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Gap Contacted by Antitrust Regulator on Simon Property’s Prime Outlet Deal

by on February 28, 2010

By Matthew Townsend, Prashant Gopal and Daniel Taub Feb. 27 (Bloomberg) — Gap Inc. was contacted by the Federal Trade Commission about Simon Property Group Inc. ’s proposed acquisition of Prime Outlets Acquisition Co. “We are aware of the FTC’s inquiry into the proposed Simon acquisition of Prime Outlets and we are responding to its inquiries,” Louise Callagy , a spokeswoman for the San Francisco-based clothing retailer, said in a telephone interview yesterday. Gap has stores at outlets owned by both Simon and Prime. Simon agreed in December to buy Prime Outlets from Lightstone Group for $2.33 billion including debt. The deal would the largest U.S. mall owner an additional 22 retail outlet centers, increasing its total to more than 60. Simon also is trying to buy bankrupt General Growth Properties Inc., its biggest rival. General Growth rejected Simon’s unsolicited bid Feb. 16, saying the $10 billion offer was too low. Simon’s bid to buy General Growth out of Chapter 11 bankruptcy may also face regulatory hurdles, David Fick , an analyst with Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “If there are issues with tenants on the smaller deal, there’s potentially a bigger issue with tenants on a bigger deal,” Fick said. Simon Property Chairman and Chief Executive Officer David Simon and Les Morris , a Simon spokesman, didn’t respond to telephone calls seeking comment. Cecelia Prewett, an FTC spokeswoman, also didn’t respond to messages. Before Formal Investigation David Keating , a spokesman for Chicago-based General Growth, declined to comment. Robert Pitofsky , a law professor at Georgetown University and a former chairman of the Federal Trade Commission, said the agency often calls competitors and other relevant parties before deciding whether to launch a formal investigation. “This is a very common approach to horizontal or vertical mergers,” he said. “You have to know a lot more about the facts before you fire off some kind of formal investigation.” General Growth this week announced an agreement to split itself into two companies as part of an effort to exit bankruptcy with a $2.63 billion investment from Brookfield Asset Management Inc. Other bids may still be made, General Growth President Thomas H. Nolan Jr . said on Feb. 24. Simon subsequently signed a confidentiality agreement allowing it to review General Growth’s finances as it considers the potential acquisition, according to a person familiar with the pact. ‘Once-Over’ “The bare facts that are known today suggest that the transaction will at least get a once-over, either by the Department of Justice or the FTC, simply because you’re combining No. 1 with No. 2,” said Brian Weinberger, an antitrust attorney with Buchalter Nemer in Scottsdale, Arizona. “If nothing else, the competitors of Simon and General Growth will look at those issues and consider whether to object,” he said. David Simon has dismissed concerns about the FTC blocking a purchase of General Growth. Simon isn’t at risk of having too large a market share or a monopoly in any market, he said in a Feb. 5 conference call with analysts and investors. “We certainly would argue strenuously that neither of those occur with or without GGP or anybody else,” he said. “There’s a lot of retail real estate out there. And it’s very diverse, and retailers go in and out of product all the time. And I don’t think you can look at one particular segment or one particular market.” To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net ; Prashant Gopal in New York at Pgopal2@bloomberg.net ; Daniel Taub in Los Angeles at dtaub@bloomberg.net .

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Mark Miller: Up next in the housing crisis: Strategic default

