On May 17th, a federal district court denied motions to dismiss a securities fraud lawsuit alleging that defendants failed to disclose adequately their investment in notes issued by a shell company owned by Lehman Brothers, who provided the principal protection guarantee. Defendants' knowledge regarding the notes and Lehman's insolvency contradicted their public statements, satisfying Rule 10b-5's scienter requirements. Plaintiffs also allege that their losses were exaggerated by defendants' lack of disclosure, adequately alleging loss causation.
Crumbs Bake Shop Inc. shut down in July and filed for bankruptcy in New Jersey court that same month. The bankruptcy court ordered an auction sale, and a purchaser has come forward to buy all of the company’s assets.
On March 15, 2012, the American Bar Association’s Electronic Discovery (ESI) in Bankruptcy Working Group (the “Working Group”) published an interim report addressing certain principles and suggested best practices for electronic discovery in bankruptcy cases (the “Interim Report”). The Working Group was formed to study and prepare guidelines or a “best practices” report on the scope and timing of a party’s obligation to preserve ESI in bankruptcy cases.
On February 22nd, the Bankruptcy Court overseeing the liquidation of Lehman Brothers' broker-dealer business denied motions seeking to modify the order approving the sale of the business to Barclays Capital. The Court noted the extraordinary circumstances surrounding the sale, the affirmance of that sale order, and movants' failure to challenge the order for one year. The court held that even if the evidence presented here were known in 2008, the result would have been the same, i.e., the sale would have been approved.
On April 26th, the Eleventh Circuit held that the anti-injunction provision of the Financial Institutions Reform, Recovery and Enforcement Act prohibits a federal district court from enjoining the FDIC. A trial court had initially imposed a TRO against a failing bank prohibiting it from taking any action with respect to $1 billion worth of mortgage proceeds it held in trust for petitioner, Bank of America, who held legal title. When the FDIC was appointed receiver, the FDIC moved to dissolve the TRO. The trial court refused converting the TRO into a preliminary injunction.
A class of consumers suing the bankrupt Kangadis Food Inc. over its allegedly misleading olive oil purity claims is now suing the owners of the company in a separate class action aimed at holding them accountable.
Defanging Stern v. Marshall1: The United States District Court for the Southern District of New York Modifies the Reference of Bankruptcy Matters to Address Issues Resulting from the Supreme Court’s Ruling
The United States District Court for the Southern District of Florida has reversed a bankruptcy court order that had required a group of lenders (“Transeastern Lenders”) to disgorge, as a fraudulent transfer, approximately $421 million paid to them by a joint venture partner (“TOUSA”) in satisfaction of their legitimate, uncontested loans to the joint venture that TOUSA had guaranteed. Together with pre-judgment interest, the total amount to be paid by the Transeastern Lenders was in excess of $480 million.
On April 12th, the Sixth Circuit held that a Chapter 13 debtor has standing to bring an avoidance action even when the bankruptcy trustee does not. It further held that the defendant mortgage company perfected its lien by equitably converting the lien on plaintiff's manufactured home to one for real property when the state court entered judgment on defendant's lis pendens claim. Since that order was entered during the 90 day preference period, the lien was avoidable.
Gupta’s $13.9 Million SEC Insider Trading Penalty Affirmed