The Big Picture |
- WHISTLEBLOWER CHANTELLE NICKSON-CLARK OUTLINES ALLEGATIONS OF FRAUD
- In Search of Yield & Dividends
- Colbert: How to Deal with Internet Protests
- Staring into the Abyss
- What do the markets have to do with the election? Not much.
- How to Forecast Weather
- Technical Examination SOPA & PIPA
| WHISTLEBLOWER CHANTELLE NICKSON-CLARK OUTLINES ALLEGATIONS OF FRAUD Posted: 22 Jan 2012 01:00 AM PST *WHISTLEBLOWER CHANTELLE NICKSON-CLARK OUTLINES ALLEGATIONS OF FRAUD AT EMC (JPM) – the “vast majority of the time the loans that were rejected [byWatterson] were still put in the pool and sold.” AMBAC vs EMC Whistleblower~1.pdf (222 KB)[Open as Web Page] "With detailed citations to the admissions and testimony of former employees of defendants and Watterson, Syncora and Ambac alleged that defendants' pre-closing representations regarding the quality and scope of the due diligence review were knowingly false and misleading…Defendants knew, but failed to disclose, that their due diligence providers (e.g., Watterson) were not conducting an adequate review of the loans. Id… Of particular significance here, the pleadings referenced the testimony of another former Watterson contractor who reviewed loans for defendants, and who was deposed in the Syncora matter on August 25, 2010. This contractor testified that Watterson's review was nothing more than a rubber stamp approval to satisfy defendants' objective of purchasing a large volume of loans for securitization. As the former contractor stated, the "vast majority of the time the loans that were rejected [byWatterson] were still put in the pool and sold." See Ambac First Amended Complaint ¶ 127. That testimony mirrored representations made in the press and before the Financial Crisis Inquiry Commission, which the record shows defendants were well aware of when made.1 Defendants also know – from communications with Watterson's counsel concerning an analogous application made before Justice Bransten2 – that in the last three weeks an additional two Watterson contractors have been deposed concerning these same issues…Like the other witnesses, the deponent is a whistleblower who will testify concerning the actual re-underwriting practices undertaken on behalf of the defendants, which were in stark contrast to the practices defendants represented to Syncora and Ambac (and investors). The deponent came forward and met with counsel for Syncora and Ambac in connection with the pending actions to set the record straight. As appropriate and common in preparing for trial,3 counsel for Syncora and Ambac secured an affidavit from the deponent" 5117248v.3 The Honorable Paul A. Crotty The Honorable Charles E. Ramos Re: Syncora Guarantee Inc. v. EMC Mortgage Corp., No. 09-CV-3106 Ambac Assurance Corp. v. EMC Mortgage Corp., Index No. Dear Judge Crotty and Justice Ramos: We represent Syncora Guarantee Inc. ("Syncora") and Ambac Assurance Corporation ("Ambac") (together, "Plaintiffs") in the above-referenced actions. We write in response to defendants' letter dated January 18, 2012, seeking disclosure of an affidavit from a non-party witness who will be deposed in the Syncora and Ambac matters on January 20, 2012. The affidavit is protected from disclosure under the trial preparation and work product privileges, and the very cases defendants cite demonstrate they have not made the requisite showing to overcome such protections. The deponent is a former contractor of Watterson Prime, LLC ("Watterson"). Defendants represented to Ambac and Syncora (and investors) that defendants had retained Watterson to conduct a thorough "due diligence" re-underwriting of the loans defendants "securitized" in the transactions at issue in the Syncora and Ambac matters. With detailed citations to the admissions and testimony of former employees of defendants and Watterson, Syncora and Ambac alleged that defendants' pre-closing representations regarding the quality and scope of the due diligence review were knowingly false and misleading. See, e.g., Ambac First Amended Complaint ¶¶ 121-38; Syncora Complaint ¶¶ 8, 39-45. Defendants knew, but failed to disclose, that their due diligence providers (e.g., Watterson) were not conducting an adequate review of the loans. Id. Of particular significance here, the pleadings referenced the testimony of another former Watterson contractor who reviewed loans for defendants, and who was deposed in the Syncora matter on August 25, 2010. This contractor testified that Watterson's review was nothing more than a rubber