Last December the FDIC put out for comment a proposal for a Single-Point-of-Entry (SPOE) Strategy to implement its Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. Single-Point-of-Entry has gotten a lot of policy traction. The Treasury Secretary supports it and there’s huge buy-in from Wall Street.  And it’s an approach that is likely to ensure financial stability in the event that a systemically important financial institution gets into trouble.  There’s just one problem with it.  SPOE means “No Bank Left Behind”.  

Credit Slips
(posted 21 hours 19 min ago)

In the recent decision of In re Genco Shipping & Trading Ltd., the United States Bankruptcy Court for the Southern District of New York approved certain non-consensual third-party releases granted by unimpaired creditors and equity holders, to the extent that they complied with the US Court of Appeals for the Second Circuit’s standard for approval of these releases.
Background and Analysis
The prepackaged plan presented by Genco included:

  • Releases granted by the Debtors and exculpation for released parties.
  • An injunction provision to implement the releases, exculpation and discharge provided under the plan.
  • Releases granted by non-debtor third parties (Third-party Releases).

The US Trustee and the Equity Committee objected to the Third-party Releases on various grounds.  The Court held that the Third-party Releases were permissible if they satisfied the standard set out by the Second Circuit in Deutsche Bank AG v. Metromedia Fiber Network, Inc. The Metromedia standard considers whether:

(posted 21 hours 43 min ago)

In the recent Third Circuit decision of In re Lower Bucks Hospital, No. 13-1311 (3d Cir. July 3, 2014), the Third Circuit upheld the ruling of the Bankruptcy Court for the Eastern District of Pennsylvania that non-consensual releases were not part of the debtor’s plan of reorganization due to failure to adequately disclose the same to the Court.  In the bankruptcy case, bondholders objected to the release in favor of The Bank of New York Mellon Trust Company, N.A., in its capacity as indenture trustee, on the basis that adequate notification was not provided.
Only a single paragraph in the disclosure statement referenced the third-party release, with no use of distinguishing font, and the debtor’s plan was even less direct.
The third-party release was deemed by the Court to be an injunction that must be described in “specific and conspicuous language” in both the plan and disclosure statement pursuant to Fed. R. Bankr. P. 3016(c).  This would allow a hypothetical investor to be able to make an informed judgment about the plan.  See 11 U.S.C. § 1125(a)(1).  The Third Circuit agreed with the Bankruptcy Court that the pleadings failed on both “presentation and placement.”  Accordingly, a finding of inadequate disclosure and the resulting denial of the third-party release was warranted.

(posted 22 hours 20 min ago)

Posted by Kathy Bazoian Phelps
    Below is a summary of the activity reported for August 2014. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 138 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 newly discovered schemes; and an average age of approximately 55 for the alleged Ponzi schemers in the stories reported. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.
    Gabriel Bitran, 69, and his son Marco Bitran, 39, have agreed to plead guilty to running a hedge fund scam that lost more than $140 million. They ran their Ponzi scheme through GMB Management and GMB Capital Partners, promising returns of 16% to 23%.

The Ponzi Blog
(posted 1 day 3 hours ago)

There are more bankruptcy decisions that come out of the Fifth Circuit each month than I could ever write about.   I am going to try to provide at least a brief blurb for each one.  Here are five cases from the Fifth Circuit that came out during August.   They deal with discharge, dischargeability, jurisdiction and Stern issues, lien claims and preferences.
Graham Mortgage Company v. Goff (In re Goff),No. 13-41148 (5th Cir. 8/22/14)(unpublished).   Fifth Circuit affirmed denial of discharge for failure to keep records under § 727(a)(3).  Opinion here.
Galaz v. Galaz (In re Galaz), No. 13-50781 (5th Cir. 8/25/14).   Court found no jurisdiction over claims brought by non-debtor against non-debtor.   Debtor's fraudulent transfer claims against non-debtor were non-core claims for which Bankruptcy Court could not enter final judgment but could submit proposed findings and conclusions here.   Opinion here.

(posted 2 days 43 min ago)

Many cases deal with debtors who fraudulently convey away their assets before filing bankruptcy.   But what about the situation where the debtor is the victim of a fraudulent conveyance rather than the perpetrator?    In Galaz v. Galaz (In re Galaz), No. 13-50781 (5th Cir. 8/25/14), which can be found here, the Fifth Circuit answers important jurisdictional and Stern questions about the debtor's quest to recover wayward assets.   
What Happened
Lisa and Raul Galaz were once married to each other.   One of their assets was an interest held by Raul in Artist Rights Foundation, LLC ("ARF"), a company which owned the rights to the Ohio Players music catalog.    The other owner of ARF was Julian Jackson.   When Lisa and Raul were divorced in 2002, Raul assigned Lisa 50% of his 50% interest in ARF.   Because the transfer was made without Julian's consent, Lisa received a 25% economic interest in the company but was not a member.    While it is not really relevant to the opinion, another significant occurrence in 2002 was that Raul pled guilty to mail fraud and surrendered his California law license.    

(posted 2 days 1 hour ago)

In a prior post, we discussed that a number of preference actions were filed in the MCG Limited Partnership, et al. bankruptcy proceeding by the Chapter 7 Trustee.  Since this post, an additional 93 preference complaints were filed, bringing the total to 131.
Click here for an example of a preference complaint filed in these cases.
For defendants to preference actions looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses
Minimizing Preference Exposure: Require Prepayment for Goods or Services

(posted 2 days 3 hours ago)

Money down the drainNo – not again!!  You thought the foreclosure crises was behind us.  Right?  It turns out that many of the government programs intended to modify home loans have only delayed the inevitable because some of the programs as set to expire in 2015.   One of these programs, Home Affordable Modification Program (HAMP) was designed to provide homeowners with temporary interest rate relief.  That relief expires after five years at which time the interest begins to creep up.  When the program was designed the assumption was our economy would be back to “normal” by 2015.  Oops!!
Couple the expiration of the government programs with fact that many home equity lines of credit are scheduled to increase interest payments to the next level in 2015.   TransUnion, the credit rating firm, estimates that between $50 and $79 billion in home-equity lines of credit may default because of the increased payments.

(posted 2 days 20 hours ago)

student loan
The Bankruptcy Code makes it illegal for government agencies to refuse student loans to those who have filed bankruptcy. 11 USC 525(c).
So if you have filed bankruptcy, you are still eligible to receive student loans that are backed by the government (Title IV loans) such as the Stafford Loan.
If you get a student loan from a private lender, that’s a different matter entirely. The Bankruptcy Code prohibits discrimination only from government agencies, not private lenders.
Private lenders, such as banks, are under NO obligation to give you a student loan if you have filed bankruptcy or have other credit problems.
This doesn’t mean that you won’t be able to obtain a student loan from a private lender or bank if you have filed bankruptcy. It just means that private lenders are allowed to consider your credit history including bankruptcy filings in evaluating your student loan application.

(posted 3 days 1 hour ago)