7 posts from November 2018

Holiday Reading Recommendation and a Research Question on the 1MDB Case

posted by Mitu Gulati

The 1MDB case has been on the front pages of the financial papers on a number of occasions recently. The reason: The US justice system is investigating the scam and senior executives from everyone’s favorite ethical investment back, Goldman Sachs, including Lloyd Blankfein, have been caught up in it. And this leads me to my recommendation for holiday reading, if you like reading financial fraud books. The book is The Billion Dollar Whale, by Bradley Hope and Tom Wright of the WSJ. At first, I thought that the book was about the London Whale, but it turns out to be about the rise and fall of a Wharton educated Malaysian named Jho Low – a fascinating character who appears to have engineered one of the biggest financial frauds of the century, while also throwing the most ostentatious parties ever. If you want more background, there is a fun discussion of the book on my favorite financial podcast, Slate Money (Emily Peck, Anna Szymanski and Felix Salmon are a brilliant, and often hilarious, combination). Indeed, I picked up the book after listening to their podcast on it.  There is also a short, but on the money, review in the New Yorker by Sheelah Kolhatkar. Among the many colorful characters involved in the version of the story told in The Billion Dollar Whale are Gary Cohn (of Goldman and the Trump’s economic advisory team), Leo DiCaprio, and the Wolf of Wall Street (both the movie and the main character, Jordan Belfort).

Continue reading "Holiday Reading Recommendation and a Research Question on the 1MDB Case" »

Boulder Summer Conference on Consumer Financial Decision Making

posted by Bob Lawless

One of my favorite conferences is the Conference on Consumer Financial Decision Making held every summer in Boulder, Colorado, and I am not the only one who feels that way. Next year's conference will occur from May 19-21, 2019. Professor John Lynch from the University of Colorado wrote me two weeks ago to remind everyone that the submission deadline is December 7. My other commitments have been keeping me busy so blame me for posting here so close to the deadline -- did I mention that John wrote me two weeks ago?

The conference is very interdisciplinary. The call for submissions says, "a very high level of opportunity for conversation and interaction around the ideas presented." They are not kidding. If you are a Credit Slips reader, the sessions will be of interest to you. The conference presentations are great. The poster session is fascinating. Whether you are a presenter or not, you will learn a lot. When I have presented, the comments I have received are some of the best feedback I get on a project. The proceedings are at the posh St. Julien Hotel. And, when conference sessions are not occuring, you are in Boulder, Colorado, in May.

To submit, you need to send in an extended abstract of no more than one page in length. Rather than post further details here, I will just link you to the instructions on the web page where you can submit an abstract. More information about the 2019 conference is available on the main conference web page.

American Bar Association: exempt lawyers from FDCPA

posted by Alan White

The American Bar Association, at the urging of its debt collection lawyer members, is supporting HR 5082, which would partly exempt lawyers from the Fair Debt Collection Practices Act. Misrepresenting the bill as a technical clarification, the ABA is throwing its support, despite the consumer bar's opposition, behind legislation that would insulate collection lawyers from federal civil liability for venue abuse, sewer service, suits to collect time-barred or bankrupted debts, and garnishment of exempt wages and savings. Under an Administration undermining consumer protection and the rule of law at every turn, the ABA could deploy its lobbying clout in service of far more worthy causes.

 

Update on Catholic Dioceses's Chapter 11 Filings, Fall 2018 Edition

posted by Pamela Foohey

A few weeks ago, Marie Reilly (Penn State Law, University Park) posted to SSRN a new paper, Catholic Dioceses in Bankruptcy, which details the outcomes of the eighteen chapter 11 cases filed by Catholic dioceses and religious institutes since 2004. The paper discusses some of the issues that I have blogged about individually over the past few years -- of note, RFRA and fraudulent conveyances, as well as the long-running Minneapolis and Saint Paul diocese case that ended in a settlement agreement which increased payout to sexual abuse claimants by $50 million from the debtor's original proposed plan. The paper also includes a succinct overview of how canon law, business organizational law, and property law interact in these cases. In short, if you are looking for a primer on broader issues that might emerge in future chapter 11 cases filed by dioceses, or simply interested in how a few area of law converge in these cases, this paper is worth a read.

The last chapter 11 filing that Reilly's paper discusses is that of Crosier Fathers and Brothers in Minnesota in June 2017. Since then, one more archdiocese filed chapter 11 -- San Juan at the end of August 2018. The Archdiocese of Agana (in Guam) also announced that it expects to file by January 2019. Like other dioceses, Agana's stated need to file stems from its struggles with more than 180 sexual abuse claims. But the Archdiocese of San Juan's case presents a couple unique issues.

Continue reading "Update on Catholic Dioceses's Chapter 11 Filings, Fall 2018 Edition" »

Congratulations to Former Slipster and (Congresswoman-Elect) Porter!

posted by Bob Lawless

The New York Times, the Associated Press, The Hill, and many other media outlets are reporting that former Credit Slips blogger Katie Porter has won her election for California's 45th Congressional District. Anyone who knows Katie's work knows that she will fight for middle-class households. As happy as I am for Katie and for the country, it is bittersweet to lose a great co-author and research collaborator.  

We also have been remiss in not congratulating another former blogger, Senator Elizabeth Warren, on her reelection. It is hard to believe that this modest little blog now has two former bloggers in Congress.

Lead into Gold? Sears' Possible Post-Petition Sale of Intracompany Debt

posted by Adam Levitin

Sears is supposedly considering trying to raise liquidity through the post-petition sale of intracompany debt. The details of the debt and the proposed transaction aren't clear, but as a general matter, the post-petition sale of intracompany debt (or Treasury stock) seems problematic to me as with any lead into gold transaction.  Here's the issue:  if the debt is sold, is it still intracompany debt or does it become general unsecured debt? 

The viability of Sears' strategy depends on the answer to this question.  If it is still intracompany debt post-sale, it's not going to sell for very much; if it is general unsecured debt, it's much more valuable.  (This is putting aside the weird arbitrage with the CDS settlement auction market that gets warped by the CDS volume exceeding the reference debt volume.) 

In most bankruptcies, intracompany obligations between affiliated debtors are either subordinated or cancelled outright.  Nothing in the Bankruptcy Code compels this, but it's pretty standard. It tends to follow from a separate classification of intracompany obligations (again, not compelled by the Code) and from the difficulty in determining net intracompany obligations--deemed consolidation for voting and distribution is standard operating procedure in large bankruptcies. If the leaden intracompany claims can be transformed into golden general unsecured claims, it's a huge siphoning of value away from other general unsecured creditors.  General unsecured creditors are paid pro rata on their claims, so an increase in the size of the general unsecured claim pool dilutes recoveries on the debt.  

So would a sale of intracompany obligations transform them into arms' length obligations?

Continue reading "Lead into Gold? Sears' Possible Post-Petition Sale of Intracompany Debt" »

Matthew Whitaker as a Mini-Trump?

posted by Adam Levitin

It seems no surprise that President Trump has named Matthew Whitaker as Acting Attorney General:  it turns out that he's a Mini-Trump.  There are two rather remarkable parallels to Trump in Whitaker's history.  First, his involvement with the  operation known as World Patent Marketing closely parallels Donald Trump's involvement with the fraud known as Trump University. And second, both have used charities as their own personal piggybanks. Classy.  

Continue reading "Matthew Whitaker as a Mini-Trump?" »

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