by Mark Miller on January 4, 2010

In phase one of the foreclosure crisis, policy-makers and news media have focused mainly on homeowners who lose their homes because they can’t afford to make mortgage payments. The next big issue is “strategic default” — homeowners who can afford their payments but walk away from mortgages and accept foreclosure because they’re facing financial stress, and/or their homes are worth less than the loan amounts. There’s an especially large concentration of these underwater mortgages among older Americans. Many pre-retirement baby boomers took on higher mortgage debt in the years running up to the real estate crash; a study this year by the Center for Economic and Policy Research found that 30% of Americans age 45 to 54 are underwater. That means they’d need to bring cash to a closing in the case of a sale — say, when it comes time to make a retirement- or health-related move. And mortgages are a key component in retirement planning, since debt reduction is one of the best ways to improve retirement security. University of Arizona law professor Brent T. White generated a flurry of attention last month when he suggested in a research paper that the rational economic move for some underwater homeowners would be to default on their loans and give their homes back to the bank. Since then, news media coverage of strategic default has been growing. The Wall Street Journal last month profiled California homeowners who opted to default in order to get out from high mortgage payments, instead renting similar properties in their neighborhoods for a fraction of the monthly cost. This past weekend, the New York Times wrote that the Obama Administration’s Making Home Affordable loan modification program may only be postponing the inevitable day of reckoning for millions of homeowners who will never be able to afford their mortgages and ultimately will face foreclosure. Economist Mark Zandi argues in a Times piece that underwater loans are a much more important piece of the puzzle than forced foreclosures: Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth. Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.” Strategic default poses serious moral and legal issues. Some experts argue that consumers should look at their homes as housing, not an investment and honor the contractual promises made when they took out their loans. And, despite media coverage of the increasing number of strategic defaults, the percentage of those who do walk away from mortgages is relatively low. White’s analysis shows that only 25 percent of mortgage defaults are strategic; the percentage isn’t higher, he argues, due to homeowners’ perceived shame and guilt of foreclosure, and fear of the consequences. White further argues that that the emotional constraints are actively cultivated by the government and “social control agents” to encourage homeowners to follow social and moral norms related to the honoring of financial obligations. At same time, homeowners are encouraged to ignore market and legal norms under which strategic default might be viable and the smartest financial decision. White’s definition of “social control agents” include the media and an array of financial counseling services. Although the latter often are non-profit organizations presenting themselves as community-based organizations, many receive funds from government and financial services companies, which have a vested interest in discouraging defaults. Counseling services that receive HUD certification cannot advise their clients to default. White told me in a recent interview of his conversation with a counselor at one industry-funded agency that counseled 3,000 people in 2008 on how to avoid foreclosure. That agency did an assessment at the end of the year of whether any of these would have been better off with strategic default; the assessment concluded that 53 percent would have been better off due to an unsustainable debt-to-incomer ratio. But, the agency couldn’t tell clients that, due to its industry funding. Credit scores loom large in all of this. White argues that homeowners fear falling scores, yet, most people can recover a good score within two to three years if they stay current on other payments. Walking away from a mortgage frees up cash to do that, he says, and the sky will not fall in during the interim. White also argues that our current system is set up to remedy the housing crash on the backs of consumers, who are encouraged to keep making payments on real estate where they will never see a return; in the meantime, banks get billions in bailout funds, and are allowed to drag their feet on loan modifications. All that aside, White took pains during our interview to make clear that he isn’t advising homeowners to default. “This is an academic piece that makes the observation that it would be in the best [economic] interest of many consumers to walk away, but that they don’ do so due to a double standard — one for Main Street, the other for lenders and banks. This results in distributional inequality, and propping up market on the backs of the middle class.” White also notes that the wisdom of a strategic default depends heavily on state laws. Some states have non-recourse laws that prevent banks from going after the personal assets of homeowners who default; others don’t offer consumers this protection (Click here for more information on non-recourse states ). Other important variables, White says, include how far underwater the loan has become and the prospects for a real estate recovery in a given market. “People need to consult with an attorney and and a financial adviser before making any decision. But I don’t believe guilt and shame are good reasons to stay in a house.”

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Auction-Rate Investors Get Second Chance After Loss of First Fraud Suits

