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PricewaterhouseCoopers LLP is asking a federal judge to trim back the Federal Deposit Insurance Corp.'s $1 billion lawsuit that alleges the accounting firm failed to catch the massive fraud that brought down Colonial Bank, Dow Jones Daily Bankruptcy Review reported today. The auditor and fellow accounting firm Crowe Horwath LLP say that they're not accountable for the multibillion-dollar mortgage finance fraud involving the multiple sales of the same bad loans.

A U.S. bankruptcy judge yesterday cleared the way for hedge fund Elliott Management and King Street Capital Management L.P. to buy a multibillion-dollar bankruptcy claim owed to a Lehman Brothers U.K. subsidiary at a discount, the Wall Street Journal reported yesterday. Judge James Peck of the U.S. Bankruptcy Court in New York rejected a bid by a rival group of hedge funds to take a closer look at the deal, the details of which they argued were unfairly kept secret. Those funds, including such major distressed-debt investors as Paulson & Co. and Baupost Group, had argued that rival bidders had been shut out of the sale process. Lehman officially exited bankruptcy last year under a chapter 11 approved by its creditors, including the hedge funds involved in the dispute. Harvey Miller, a lawyer for Lehman’s post-bankruptcy overseers, said at yesterday’s hearing that the sale to Elliott and King Street is not simply a purchase of a claim, but reflects a complex web of claims and litigation involving two Lehman U.K. subsidiaries, which are being wound down under English law. The company’s liquidation is expected to continue for several more years as the team sells off Lehman’s still-considerable real-estate and private-equity holdings and unwinds its derivative positions.

Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Federal Reserve that may have the greatest effect on banks with big trading operations such as JPMorgan Chase & Co. and Goldman Sachs Group Inc., Bloomberg News reported today. The demand for 30 days of liquidity is intended to satisfy global Basel III accords for strengthening the financial system. Increasing the banks’ liquid assets is meant to make them less vulnerable in a crisis like the one that struck in 2008. In January, the Basel Committee on Banking Supervision agreed on a liquidity coverage ratio meant to ensure that banks can survive a 30-day credit squeeze. The standard to be fully implemented by 2019 allows lenders to go beyond cash and low-risk sovereign debt to an expanded range of assets including some equities and securitized mortgage debt, according to the agreement.

HSBC Holdings Plc, already facing a $2.46 billion judgment in an 11-year-old securities-fraud case, must keep litigating claims as a U.S. judge ordered more exchanges of evidence for a potential follow-up trial, Bloomberg News reported yesterday. A federal jury in Chicago ruled in 2009 that executives at Household International, now part of HSBC Finance Corp., misled investors, violating U.S. securities laws. After a four-year claims review process, U.S. District Judge Ronald Guzman last week entered a $2.46 billion judgment on some claims. Today, the judge ordered the parties to produce a schedule for developing evidence, a process known as discovery, to resolve about 200 more claims. Guzman rejected a request by defense attorney Mark E. Rakoczy to delay the discovery process until a federal appeals court rules on the bank’s challenge to the trial’s outcome.

Bank of America Corp.’s Countrywide unit was found liable for defrauding Fannie Mae and Freddie Mac by selling them thousands of defective loans, Bloomberg News reported yesterday. A federal jury in New York today also found former Countrywide executive Rebecca Mairone liable for defrauding the U.S. Mairone was the only individual named as a defendant in the government’s lawsuit. U.S. District Judge Jed Rakoff, who presided over the trial, told lawyers he will determine the amount of any civil penalty later. The U.S. is seeking a penalty more than $848 million, the gross loss to Fannie Mae and Freddie Mac as calculated by its expert. Alternatively, the government suggested that the penalty should be at least $131 million, the estimated net loss.

The remnants of Lehman Brothers Holdings Inc. is suing the New York Giants for more than $100 million it says it's owed for a soured interest-rate swap tied to the financing of the football team's stadium, Dow Jones Daily Bankruptcy Review reported today. Giants Stadium LLC was set up by the team's owners, the Mara and Tisch families, to fund the construction of the team's new home field, now called MetLife Stadium.
To finance the stadium, the Giants unit issued $650 million in bonds, the bulk of which were underwritten by Lehman.

Steve Schwarzman’s Blackstone Group LP has spent $7.5 billion acquiring 40,000 houses in the past two years to create the largest single-family rental business in the U.S., Bloomberg News reported yesterday. The private-equity firm is now planning to sell bonds backed by lease payments, the latest step in turning a small business into a mature industry. Deutsche Bank AG may start marketing almost $500 million of the securities as soon as this week. The debt will include a portion with an investment grade from at least one ratings company. Blackstone has led hedge funds, private-equity firms and real estate investment trusts raising about $20 billion to purchase as many as 200,000 homes to rent after prices plunged 35 percent from the 2006 peak. The largest investors, seeking to profit from rebounding prices and rising demand for rentals among millions of Americans who went through foreclosure or can’t qualify for a mortgage, are looking to the bond market for capital to buy more properties and increase returns with borrowed money.

Lawyers made closing arguments in the U.S. government's civil lawsuit against Bank of America Corp. for a loan-production program called the "hustle," with both sides painting drastically different portraits of what went on inside a company commonly associated with the U.S. housing bust, the Wall Street Journal reported today. Assistant U.S. Attorney Jaimie Nawaday said the case was about "greed and lies" at Countrywide Financial Corp., which ran the program from August 2007 until April 2008. Brendan Sullivan, a partner at the law firm Williams & Connolly LLP representing Bank of America, which bought Countrywide in 2008, insisted there was "no fraud." The civil case in federal court in Manhattan is dragging Bank of America back into the spotlight for Countrywide's alleged misdeeds during the housing boom. Experts said that it marks the first time a bank has been brought to trial for its crisis-era behavior.

An insurer of some of Residential Capital LLC's residential mortgage-backed securities says ResCap's reorganization plan could stop it from going after the trustees that oversee the securities trusts, Dow Jones Newswires reported yesterday. Syncora Guarantee Inc. said in a court filing on Monday that it should have a legal right to go after the RMBS trustees' claims but won't because of wording in the reorganization plan. "The provisions of the plan that propose to impair or eliminate such rights should not be approved, and as a condition of confirmation the plan should be modified to delete exculpation of the trustees of the Syncora trusts," Syncora said in the filing. Without the "exculpation," Syncora argues, it would be free to go after the claims on behalf of the RMBS trusts. As part of ResCap's larger reorganization plan, the company allowed a $7.3 billion claim for the trusts representing more than one million original mortgages. Syncora, which insures $2.5 billion worth of the RMBS, said that wording in the reorganization plan suggests that insurers — including itself — will be shut out of collecting money from the trusts, even if the trusts get payments from ResCap.

Capitol Bancorp Ltd. investors who fear the bank-holding company's sale of its banks to Wilbur Ross's Talmer Bancorp will leave them empty-handed want a bankruptcy judge to slow down the deal so rival bidders can make an offer, Dow Jones Daily Bankruptcy Review reported today. Lawyers for the committee representing Capitol's unsecured creditors on Monday objected to the rules governing the sale, claiming that they'll be left holding the bag if the deal proceeds as proposed. The committee wants a bankruptcy judge to extend the timeline governing the sale to give other potential bidders sufficient time to formulate their bids.