stamp approval to satisfy defendants' objective of purchasing a large volume of loans for securitization. As the former contractor stated, the "vast majority of the time the loans that were rejected [byWatterson] were still put in the pool and sold." See Ambac First Amended Complaint ¶ 127. That testimony mirrored representations made in the press and before the Financial Crisis Inquiry Commission, which the record shows defendants were well aware of when made.1 Defendants also know – from communications with Watterson's counsel concerning an analogous application made before Justice Bransten2 – that in the last three weeks an additional two Watterson contractors have been deposed concerning these same issues. Thus, contrary to their claimed ignorance as to the subject of the scheduled deposition, defendants know full well the relevance and nature of the contemplated testimony. Like the other witnesses, the deponent is a whistleblower who will testify concerning the actual re-underwriting practices undertaken on behalf of the defendants, which were in stark contrast to the practices defendants represented to Syncora and Ambac (and investors). The deponent came forward and met with counsel for Syncora and Ambac in connection with the pending actions to set the record straight. As appropriate and common in preparing for trial,3 counsel for Syncora and Ambac secured an affidavit from the deponent. This statement is protected under the work product and trial preparation privileges recognized by state and federal law. Specifically, state and federal case law have repeatedly affirmed that witness statements prepared in anticipation of and in preparation for trial are protected from disclosure2under the New York Civil Practice Law and Rules ("CPLR") and the Federal Rules of Civil Procedure. See, e.g., People v. Kozlowski, 11 N.Y.3d 223, 245 (N.Y. 2008) (witness statements protected as trial preparation material); Valencia v. Obayashi Corp., 84 A.D.3d 786, 787 (N.Y. App. Div. 2d Dep't 2011) ("Witness statements taken by a party's counsel are subject to the qualified privilege for materials prepared in anticipation of litigation or for trial"); Warren v. New York City Transit Authority, 34 A.D.2d 749, 749 (N.Y. App. Div. 1st Dep't 1970) ("It is quite clear that statements taken from witnesses to prepare for litigation are attorney's work product and protected."); DeGourney v. Mulzac, 287 A.D.2d 680, 680 (N.Y. App. Div. 2d Dep't 2001) ("written statement by a nonparty eyewitness answering questions posed by the plaintiff's attorney . . . immune from disclosure pursuant to CPLR 3101(d)(2) since it constitutes material prepared for litigation"); Sullivan v. Smith, 198 A.D.2d 749 (N.Y. App. Div. 3d Dep't 1993) (written statements of witnesses given to insurance adjuster protected); In re James, Hoyer, Newcomer, Smiljanich and Yanchunis, 2010 N.Y. Slip. Op. 50863U, at *15 (N.Y. Sup. Ct. N.Y. County 2010) ("statements taken from witnesses if taken to prepare for litigation have been deemed attorney work product"); Lopez v. New York City Housing Auth., 2005 N.Y. Slip. Op. 50468U, at *11 (N.Y. Sup. Ct. Bronx County 2005) ("Statements taken from witnesses if taken to prepare for litigation have been deemed attorney work product."); Frawley v. Albrecht, 163 Misc. 2d 630, 634 (N.Y. Sup. Ct. Nassau County 1994) (written and recorded statements given by non-party witness protected); Securities and Exchange Commission v. Treadway, 229 F.R.D. 454, 455-46 (S.D.N.Y. 2005) (witness statement protected under Rule 26(b)(3)(A)); Costabile v. Westchester, 254 F.R.D. 160, 167 (S.D.N.Y. 2008) (same).4 Indeed, defendants' own citations affirm that the deponent's statement is protected from disclosure. Defendants cite first the Miller decision from the Northern District of New York for the proposition that a witness statement is discoverable "absent a claim that the information contained in the statement is privileged or subject to protection as trial preparation material." See Defendants' Letter at p. 2 (citing Miller v. Elexo Land Servs., Inc., No. 09-CV-0038 (GTS/DEP), 2011 WL 4499281, *15 (N.D.N.Y. Sept. 27, 2011)). As defendants concede, Syncora and Ambac have asserted such a claim. Defendants next cite the Sequa decision for the proposition that affidavits are discoverable "where [there was] no indication that affidavits were prepared with the intention that they remain confidential." Id. (citing Sequa Corp. v. Gelmin, No. 91-CV-8675 (CSH), 1993 WL 276081, *4 (S.D.N.Y. July 16, 1993)). As defendants also concede, Plaintiffs have consistently communicated the "intention that they remain confidential."5 5117248v.3 For good policy reasons, the protection afforded to deponent's statement by the trial preparation and work product privileges only may be pierced in very limited circumstances. Under CPLR 3101(d)(2), "materials . . . prepared in anticipation of litigation or for trial by . . . another party . . . may be obtained only upon showing that the party seeking discovery has substantial need of the materials in the preparation of the case and is unable without undue hardship to obtain substantial equivalent of the materials by other means." CPLR 3101(d)(2) (emphasis added). Rule 26(b)(3)(A) of the FRCP contains a similar provision. Defendants have not demonstrated, and cannot show, the "substantial need" or inability to obtain "without undue hardship" the "substantial equivalent" of the deponent's statement, as they must to overcome the privilege and protections afforded under state and federal law. Rather, the cases hold that an opportunity to depose a non-party witness is the substantial equivalent of a prior statement or affidavit by that witness. See, e.g., Frawley, 163 Misc. 2d at 634 (refusing to pierce the trial preparation privilege and order production of affidavit from non-party witness who was deposed; "[t]his court is not willing to chip away at the privilege in CPLR 3101(d) [and order production of affidavit] solely for the purposes of impeaching a nonparty witness"); Treadway, 229 F.R.D. at 457 ("Defendants are free to question each of the witnesses at their depositions, and at trial, concerning the witnesses' statements to the SEC at various proffer sessions. No case cited by Defendants concludes that parties cannot, by deposing witnesses, obtain 'the substantial equivalent' of earlier attorney interview notes of the same witnesses without 'undue hardship.'"); Costabile, 254 F.R.D. at 167 ("'Substantial need' cannot be shown where persons with equivalent information are available for interrogation and/or deposition."). Defendants cannot show a "substantial need" for the affidavit or any "undue hardship" in view of their opportunity to cross-examine the non-party witness tomorrow. Simply put, defendants' cries of "ambush litigation tactics" for Plaintiffs' appropriate retention of protected affidavits are unfounded. Defendants have long known from publicly available material and previous depositions of former Watterson contractors the nature of the contemplated testimony. Defendants have had ample time and opportunity to contact the witness and seek affidavits of their own. And defendants were provided with proper notice of, and will have full opportunity to cross-examine the witness at, tomorrow's deposition. Accordingly, Syncora and Ambac request that defendants' request be denied. Plaintiffs are prepared to submit the affidavit for an in camera review and are available for a telephone conference at the Courts' convenience if necessary. Respectfully submitted, Erik Haas expectation that they will be kept confidential, and Syncora and Ambac have not produced the affidavits, or drafts thereof, to the defendants. 5117248v.3 cc: Counsel for Defendants 1 See, e.g., Chris Arnold, [Watterson Prime] Auditor: Supervisors Covered Up Risky Loans, National Public Radio, May 27, 2008, available at http://www.npr.org/templates/story/story.php?storyId=90840958; The Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States 165-69 (2011), available at http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full. pdf; Amended Complaint ¶¶ 1, 5, 8, 164-95, Assured Guaranty Corp. v. EMC Mortgage LLC, No. 10-CV-5367 (NRB) (S.D.N.Y. Nov. 18, 2011). 2 Defendants concede that a due diligence firm made an application to Justice Bransten for the production of affidavits obtained by plaintiffs in MBIA Ins. Corp. v. Countrywide Home Loans, Inc., Index No. 08-602825 (N.Y. Sup. Ct.). But defendants fail to point out that, on January 17, 2012, the court denied the due diligence firm's request absent further briefing on the issue. Further, in light of a whistleblower's testimony that the due diligence firm was attempting to stifle truthful testimony by its former employees by invoking confidentiality agreements that the former employees may have signed (and other means), the court noted that it "is troubled by the allegations of impropriety in requesting or pressuring Clayton [the due diligence firm] witnesses not to speak to third parties [i.e., monoline insurers] regarding their employment at Clayton. The court has full confidence in the attorneys that come before it, and trusts that impropriety is not, and will not be, occurring." 3 Any insinuation by the defendants that it is improper to reach out to such employees is belied by their own actions. Defendants have retained a former employee of Ambac as an expert witness in these litigations and are asserting work product protection over their communications. 4 See also David D. Siegel, New York Practice § 348 (5th ed. 2011) ("[m]ost common example of an item sought by one side but claimed by the other to be litigation material is a statement given by a witness. . . . These statements ordinarily do qualify for the . . . [CPLR 3101](d)(2) immunity, and are hence undisclosable unless the stated conditions are satisfied."). 5 To further clarify defendants' misleading citation to these cases: In Miller, the statement at issue was a "transcribed interview" of the witness, and not an affidavit or written statement. See Miller, 2011 WL 4499281, at *15. Further, in Miller, the court held that the defendant could not use the attorney work product protection because it had failed to notify the plaintiffs of the transcribed interview on its privilege log, and as such, had waived protection. Id. No such waiver exists here. In Sequa, plaintiff had already disclosed another similar affidavit prepared by the same witness, and all drafts thereof, and as such, they could not "establish either that they harbored . . . expectations of confidentiality or that they in fact kept the documents confidential." Sequa, 1993 WL 276081, at *1, *4. Here, the affidavits were executed with expectation that they will be kept confidential, and Syncora and Ambac have not produced the affidavits, or drafts thereof, to the defendants. |
| In Search of Yield & Dividends Posted: 21 Jan 2012 12:00 PM PST From this weekend’s Barron’s, a look at stocks that do — and don’t — have decent dividends:
That is an astonishing stat . . . > Strong Dividends ~~~ Too Stingy > Source: |
| Colbert: How to Deal with Internet Protests Posted: 21 Jan 2012 11:53 AM PST |
| Posted: 21 Jan 2012 11:00 AM PST Staring into the Abyss ~~~ Choices, Debt, and the Endgame |
| What do the markets have to do with the election? Not much. Posted: 21 Jan 2012 06:00 AM PST What do the markets have to do with the election? Not much. ~~~ Just about this time every campaign cycle, the pundits get all excited about what Mr. Market is saying about the election: What does this candidate or that mean for the stock market returns? Will an incumbent victory bode well or poorly? Are stock prices telling voters which candidate will be friendlier to future market returns? In a word, no. Markets do not rally or sell off because one candidate or the other is more likely to win. This might strike some as a bit radical, but here it is: Markets don't give a flying fig about any of this nonsense. First, consider the classic "causation/correlation error" — one that pundits make all the time. This occurs when two factors happen at similar times, and an assumption is made that one is causing the other. Correlation errors confuse cause and effect. Typically, a more significant but overlooked factor is driving the outcome. Here is a classic example: "The incumbent's poll numbers are rising, and the S&P 500 likes it. It has been rallying in response." Not exactly. There is a third explanation, and understanding this requires thinking about what is common to both incumbent polls and stock markets. Instead of assuming that one is causing the other, we need to look for broader forces that are driving both elements. Most of the time when an incumbent is doing well in the polls, it is because the economy is doing well enough (or improving fast enough) that it is generating solid corporate earnings, strong hiring and positive consumer spending. That not only drives stocks and markets higher, but also makes voters feel economically secure. This works to the advantage of the sitting president. Note that the opposite is also true: Markets do not do poorly because the challenger is polling well; rather, the conditions that help a presidential challenger obtain victory — weak job availability, unhappiness with the economic conditions, desire for change — are negatives for earnings and the markets. Don't expect to hear this straightforward reasoning from the punditry. During the silly season, politicos and cranks push all manner of sophistry and ignorance onto an unsuspecting public. We've seen it in the editorial pages, from guests on my pal Larry Kudlow's show, and all over the intertubes. Too many folks blame every twitch of the market as a reaction to the politician they like or dislike the most. The shorter-term swings are especially nonsense. Let's consider what is driving day-to-day stock prices: It's not expectations about changing capital gains taxes or broad shifts in health-care spending — issues that arguably can be game-changers in elections. Rather, large hedge funds and high-frequency traders are the biggest participants short-term. The machine-driven mathematical traders have no interest in politics; their stock purchases are held for milliseconds, and their buying is driven by quantitative formulas that have nothing to do with any candidate. Hedge-fund managers certainly are not making bets dependent on the outcome of elections 10 months hence. They are more concerned with monthly, weekly and even daily performance. The technical factors driving what they do are far removed from whatever is happening on the campaign trail. These simple facts never seem to get in the way of the op-ed writers at various journals who seem to favor arguments along these lines: "Worries about possible policy changes are weighing on markets ahead of the year's presidential elections. Candidate X's rise in the polls is a risk that is giving the stock market jitters. Stock prices are wobbling, all leading to uncertainty. (And the markets hate uncertainty.)" This analysis — to use the word loosely — is misleading and flawed. Investors should avoid misconstruing information from polling and extrapolating it toward markets. Here are some other arguments to watch out for: Misplaced credit and blame: Presidential blame and credit for the markets is greatly exaggerated. The U.S. chief executives get far more credit than they deserve for good markets, economies and business cycles. They also get more blame when the economy is weak than is reasonable or fair. This is true regardless of which party wins the White House, or where the economy is in its cycle. The Obama bull market: Perhaps you don't buy my arguments. Then you must obviously be rooting for an incumbent victory. Why is it that? Consider how the markets did under George W. Bush, the most recent "pro-business president." Then imagine how markets probably reacted to the anti-business socialist from Kenya. I have some disappointing news those of you who believe in such utter silliness: The S&P started at 850 the day Obama was sworn in; last week it hit 1292 — a better than 50 percent gain over three years. (If that's anti-market, I'll have some more, please.) In 2001, when Bush was sworn in, the S&P stood at 1343. He left at 850 — a decline of about 37 percent. If you buy into the foolishness that presidents drive markets, than given his giant stock gains, Obama is your guy. Anthropomorphizing markets: Politicos make another analytical error in the language they use: Markets "prefer" one candidate over another; polls are validated by short-term rallies; a disliked candidate's latest stump speech is what drove the last sell-off. It is a trick used to frame issues, and it is disingenuous at best. Indeed, with these silly claims, pundits manage to combine all of the analytical errors discussed above. Perhaps it helps to think of markets as future discounting mechanisms. Whenever an economy is slowing, markets price in the possibility of worse profits and sales. (My experience is this occurs three to six months in advance.) Markets are imperfect, subject to excesses of crowd behavior, but they get the big picture correct eventually. When the economy is improving, you will see that reflected in improving stock prices, often in advance of the stronger economic data. Weak job creation and slow sales both affect equity prices, the electorate and the incumbent party's election fortunes. When folks are content with the status quo and feel secure in their financial futures, they vote for more of the same; when they are not, they vote for change. Thus, the cause is the weakening economy and its discontents thereto. The effect is the rise of candidates claiming to be change agents — and the fall of those representing the status quo. The underlying conditions that lead to strong equity markets — robust growth, job creation, brisk consumer spending, income gains, tame inflation, etc. — also work to aid the incumbent. It is not that markets like incumbents, it is that both markets and incumbents do better when the overall economy is doing well. