On September 25, 2008 in Washington, D.C., the Federal Trade Commission (“FTC”) held an all-day workshop, entitled “Consumer Protection and the Debt Settlement Industry,” to explore growth in the for-profit debt settlement industry and to examine its impact on consumers and businesses.

In the biggest bank receivership in the history of the United States, the Office of Thrift Supervision seized Washington Mutual Bank on September 25 and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. While details are still emerging, it is at least clear that all deposits were transferred to JPMorgan, as were all loans and Qualified Financial Contracts, which include swaps, options, futures, forwards, repurchase agreements and any other Qualified Financial Contract as defined in 12 U.S.C. Section 1821(e)(8)(D).

Over the past few days, Members of Congress have engaged in intensive debate over the terms of the bailout package, now commonly referred to as the Troubled Asset Relief Program (“TARP”). Both Democrats and Republicans have offered criticisms and alternatives to the original Treasury proposal which are summarized below.

Senator Dodd Proposal

Senator Christopher Dodd (D-CT), Chairman of the Senate Committee on Banking, Finance and Urban Affairs has drafted a 100 page bill that encompasses many of the Democratic proposals discussed to date. His bill would:

At the end of the day, what really drives lender decisions with regard to addressing problem loan modifications, workouts, and restructuring issues revolves around the impact of those decisions on the financial statements condition of the institution.

Likewise, the regulatory and accounting treatment behind those decisions tends to dictate policy and procedure for the CRE lending and workout areas of the bank.

As you are undoubtedly aware, the September 15 Chapter 11 bankruptcy filing in New York by Lehman Brothers Holdings, Inc. (LBHI) represents the single largest insolvency proceeding in US history. With assets and liabilities of more than US$639 billion, the LBHI filing dwarfs the previously largest US bankruptcies. The filing comes at a time of significant destabilization in US capital markets and has global ramifications. In an effort to keep our clients abreast of the LBHI situation, we are providing the following general update of significant events in the proceedings:

The United States Court of Appeals for the Third Circuit recently upheld a $182.9 million judgment against PricewaterhouseCoopers, LLP (“PWC”) for allegedly contributing to the failure of Ambassador Insurance Company (“Ambassador”) through negligent auditing. Thabault v. Chait, No. 06-2209 (3d Cir., Sept. 9, 2008).

The United States Bankruptcy Court for the District of Massachusetts recently denied a mortgage purchaser’s Motion for Relief from Automatic Stay of Chapter 13 proceedings on the ground that the purchaser lacked standing where it could not provide documentary evidence showing each transfer of the mortgage. In re Robin Hayes, Case No. 07-13967-JNF (August 19, 2008).

In November 2004, the Debtor, Robin Hayes, obtained a $324,000 mortgage from Argent Mortgage Company LLC (“Argent Mortgage”). The mortgage subsequently was sold and ultimately ended up with Deutsche Bank.

A creditor’s ability in a bankruptcy case to exercise rights that it has under applicable law to set off an obligation it owes to the debtor against amounts owed by the debtor to it, thereby converting its unsecured claim to a secured claim to the extent of the setoff, is an important entitlement.