Prepared by:
Richard K. Traub
Traub Lieberman Straus & Shrewsberry LLP
What is the Government Doing
 Regulatory Reform Bill
 Too Big Too Fail – No More
 Advance Warning System
 Transparency and Accountability for Exotic Instruments
 Executive Compensation and Corporate Governance
 Enforce Regulation Already on the Books
 New Consumer Financial Protection Watchdog
Modernization of Regulation
 Current U.S. System – same since 1850’s
 Regulated by the States (51 jurisdictions)
 IAIS (International Association of Insurance
Supervisors):
 Financial and Solvency
 Corporate Governance
 Market Conduct
 No National Level Regulator – How can we be deemed
“equivalent” to Solvency.
 Most Regulated Industry – but Ineffective.
U.S. TORT SCHEME:
Were There is Blame, There Will be a Claim
 Where are the Potential Claims?
Fiduciary Liability
 ERISA (Employee Retirement Income Security Act)
 Claims against administrators of pension and other
benefit plans.
 Bad investments including investments with Madoff.
 Intentionally misleading investors
Directors and Officers
 Securities Suits
 Securities Fraud
 Goldman Sachs
 Shareholder Suits
 Corporate Bankruptcies
 Failed Banks
Errors and Omissions
 Claims Against Ratings Agencies
 Moodys
 Standard & Poor’s
 Fitch
 Based on alleged inflated bond rating given to
mortgage back securities.
Sub-Prime Mortgage Claims
Sub-Prime Mortgage Facts
Type of Lawsuits
 Homeowners vs. Lenders
 Mortgage Lenders vs. Wall Street Bankers
 Wall Street Bankers vs. Loan Specialists
 Investors vs. Everyone
Issues
 Whether lenders and investment banks alerted
borrowers to the risks imposed by subprime loans or
the securities backed by them, and
 How much were they legally obliged to disclose?
Litigation
 Primarily focused on loan origination – BUT
 The number of cases has quadrupled this year.
 43% - class actions
 22% - securities cases
 22% - Commercial contract disputes
 23% - bankruptcy, employment,
professional
Anticipated Suits v. Every Participant in the
Process
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Mortgage Bankers and Loan Correspondents
Mortgage Brokers
Lenders
Appraisers
Title Companies
Underwriting Firms
Bond Insurers
Money Managers
Public Accounting Firms
D & O’s
Lawyers
Real Estate Brokers - Fiduciary
E & O Insurance
 Claims v. Hedge Funds
 Failure to disclose investment fund’s risk and exposure
to toxic assets.
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Bear Stearn’s
Citigroup
UBS v. Global, Inc.
CGL Coverage
 Housing Discrimination Claims
 Targeting minorities with predatory lending practices.
 Foreclosure Nuisance Claims
 Cleveland v. mortgage lenders claiming that foreclosure
practices have led a public nuisance (blighted
neighborhoods).
Employer Liability Coverage
 Claims by Laid off Employees
 Discrimination complaints
Key Threats to Insurers
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Soft Market and Recession
Price Erosion
Overreaching Regulation
Shortage of Capital
Exploitation of Insurance as a Wealth Distribution
Mechanism
 Nationalization of Insurance System
 CAT risks
 TARP money
 Emerging Tort Threat and Reversal of Tort Reform