December 17, 2009

By Thom Weidlich Dec. 17 (Bloomberg) — Auction-rate securities investors who sued banks including Citigroup Inc. and UBS AG to recoup billions of dollars in losses went 0 for 5 as their first cases were thrown out. Now some are gearing up for a rematch over part of the $149 billion in securities that remain outstanding. In three of the class actions, judges allowed the investors to refile their complaints after finding the initial suits failed to prove they lost money or satisfy a 1995 federal securities-fraud law designed to discourage frivolous stock-loss suits. Citigroup, UBS and Raymond James Financial Inc. have again asked that the cases be tossed out. “The private litigation has run into a brick wall,” said James Cox, a law professor at Duke University in Durham, North Carolina. The legal bar for bringing such lawsuits has been too high for auction-rate investors to surmount, he said. Those investors may need a change in federal law if the 1995 act proves too big an obstacle for genuine claims, said Elizabeth Warren , who chairs the congressional oversight panel monitoring the Troubled Asset Relief Program. She suggested the idea for a Consumer Financial Protection Agency. “The rules in place for liability and the right to bring a lawsuit under these circumstances are determined by a combination of case law and legislation,” Warren said. “If we don’t like where the balance point is, we at least have the legal capacity to change that.” Investors sued at least 19 broker-dealers after the $330 billion auction-rate market froze in February 2008 as credit tightened and banks stopped participating in auctions that set interest rates for the investments. The banks touted the securities as being as safe as cash, plaintiff investors said. Loan-Backed Bonds The instruments are usually municipal and student-loan- backed bonds and preferred shares whose interest is reset every seven to 35 days at bidding managed by dealers. When such auctions began failing, customers were unable to sell their securities at face value and get access to their money. As private litigation moved forward, financial firms agreed to buy back $61 billion in auction-rate securities — or 18.5 percent of the original market — to end regulators’ probes of their treatment of customers. The buybacks undercut some damages claims, leading to dismissals. Strapped for cash, some investors resorted to distressed sales, losing as much as 40 percent of their investment. SecondMarket Inc., the New York-based company that operates a marketplace for illiquid assets, estimates there are now $149 billion in outstanding auction-rate securities. Sufficiency of Complaint In deciding requests to dismiss a lawsuit, judges rule on the sufficiency of the complaint to allow the case to go forward, rather than on the merits of the accusations. The judges who ruled on the motions to dismiss in the auction-rate cases decided against the investors because they didn’t lose money or didn’t satisfy the tough legal standards for bringing securities-fraud suits, according to their rulings. Those standards include backing up allegations of wrongdoing with what the statute calls particular detail. This means investors must show, to the satisfaction of a judge, that the company probably knew it was doing something wrong. If they don’t, they can’t proceed toward trial. The investors in the class actions have tried to increase their chances of winning by filing new complaints with more details. Those include evidence from the banks’ agreements with regulators over auction-rate securities, such as e-mails from bank executives and accusations of wrongdoing by government agencies. Added Material In their new complaint filed Oct. 15, investors suing New York-based Citigroup added material from the bank’s December 2008 regulatory settlement — in which it agreed to buy back or help clients unload as much as $19.5 billion in auction-rate securities — to show it knew the market was in peril while keeping that fact from customers. “I believe that we should allow market dynamics to determine the pricing and success/failure of these auctions,” a Citigroup official e-mailed colleagues on Feb. 9, 2008, according to a complaint filed by the U.S. Securities and Exchange Commission. “If we do so, I’d expect them to fail.” Citigroup on Nov. 3 again asked U.S. District Judge Laura T. Swain in New York to drop the suit. Michael Passidomo, the lead plaintiff, “has done little more than add quotations from regulatory complaints,” the bank said in court papers. In originally dismissing the Citigroup litigation Sept. 11, Swain found the complaint wasn’t specific enough in alleging market manipulation and didn’t allege facts giving rise to an unlawful intent by the bank. Dismissed a Case On Sept. 17, U.S. District Judge Lewis Kaplan in New York dismissed a case against St. Petersburg, Florida-based Raymond James Financial, the biggest U.S. regional brokerage. The Raymond James plaintiffs filed a new complaint Oct. 16. The company on Nov. 16 again asked the judge to toss the suit. The complaint includes 20 pages with more detail on how the company marketed and sold auction-rate securities. The section on municipal securities, for example, includes information from an unidentified former financial adviser at the company who said Raymond James downplayed the likelihood of auction failures to its employees. In its Nov. 16 motion to dismiss, Raymond James said investor claims “again fail to meet the rigorous standards” imposed by court rules and the 1995 securities reform law. Previously Compensated U.S. District Judge Lawrence M. McKenna in New York on March 30 dismissed four consolidated suits against Zurich-based UBS, finding the buyers of auction-rate securities had been compensated through the bank’s agreement with regulators to redeem $19.4 billion of the instruments. The UBS litigation has been taken over by investors not covered by the regulatory settlement. Of the five motions to dismiss that have been decided so far, Chicago-based Northern Trust Corp. and Atlanta-based SunTrust Banks Inc. won permanent dismissals. At least eight actions against brokers including Goldman Sachs Group Inc. , which in August 2008 agreed to buy back $1.5 billion of auction rate securities, were voluntarily dismissed. “Within weeks of when we filed our case they paid our client back,” said Lionel Glancy of Glancy Binkow & Goldberg LLP in Los Angeles, who sued New York-based Goldman Sachs. Some investors chose to arbitrate claims against the banks, achieving mixed results. — With assistance from David Scheer in New York and Michael Quint in Albany, New York. Editors: Charles Carter , John Pickering To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net .

