Litigation Arising from SubprimeCredit Crisis

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Litigation Arising from Subprime/Credit Crisis

• Stefan Dandelles
• Wilson Elser
• Chicago

Wilson Elser Moskowitz Edelman Dicker LLP
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The Sharks are Circling
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• Theres clearly going to be an erosion in the
  presumption that these senior-ranking executives
  should be given the benefit of the doubt, said a
  partner at Bernstein Litowitz Berger Grossmann,
  adding that as a result of regulators
  investigations and angry former employees, there
  is also more information available to plaintiffs
  about questionable conduct. Theres clearly
  going to be an effect there judges are human.

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• Stanford Law Professor and former SEC
  commissioner Joseph Grundfest
• "You cant get blood from a stone. But you sure
  can get money from the insurance company that
  covered the stone."

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High Water Mark

• Savings and Loan Crisis
• 559 federal lawsuits
• Subprime Meltdown
• 607 federal lawsuits through June 30, 2008
• 310 filed in first half of 2008 compared to 297
  in full year of 2007
• More than three new cases filed in second quarter
  of 2008 for every one disposition
• WATER STILL RISING!!!

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Riding the WAVE

• Total Number of Subprime Securities Lawsuits
  127
• Subprime Securities Suits Filed in 2008 87

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Theories of Liability

• False financial statements
• Misleading disclosures re loan practices
• Undisclosed risk re subprime market
• Undisclosed exposure to subprime risks
• Undisclosed sell-off of subprime securities
• Breach of directors duty of oversight

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Defenses

• Lack of Scienter swift deterioration in global
  marketplace
• Truth on the Market whatever risks were out
  there were disclosed and/or known to the market
• Loss Causation downward trend in market will
  make it difficult for Ps to prove

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TYPES OF CASES
Provided by NAVIGANT Consulting.
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Subprime Securities Lawsuits
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LOCATION
Provided by NAVIGANT Consulting.
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Case Dispositions

• WSB Financial Group (Bremerton, WA)
• First Subprime Securities Class Action Settlement
  (4.85 million)
• 7 securities class action dismissals granted (one
  with prejudice)
• 2 dismissals denied
• 3 voluntary dismissals

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A New Wave of Litigation

• Beyond the financial sector
• Companies targeted may not have been directly
  involved in any of the events leading to the
  subprime meltdown and credit crisis, but have
  exposure to companies with exposure to such
  risks.
• Companies/banks that hold stock or debt
  instruments (corporate bonds) in companies like
  Fannie Mae, Freddie Mac, Lehman, AIG, and of
  course others.
• Primary Fund sued in securities class action
  lawsuit when its net asset value fell below one
  dollar, due in part to its holding of 785
  million of largely worthless debt securities from
  Lehman Brothers
• Constellation Energy sued for securities fraud
  for allegedly failing to properly disclose its
  exposure to Lehman, impacting its ability to
  engage in energy-related trades.

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Whats next?

• Consumer credit card debt in the U.S. is 800
  billion. This debt is also bundled and
  securitized and may be the next (or continuation
  of) economic meltdown, leading to more
  litigation.
• Student loans are an 85 billion per year
  industry also subject to securitization and
  potentially problematic
• Car loans average driver has nearly 13,000 in
  auto loan debt repo men are busy.
• Dead bank litigation already starting
  Integrity Bank, IndyMac, NetBank, among others

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• Unfortunately, it looks like the untangling of
  this financial crisis will take years, and the
  litigation fallout will be (and already is)
  extensive and costly.
• THANK YOU!!!

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