Key Industry

Financial Services

Case Studies

Settlement for Financial Guarantee Company in RMBS Suit

In March 2014, Patterson Belknap secured a settlement on behalf of its client, a leading financial guarantee insurance holding company, in a lawsuit against a mortgage corporation subsidiary of a major multinational bank over misrepresentation of the risks of the bank’s residential mortgage-backed securities (RMBS) and the quality of the underlying loans. The $400 million settlement covered several cases that the firm’s client brought against the bank to recover losses on securities created and sold by a defunct global investment bank and securities trading and brokerage firm, as well as by the bank’s mortgage affiliate.

Particularly, in connection with two litigations relating to an RMBS transaction, the firm secured significant victories on several core legal issues, leading to the landmark settlement of both litigations.

First, the firm represented the financial guarantee company in a breach-of-contract action against the mortgage subsidiary, alleging breaches of numerous contractual warranties relating to the characteristics of the underlying loan pool, as well as due diligence and securitization practices, thereby causing the firm’s client to issue a financial guarantee policy on a collateral pool that was far riskier than warranted.

Second, the firm also represented its client in a common-law fraud action brought against the defunct global investment bank, alleging that it knowingly encouraged the securitization of a mortgage-loan pool infiltrated by fraud and poor underwriting, and made numerous material misrepresentations regarding the loan pool in order to induce the firm’s client to issue its financial guarantee policy.


Cross-Border IPO for China-Based Company

In 2014, Patterson Belknap acted as depositary counsel for a multinational financial institution in facilitating the largest cross-border IPO for a China-based limited holding company. The firm’s client acted, among others, as depositary bank for the NYSE-listed American Depositary Shares. In this transaction, in excess of $24.0 billion was raised including the sale of equity interests by existing shareholders. Subsequent to the closing of the IPO, Patterson Belknap has been instrumental in structuring cross-border transactions for holding company’s affiliates, including multi-jurisdictional equity based financing for these affiliates.

Global Depositary Notes (GDNs) Counsel

Patterson Belknap has acted as counsel for a GDN depositary in developing sovereign debt-based GDN programs from 16 countries. In addition to performing the legal due diligence for each of the jurisdictions, the firm has assisted in structuring the GDN programs to address legal and practical issues raised by the legal and infrastructural requirements of each of these jurisdictions and in preparing the applicable transaction documentation.

Dismissal of Antitrust Case in Municipal Bond Industry

In March 2013, a California state court dismissed a sprawling antitrust case that had been pending for over four years against five financial guaranty insurance companies and three credit ratings agencies. Our client was alleged to have entered into a conspiracy with the three rating agencies to manipulate municipal bond ratings to the detriment of the plaintiffs—over twenty California municipalities, counties and other governmental bodies. After hearing a full day of arguments, the judge ruled from the bench under the California Anti-SLAPP statute that the action implicated rights of free speech, but was brought without sufficient evidence. Then, in March of 2014, the court awarded attorneys’ fees of over $800,000 to the defendants, reputed to be the largest fee award ever granted under the California statute.

Firm attorneys Robert P. LoBue and Jonathan H. Hatch led the briefing and argument for the insurer defendants

Second Circuit Victory in Complex Financial Case

In 2013, the firm obtained a complete victory for an instrumentality of the Federal Reserve Bank of New York created in connection with the 2008 rescue of American International Group, in the U.S. Court of Appeals for the Second Circuit. The firm had prevailed in the District Court on summary judgment before Judge Jed Rakoff, and an appeal was taken by some of the parties. The case involved the interpretation of two CDO indentures, which were the subject of interpleader actions brought by the successor indenture trustee. The trustee sought a determination as to the proper allocation of funds to Class A-1 and Class A-2 noteholders. The indentures contained apparent inconsistencies and gaps in their waterfall provisions, which created uncertainty for the trustee in making its distributions.

The firm successfully argued to Judge Rakoff, and on appeal to Judges Pooler, Parker and Livingston, that (i) the apparent inconsistency should be resolved for the benefit of the Class A-1 noteholders as a result of a "notwithstanding" clause found in the waterfall (citing Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905 (2d Cir. 2010)), and (ii) a gap in the indenture provisions should be filled by the Court for the benefit of the Class A-1 holders as a matter of law and without discovery, based upon the clear intent found in the document to subordinate the more junior noteholders' interests (relying in substantial part upon the Restatement (Second) of Contracts).