Collateralized Debt Obligation Litigation on the Rise Strategies for Investors Issuers and Trustees to Strategies for Investors, Issuers and Trustees to presents presents Pursue and Defend CDO Claims A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Zachary D. Rosenbaum, Partner, Lowenstein Sandler , New York Glenn S. Arden, Partner, Jones Day , New York Amelia M. Charamba, Partner, Nixon Peabody , Boston Thursday, March 18, 2010 The conference begins at: 1 pm Eastern p 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View , select Navigational Panels , and chose either Bookmarks or Pages . If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10
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CDO LITIGATION ON THE RISE CDO LITIGATION ON THE RISE STAFFORD CLE WEBINAR STAFFORD CLE WEBINAR – – March 18, 2010 March 18, 2010 Zachary D. Rosenbaum Rosenbaum Zachary D. Chair, Capital Markets Litigation Chair, Capital Markets Litigation Lowenstein Sandler PC Lowenstein Sandler PC zrosenbaum@lowenstein.com zrosenbaum@lowenstein.com 212 212-204 212 212 204 204-8690 204 8690 8690 8690 1
The Power and Risk of Leverage The Power and Risk of Leverage The Power and Risk of Leverage The Power and Risk of Leverage The Old Landscape The Old Landscape The Old Landscape The Old Landscape v. v. The New Landscape The New Landscape 2
The OLD Landscape The OLD Landscape The OLD Landscape The OLD Landscape Borrow er Defaults !!! Residence/ Hom e Bank Bank B Bank Loan k L ? ? Borrow er 3
SIV / Conduit The NEW Landscape The NEW Landscape p Borrow er Defaults !!! Credit Default Swaps, Synthetic CDS, Other Derivative Products Borrow er Borrow er B Bank k CDO CDO ABS ABS CDO 2 CDO 2 Monolines / Institutional Financial Investors / Guarantors Funds Investors 4
The World Has Changed The World Has Changed Then: Then: “There are two superpowers in the world today in my “There are two superpowers in the world today in my opinion. There’s the United States and there’s Moody’s opinion. There’s the United States and there’s Moody’s h h h h d d d h d h d d Bond Rating Service. The United States can destroy Bond Rating Service. The United States can destroy y you by dropping bombs, and Moody’s can destroy you you by dropping bombs, and Moody’s can destroy you y y y pp pp g g , , y y y y y y by downgrading your bonds. And believe me, it’s not by downgrading your bonds. And believe me, it’s not clear sometimes who’s more powerful.” clear sometimes who’s more powerful.” Thomas Friedman of Thomas Friedman of The New York Times The New York Times , 1996 interview , 1996 interview with David Gergen of with David Gergen of U.S. News & World Report U.S. News & World Report 5
Yes, The World Has Changed Yes, The World Has Changed Yes, The World Has Changed Yes, The World Has Changed Now: Now: Now: Now: December 15, 2006 Email: December 15, 2006 Email: “Rating agencies continue to create and (sic) even bigger “Rating agencies continue to create and (sic) even bigger g g g g ( ( ) ) gg gg monster monster – – the CDO market. Let’s hope we are all wealthy the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters. :o)” and retired by the time this house of cards falters. :o)” April 5, 2007 IM: April 5, 2007 IM: “we rate every deal” “we rate every deal” we rate every deal we rate every deal “it could be structured by cows and we would rate it” “it could be structured by cows and we would rate it” “ we should not be rating it we should not be rating it ” g 6
The Players = The Targets ? The Players = The Targets ? The Players The Players The Targets ? The Targets ? – Central Transaction Parties Central Transaction Parties Central Transaction Parties Central Transaction Parties – Sponsors, Issuers, Structurers Sponsors, Issuers, Structurers – Placement Agents Placement Agents – Collateral Managers C ll C ll Collateral Managers l M l M – Trustees Trustees – Related Transaction Parties Related Transaction Parties – Monoline/Financial Guarantors Monoline/Financial Guarantors – Rating Agencies Rating Agencies – Other Afflicted Parties O h Other Afflicted Parties O h Affli Affli d P d P i i – Noteholders Noteholders – Synthetic Position Synthetic Position- -Holders (short position Holders (short position- -holders) holders) 7
