Lending credence to the old adage “if it’s too good to be true, then it probably is,” the Seventh Circuit Court of Appeals recently held that a secured lender was on inquiry notice of possible fraud by its borrower in impermissibly pledging customers’ assets to secure loans. And the penalty was steep—the Court determined the pledge to be a fraudulent transfer to the lender and the lender’s failure to act upon inquiry notice destroyed the lender’s good faith defense. As a result, the lender’s $300 million secured claim was reduced to a near-worthless general unsecured claim.
On January 21, the Federal Deposit Insurance Corporation (FDIC) announced that it was seeking comment on a revised proposed rule that would amend the way small banks are assessed for deposit insurance. The proposed rule would affect banks with less than $10 billion in assets that have been insured by the FDIC for at least five years.
It is a familiar scenario: a company is on the verge of bankruptcy, bound by the terms of a collective bargaining agreement (CBA), and unable to negotiate a new agreement. However, this time, an analysis of this distressed scenario prompted a new question: does it matter if the CBA is already expired, i.e., does the Bankruptcy Code distinguish between a CBA that expires pre-petition versus one that has not lapsed?
It is a familiar scenario: a company is on the verge of bankruptcy, bound by the terms of a collective bargaining agreement (CBA), and unable to negotiate a new agreement. However, this time, an analysis of this distressed scenario prompted a new question: does it matter if the CBA is already expired, i.e., does the Bankruptcy Code distinguish between a CBA that expires pre-petition versus one that has not lapsed?
In SGK Ventures, LLC, the Bankruptcy Court for the Northern District of Illinois ordered that the secured claims of two entities controlled by insiders of the debtor be equitably subordinated to the claims of unsecured creditors.
A federal appeals court in Illinois held that Bank of New York Mellon Corporation and Bank of New York (collectively, “BNYM”) were on “inquiry notice” that Sentinel Management Group, Inc. improperly used customer funds as collateral for a loan prior to the firm’s collapse in August 2007. (Sentinel was an investment management firm registered with the Commodity Futures Trading Commission as a futures commission merchant that claimed it specialized in short-term cash management for hedge funds, individuals, financial institutions and other FCMs.
It is said that muddy water is best cleared by leaving it be. The Supreme Court’s December 4 decision to review the legality of Puerto Rico’s local bankruptcy law, the Recovery Act, despite a well-reasoned First Circuit Court of Appeals opinion affirming the U.S. District Court in San Juan’s decision voiding the Recovery Act on the grounds that it conflicts with Section 903 of the U.S. Bankruptcy Code, suggests, at a minimum, that at least four of the Justices deemed the questions raised too interesting to let the First Circuit have the last word.
Twenty-one major global banks have already signed a relaunched stay protocol developed by the International Swap Dealers Association and other leading industry organizations in coordination with the Financial Stability Board. The purpose of the protocol is to help ensure the orderly resolution of a troubled bank by having firms voluntarily agree to abide by foreign resolution regimes in connection with cross-border transactions. A prior protocol was signed by 18 major banks in November 2014. The relaunched protocol increases the types of covered financial contracts.
At first glance, Stanziale v. MILK072011, looks like someone suing over a bad expiration date and conjures up images of Ron Burgundy proclaiming “milk was a bad choice.” But in actuality Stanziale is much more interesting: it answers whether one can breach their fiduciary duty by exposing an employer to a claim under the aptly-named WARN Act, which requires employers to tip off their workers to a possible job loss.
A federal judge in New York – the Hon. Richard J. Sullivan – mostly granted JP Morgan Chase Bank’s motion to dismiss claims brought on behalf of unsecured creditors of Lehman Brothers Holdings Inc. related to JPM’s requirement that Lehman Brothers Inc., LBH’s broker-dealer subsidiary, pledge and post extra collateral in September 2008, shortly before LBI filed for bankruptcy protection on September 15, 2008.