank’s capital to the minimums required in a 2012 consent order or submit a contingency plan for a sale, merger or liquidation, according to the filing.

The computer breach at JPMorgan Chase this summer — the largest intrusion of an American bank to date — might have been thwarted if the bank had installed a simple security fix to an overlooked server in its vast network, the New York Times reported today. Big corporations like JPMorgan spend millions — $250 million in the bank’s case — on computer security every year to guard against increasingly sophisticated attacks like the one on Sony Pictures. The attack against the bank began last spring, after hackers stole the login credentials for a JPMorgan employee. Most big banks use a double authentication scheme, known as two-factor authentication, which requires a second one-time password to gain access to a protected system. But JPMorgan’s security team had apparently neglected to upgrade one of its network servers with the dual password scheme, leaving the bank vulnerable to intrusion. The oversight is now the focus of an internal review at JPMorgan that seeks to identify whether there are any other unguarded holes in the bank’s vast network.

Two listed units of Caesars Entertainment, the troubled casino and resort company, are combining in an attempt to build credibility with creditors ahead of a planned bankruptcy protection filing for its operating unit, due in the coming weeks, the Financial Times reported today. Caesars Entertainment, the parent company, will acquire its affiliate Caesars Acquisition Co. in a stock-for-stock transaction that will give the combined entity a market capitalization of $3.2 billion, the company said. The transaction, which boosts the parent company’s assets and cash position, is designed to cut the amount of external financing the heavily indebted operating company, Caesars Entertainment Operating Co., might need in a bankruptcy, thereby reducing any dilution of existing investors.

Trustees for mortgage bond investors asked a New York court to approve a $1.13 billion settlement reached in April with Citigroup Inc. as the bank seeks to resolve liabilities for loans it packaged and sold in the run-up to the 2008 financial crisis, Bloomberg News reported yesterday. U.S. Bank NA, Deutsche Bank National Trust Co., HSBC Bank USA NA and Law Debenture Trust Co. of New York filed a petition seeking approval of the accord in New York State Supreme Court in Manhattan yesterday under a law that allows trustees to seek approval of their actions. The settlement covers 68 securitization trusts that issued a combined $59.4 billion in mortgage-backed securities from 2005 to 2008, according to a statement issued by Citigroup in April. The pact was negotiated by the bank and a group of 19 institutional investors, represented by Gibbs & Bruns LLP, holding more than $5.3 billion of the unpaid principal balance of the securities, according to the petition.

Some of the country’s top restructuring professionals who contributed to the final report of the ABI Commission to Study the Reform of Chapter 11 released earlier this month made it clear that, aside from strengthening tools for a bankrupt company, they want to make the process cheaper, according to a post yesterday on the Wall Street Journal Bankruptcy Beat blog. “Bankruptcy has always been expensive, and there has always been an effort to rein in excessive costs,” said Prof. Kenneth Klee, who helped engineer the 1978 overhaul and was a member of the Commission. The Commission’s recommendations propose to clarify rules on dozens of issues on which bankruptcy judges have disagreed, giving lawyers — in theory — less to fight about. Two proposals address a big reason why costs can spiral upward: Bankrupt companies have to pay the legal bill for others. Besides their own bankruptcy lawyers, investment bankers, financial advisers, accountants and public relations firms, bankrupt companies are legally obligated to pay the bills of the creditor committee that forms to advocate for vendors, employees and other unsecured creditors. (Subscription required.)
http://blogs.wsj.com/bankruptcy/2014/12/22/proposed-bankruptcy-fixes-wo…

To read a copy of the Commission’s final report and its recommended principles on professional compensation, please click here: http://commission.abi.org.

The U.S. government closed a chapter in financial-crisis history on Friday when it sold its remaining shares of Ally Financial Inc. and shuttered its auto-bailout program, ending the last major pieces of a $426 billion rescue package that saved a swath of U.S. companies but never won public support, the Wall Street Journal reported today. The Treasury Department said the 2008 Troubled Asset Relief Program has netted a small profit, returning $441.7 billion on the $426.4 billion invested in firms including Citigroup Inc., Bank of America Corp., General Motors Co., Chrysler and American International Group, Inc. That profit, unexpected at the time of the bailout’s inception, has been nonetheless overshadowed by criticism that the rescue program put Wall Street’s interests ahead of Main Street’s, a view that prompted Congress to outlaw future taxpayer bailouts as part of the 2010 Dodd-Frank law. About 35 smaller banks remain in the program, down from about 700 financial firms at the height of the program. Critics have also pointed to the possible costs of having such a large amount of government funds tied up for so long and to the risks assumed by the government with its bailouts.