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Auction-Rate Investors Get Second Chance After Loss of First Fraud Suits

December 17, 2009

By Thom Weidlich Dec. 17 (Bloomberg) — Auction-rate securities investors who sued banks including Citigroup Inc. and UBS AG to recoup billions of dollars in losses went 0 for 5 as their first cases were thrown out. Now some are gearing up for a rematch over part of the $149 billion in securities that remain outstanding. In three of the class actions, judges allowed the investors to refile their complaints after finding the initial suits failed to prove they lost money or satisfy a 1995 federal securities-fraud law designed to discourage frivolous stock-loss suits. Citigroup, UBS and Raymond James Financial Inc. have again asked that the cases be tossed out. “The private litigation has run into a brick wall,” said James Cox, a law professor at Duke University in Durham, North Carolina. The legal bar for bringing such lawsuits has been too high for auction-rate investors to surmount, he said. Those investors may need a change in federal law if the 1995 act proves too big an obstacle for genuine claims, said Elizabeth Warren , who chairs the congressional oversight panel monitoring the Troubled Asset Relief Program. She suggested the idea for a Consumer Financial Protection Agency. “The rules in place for liability and the right to bring a lawsuit under these circumstances are determined by a combination of case law and legislation,” Warren said. “If we don’t like where the balance point is, we at least have the legal capacity to change that.” Investors sued at least 19 broker-dealers after the $330 billion auction-rate market froze in February 2008 as credit tightened and banks stopped participating in auctions that set interest rates for the investments. The banks touted the securities as being as safe as cash, plaintiff investors said. Loan-Backed Bonds The instruments are usually municipal and student-loan- backed bonds and preferred shares whose interest is reset every seven to 35 days at bidding managed by dealers. When such auctions began failing, customers were unable to sell their securities at face value and get access to their money. As private litigation moved forward, financial firms agreed to buy back $61 billion in auction-rate securities — or 18.5 percent of the original market — to end regulators’ probes of their treatment of customers. The buybacks undercut some damages claims, leading to dismissals. Strapped for cash, some investors resorted to distressed sales, losing as much as 40 percent of their investment. SecondMarket Inc., the New York-based company that operates a marketplace for illiquid assets, estimates there are now $149 billion in outstanding auction-rate securities. Sufficiency of Complaint In deciding requests to dismiss a lawsuit, judges rule on the sufficiency of the complaint to allow the case to go forward, rather than on the merits of the accusations. The judges who ruled on the motions to dismiss in the auction-rate cases decided against the investors because they didn’t lose money or didn’t satisfy the tough legal standards for bringing securities-fraud suits, according to their rulings. Those standards include backing up allegations of wrongdoing with what the statute calls particular detail. This means investors must show, to the satisfaction of a judge, that the company probably knew it was doing something wrong. If they don’t, they can’t proceed toward trial. The investors in the class actions have tried to increase their chances of winning by filing new complaints with more details. Those include evidence from the banks’ agreements with regulators over auction-rate securities, such as e-mails from bank executives and accusations of wrongdoing by government agencies. Added Material In their new complaint filed Oct. 15, investors suing New York-based Citigroup added material from the bank’s December 2008 regulatory settlement — in which it agreed to buy back or help clients unload as much as $19.5 billion in auction-rate securities — to show it knew the market was in peril while keeping that fact from customers. “I believe that we should allow market dynamics to determine the pricing and success/failure of these auctions,” a Citigroup official e-mailed colleagues on Feb. 9, 2008, according to a complaint filed by the U.S. Securities and Exchange Commission. “If we do so, I’d expect them to fail.” Citigroup on Nov. 3 again asked U.S. District Judge Laura T. Swain in New York to drop the suit. Michael Passidomo, the lead plaintiff, “has done little more than add quotations from regulatory complaints,” the bank said in court papers. In originally dismissing the Citigroup litigation Sept. 11, Swain found the complaint wasn’t specific enough in alleging market manipulation and didn’t allege facts giving rise to an unlawful intent by the bank. Dismissed a Case On Sept. 17, U.S. District Judge Lewis Kaplan in New York dismissed a case against St. Petersburg, Florida-based Raymond James Financial, the biggest U.S. regional brokerage. The Raymond James plaintiffs filed a new complaint Oct. 16. The company on Nov. 16 again asked the judge to toss the suit. The complaint includes 20 pages with more detail on how the company marketed and sold auction-rate securities. The section on municipal securities, for example, includes information from an unidentified former financial adviser at the company who said Raymond James downplayed the likelihood of auction failures to its employees. In its Nov. 16 motion to dismiss, Raymond James said investor claims “again fail to meet the rigorous standards” imposed by court rules and the 1995 securities reform law. Previously Compensated U.S. District Judge Lawrence M. McKenna in New York on March 30 dismissed four consolidated suits against Zurich-based UBS, finding the buyers of auction-rate securities had been compensated through the bank’s agreement with regulators to redeem $19.4 billion of the instruments. The UBS litigation has been taken over by investors not covered by the regulatory settlement. Of the five motions to dismiss that have been decided so far, Chicago-based Northern Trust Corp. and Atlanta-based SunTrust Banks Inc. won permanent dismissals. At least eight actions against brokers including Goldman Sachs Group Inc. , which in August 2008 agreed to buy back $1.5 billion of auction rate securities, were voluntarily dismissed. “Within weeks of when we filed our case they paid our client back,” said Lionel Glancy of Glancy Binkow & Goldberg LLP in Los Angeles, who sued New York-based Goldman Sachs. Some investors chose to arbitrate claims against the banks, achieving mixed results. — With assistance from David Scheer in New York and Michael Quint in Albany, New York. Editors: Charles Carter , John Pickering To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net .

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Your Final Wish Isn’t Always Your Doctor’s Command: Ann Woolner

December 9, 2009

Commentary by Ann Woolner Dec. 9 (Bloomberg) — You think you’ve done the legal paperwork to avoid becoming another Terri Schiavo , who was trapped in a hopeless vegetative state while her family argued over whether to keep her going. You’ve specified ahead of time that you want nothing artificial to prolong your life, not even a forced-feeding tube, if doctors say you won’t recover from that state. Don’t rest assured. If that time comes, the documents you labored over won’t count for much if you wind up in the wrong place. More than 900 hospitals and health-care centers in the U.S. that treated 93 million patients last year are affiliated with the Catholic Church, whose American policy-making body won’t let your end-of-life wishes come true while you are in their care. Last month the U.S. Conference of Catholic Bishops resolved what had been a debate among clerics and ethicists over the morality of artificially feeding or hydrating patients who are stuck in a vegetative state, possibly for years. What had been a “presumption” in favor of tube feeding in 2001 became, in the revised policy, an “obligation.” “This obligation extends to patients in chronic and presumably irreversible conditions (e.g., the ‘persistent vegetative state’) who can reasonably be expected to live indefinitely if given such care,” the bishops announced in the latest version of their Ethical and Religious Directives for Catholic Health Care Services. If an incapacitated patient has a living will that instructs physicians, it “should always be respected and morally complied with, unless it is contrary to Catholic moral teaching,” the bishops said. A Big ‘Unless’ That’s a big “unless.” If family members insist that the patient’s directive be followed, they would have to move him to another facility, according to the Reverend Thomas Weinandy , executive director of the Conference of Bishops doctrine committee. For thousands of Americans, a Catholic hospital is the only one they have, says Compassion and Choices, a non-profit group that advocates for the terminally ill. Federal and state laws encourage people to think ahead of time about what medical treatment they would want, and under what circumstances, if they became incapacitated. Hospitals that accept federal funds are required to bring up the subject, and that’s when they advise incoming patients of their policies. You can spell out your wishes in an advance directive, and you can name a health-care proxy to speak for you on such matters. Criminal Battery “Where you actually have a medical directive, people are constitutionally entitled to have their wishes given effect,” says Ray Madoff , a law professor at Boston College focusing on end-of-life issues. The U.S. Supreme Court said so in the Nancy Cruzan case in 1990. But, Madoff asks, who’s going to enforce that right? Under older case law than Cruzan, if you are given a treatment you specifically declined, it is considered criminal battery under the law. Whether that applies to tubing for food and water, which some see as too basic to human existence to be considered medical treatment, isn’t as clear. In New York, state law requires an extra level of evidence that the patient didn’t want a feeding tube for it to be denied. An advance directive would accomplish that, and so would a health-care proxy with knowledge of the patient’s wishes. But I digress. Larger Issue The conflict between patient and medical personnel speaks to a larger health-care issue that reaches beyond Catholic institutions. The notion is growing that the institutional or individual conscience of a health professional trumps a patient’s wishes when they conflict, or at least makes them more difficult to carry out. Health professionals have been winning ever-stronger language in state and federal laws that forbid discrimination against them if their moral or religious beliefs prevent them from assisting or performing abortion or prescribing birth control. You will find some version of it in health-care bills Congress is considering. And while in most cases of conflict arrangements are made to transfer patients to health-care providers and professionals who will comply with their wishes, that isn’t always possible. Critical Decisions This tugs at a sacred tenet of American health care: that an informed and competent patient should be allowed to make critical decisions over his own body, even in advance. Increasingly, the patient’s moral and religious convictions are taking a back seat to the beliefs of people charged with caring for their health. So it was with the Bishops Conference, which ditched its more ambiguous stance to adopt principles taught by Pope John Paul II . Catholic hospitals can still follow patient directives that refuse other sorts of medical treatments. The more difficult question was whether food and water are medical treatments and therefore morally optional. And what if the patient could exist for years in a vegetative state? Or was it something so essential to a person’s humanity that it must be given to affirm the value of human life, indefinitely? Would it be euthanasia to refrain from tubing? It would, the bishops announced. “We believe we are upholding the dignity and value of every human life,” Weinandy said in a telephone interview. And yet, there are others who believe their dignity requires health-care providers to abide by their wishes to keep feeding tubes out of their bodies if they have no hope of ever resuming consciousness. At a time when the country is in desperate need to reduce health-care costs, surely we could start by agreeing that it’s a good idea for patients not to be given treatment they have specifically refused. ( Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net

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3Com Options Trades Before Hewlett Bid Are Said to Be Investigated by SEC

November 16, 2009

By David Scheer and Jeff Kearns Nov. 16 (Bloomberg) — Bullish bets on 3Com Corp. options four hours before Hewlett-Packard Co.’s bid for the maker of computer-networking equipment are being investigated by regulators, according to a person familiar with the matter. 3Com call trading jumped to a 26-month high on Nov. 11, when Hewlett’s $2.7 billion takeover was disclosed after exchanges closed for the day. The Securities and Exchange Commission is examining whether someone used advance knowledge of Hewlett’s offer to illegally profit from the surge in 3Com’s stock when the deal was announced, according to the person, who declined to be identified because the inquiry isn’t public. “It screams insider trading to the SEC,” said Peter Henning , a law professor at Wayne State University in Detroit and former SEC attorney. Call options that convey the right to acquire stock for a given price by a certain date usually offer higher returns to traders speculating on takeovers. The U.S. Securities and Exchange Commission polices the options market to ensure investors aren’t engaging in insider trading. John Nester , an SEC spokesman, declined to comment. More than 8,000 3Com calls changed hands on Nov. 11, 17 times the four-week average . The most active were contracts conveying the right to purchase shares for $5 through Nov. 20, followed by December $5 calls. 3Com , based in Marlborough, Massachusetts, rose 5.2 percent, the most since Sept. 28, to $5.69 in Nasdaq Stock Market composite trading prior to the announcement. $5 Calls Almost 4,000 of the November $5 calls and 3,300 December $5 calls traded, with almost all of the transactions occurring at noon. That compares with a total of six puts giving the right to sell 3Com shares. Palo Alto, California-based Hewlett-Packard, the world’s largest personal-computer maker, agreed to pay $7.90 a share in cash for 3Com, a 39 percent premium to the closing price on Nov. 11. The stock closed at $7.51 on Nov. 13. “It looks like very unusual call buying,” Stefen Choy , founder of Livevol Inc., a San Francisco-based provider of options market data and analytics, said on Nov. 11. “I see this very frequently when there’s a takeover.” The SEC sued an employee at former presidential candidate H. Ross Perot’s investment adviser in September for buying options with advance knowledge of Dell Inc.’s $3.9 billion bid for Perot Systems Corp. In the Perot case, the SEC filed a lawsuit against Reza Saleh two days after Dell’s acquisition was announced. He allegedly reaped an $8.6 million profit buying call options less than three weeks before Dell’s biggest-ever deal, according to the regulator. Saleh worked at Parkcentral Capital Management LP and Perot Investments, which have affiliations and share space with Perot Systems, giving him access to information about the company, the SEC said. There was no response to messages left at a phone number listed on Internet directories for Saleh in Richardson, Texas, which the SEC identified as his hometown. His lawyers, Terence J. Hart and Patrick K. Craine at Bracewell & Giuliani LLP in Dallas, didn’t immediately return messages seeking comment. To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net ; Jeff Kearns in New York at jkearns3@bloomberg.net .

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The Rise Of Fed-Up Judges

September 4, 2009

Several reports over the last few days have featured judges who have gotten fed up with the shoddy paperwork turned in by banks that are trying to take back properties from hard-luck homeowners. The judges are fighting back. In Brooklyn, Judge Arthur Schack is making a name for himself battling bankers who haven’t done due diligence in their foreclosure paperwork. The New York Times reported that he’s tossed out 46 of 102 foreclosure filings that have crossed his desk in the last two years. “I’m a little guy in Brooklyn who doesn’t belong to their country clubs, what can I tell you?” Schack said. “I won’t accept their comedy of errors.” In Florida, a judge annoyed that bank lawyers had been skipping hearings reportedly told Deutsche Bank National Trust attorney Farzad Milani “that he would not do his work while [Milani] sits in his office in Fort Lauderdale smoking his Cohiba cigars and drinking his lattes,” according to the Daytona Beach News-Journal . The judge, John Doyle, ultimately removed himself from the case over complaints about his comments. And in Phoenix, Ariz., the New York Times reports that Judge Randolph Haines of the United States Bankruptcy Court allowed a homeowner to summon a senior Wells Fargo executive to cross-examine him about missing paperwork in her application for a loan modification. “The kind of story I hear from this debtor is one that I and other bankruptcy judges around the country are hearing over and over and over again,” Haines told the Times, referring to a woman who’d failed to get Wells Fargo to deal with her application, “Bankruptcy judges are more frequently expressing this frustration about lack of responsible record keeping by the financial services industry,” said Robert Lawless, a law professor at the University of Illinois, in an interview with the Huffington Post. Lawless blogged about a case in Ohio and pointed to another in Pennsylvania in which judges smacked banks’ lawyers for inadequate paperwork. In the Ohio case, Countrywide Home Loans (now part of Bank of America) was sanctioned by Judge Marilyn Shea-Stonum, who pointed out that “the problems created by the mortgage servicing industry have been pervasive in many of the cases on this Court’s docket.” But how much is this really happening? HuffPost readers: Know about a fed-up judge? Please tell us about it. Email arthur@huffingtonpost.com . Julian Hattem contributed to this report.

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The Rise Of Fed-Up Judges

September 4, 2009

Several reports over the last few days have featured judges who have gotten fed up with the shoddy paperwork turned in by banks that are trying to take back properties from hard-luck homeowners. The judges are fighting back. In Brooklyn, Judge Arthur Schack is making a name for himself battling bankers who haven’t done due diligence in their foreclosure paperwork. The New York Times reported that he’s tossed out 46 of 102 foreclosure filings that have crossed his desk in the last two years. “I’m a little guy in Brooklyn who doesn’t belong to their country clubs, what can I tell you?” Schack said. “I won’t accept their comedy of errors.” In Florida, a judge annoyed that bank lawyers had been skipping hearings reportedly told Deutsche Bank National Trust attorney Farzad Milani “that he would not do his work while [Milani] sits in his office in Fort Lauderdale smoking his Cohiba cigars and drinking his lattes,” according to the Daytona Beach News-Journal . The judge, John Doyle, ultimately removed himself from the case over complaints about his comments. And in Phoenix, Ariz., the New York Times reports that Judge Randolph Haines of the United States Bankruptcy Court allowed a homeowner to summon a senior Wells Fargo executive to cross-examine him about missing paperwork in her application for a loan modification. “The kind of story I hear from this debtor is one that I and other bankruptcy judges around the country are hearing over and over and over again,” Haines told the Times, referring to a woman who’d failed to get Wells Fargo to deal with her application, “Bankruptcy judges are more frequently expressing this frustration about lack of responsible record keeping by the financial services industry,” said Robert Lawless, a law professor at the University of Illinois, in an interview with the Huffington Post. Lawless blogged about a case in Ohio and pointed to another in Pennsylvania in which judges smacked banks’ lawyers for inadequate paperwork. In the Ohio case, Countrywide Home Loans (now part of Bank of America) was sanctioned by Judge Marilyn Shea-Stonum, who pointed out that “the problems created by the mortgage servicing industry have been pervasive in many of the cases on this Court’s docket.” But how much is this really happening? HuffPost readers: Know about a fed-up judge? Please tell us about it. Email arthur@huffingtonpost.com . Julian Hattem contributed to this report.

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TARP Oversight Panel Says Smaller U.S. Banks May Need to Replenish Capital

August 11, 2009

By Rebecca Christie Aug. 11 (Bloomberg) — Smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said today in a monthly report. The panel, which reports to lawmakers and was created to monitor the $700 billion Troubled Asset Relief Program, said the biggest U.S. banks appear prepared to handle more loan losses, particularly the 19 banks that regulators put through stress tests earlier this year. Banks with assets of $600 million to $1 billion may face bigger challenges, the panel said. Banks of that size “will need to raise significantly more capital, as the estimated losses will outstrip the projected revenue and reserves,” the report said, citing its own loan analysis. The panel is led by Elizabeth Warren , a law professor at Harvard University. The report said the Treasury and other regulators should do more to help smaller banks deal with whole loans on their books. The Treasury and the Federal Deposit Insurance Corp. program have shelved the Legacy Loans Program, intended to use a combination of public and private funds to buy loans from banks. “Failure to start the Legacy Loan Program raises concerns about Treasury’s strategy,” the panel’s report said. Representative Jeb Hensarling , a Texas Republican who also is a member of the panel, dissented from the report’s findings. He said the loss estimates may not be accurate and shouldn’t be used to justify another round of government assistance. Toxic Assets “It is possible that the toxic-asset market is already beginning to heal itself and the intervention proposed by the panel could be inappropriate — if not counterproductive,” Hensarling said. “I am not necessarily discouraged by the results for the smaller banks since it is entirely possible that the input assumptions used by the panel were excessively pessimistic.” Treasury Secretary Timothy Geithner pledged that the department remains a “hands-off” investor in banks and auto companies, according to a letter released as part of today’s report. “With respect to Treasury’s relationship with financial institutions in which it holds a financial interest, Treasury is a reluctant shareholder,” Geithner said in a July 21 letter. “The government will not interfere with or exert control over day-to-day company operations and, in the event the government obtains ownership interests, it will only vote on core government issues.” The Treasury also told the panel it had no plans to extend a guarantee program for money market mutual funds that is scheduled to expire on Sept. 18. “The guarantee agreements do not provide for further extension of the guarantees,” the Treasury said in its comments. To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net ;

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