Waves of Litigation Waves of Litigation g First First, Shareholder actions , Shareholder actions e.g. e.g. Moody’s, S&P, UBS, Countrywide Moody’s, S&P, UBS, Countrywide Second Second, Trustee “interpleader” and “waterfall” actions , Trustee “interpleader” and “waterfall” actions e.g. e.g. Deutsche Bank, Wells Fargo Deutsche Bank, Wells Fargo Third Third, Monoline/CDS actions h d h d , Monoline/CDS actions l l / / e.g. e.g. Merrill Lynch v. XL Capital, FGIC v. IKB, Merrill Lynch v. XL Capital, FGIC v. IKB, MBIA v. Countrywide; MBIA v. Merrill Lynch; MBIA v. Countrywide; MBIA v. Merrill Lynch; VCG Special Opportunities Master Fund v. Citibank VCG Special Opportunities Master Fund v. Citibank Fourth Fourth, CDO investor and collateral owner actions; Collateral management claims , CDO investor and collateral owner actions; Collateral management claims e.g. e.g. HSH Nordbank v. UBS; M&T Bank v. Gemstone CDO VII, Ltd.; HSH Nordbank v. UBS; M&T Bank v. Gemstone CDO VII, Ltd.; Carrington v. American Home; Ambac v. JPMorgan Carrington v. American Home; Ambac v. JPMorgan Fifth Fifth, Rating Agency actions , Rating Agency actions e.g. e.g. Abu Dhabi Commercial Bank v. Morgan Stanley et al. Abu Dhabi Commercial Bank v. Morgan Stanley et al. 8
What Did They Really Think? What Did They Really Think? y y y y The Court’s September 8, 2009 decision in the The Court’s September 8, 2009 decision in the Pursuit Partners, LLC Pursuit Partners, LLC case, pending in case, pending in Connecticut, quoting emails of a prominent global investment bank: Connecticut, quoting emails of a prominent global investment bank: “sold more crap to Pursuit.” (Exh. 49).” [Decision p. 24] “sold more crap to Pursuit.” (Exh. 49).” [Decision p. 24] “OK still have this vomit?” (Exh. 62).” “OK still have this vomit?” (Exh. 62).” [Decision pp. 24 [Decision pp. 24- -25] 25] 9
CDO Litigation CDO Litigation Legal claims include: Legal claims include: Fraud Fraud Breach of Contract Breach of Contract Negligent Misrepresentation Negligent Misrepresentation g g g g p p Negligence Negligence Breach of Fiduciary Duty Breach of Fiduciary Duty y y y y Civil Conspiracy Civil Conspiracy Violations of federal and state securities disclosure laws Violations of federal and state securities disclosure laws (e.g. 1933 Act/Section 12(2); 1934 Act/Rule 10b (e.g. 1933 Act/Section 12(2); 1934 Act/Rule 10b- -5) 5) False Information Negligently Supplied for Guidance of Others False Information Negligently Supplied for Guidance of Others 10
Enforcement Initiatives Enforcement Initiatives SEC Reorganization (January 13, 2010) SEC Reorganization (January 13, 2010) Structured and New Products Structured and New Products Structured and New Products Structured and New Products Asset Management Asset Management Market Ab se Market Abuse Market Ab se Market Abuse SEC Initiative to Encourage Cooperation SEC Initiative to Encourage Cooperation (January 13, 2010) (January 13 2010) (January 13 2010) (January 13, 2010) Potential “game Potential “game- -changer” for the Division of Enforcement changer” for the Division of Enforcement (Robert Khuzami (Robert (Robert Khuzami (Robert Khuzami, Director, Division of Enforcement) Khuzami Director Division of Enforcement) , Director, Division of Enforcement) Director Division of Enforcement) Cooperation tools replicate those available to DOJ Cooperation tools replicate those available to DOJ 11
Questions? Questions? Q 12
Derivatives & CDO Litigation – Developments and Recurring Themes March 2010 New York, New York
The More Things Change… Th M The More They Stay the Same Th St th S ► Recent court decisions provide direction on key p y issues, but for every question answered, many more arise. ► Recent bankruptcy court decisions have resulted in ► Recent bankruptcy court decisions have resulted in some dramatic developments, but to what extent and for how long? 2
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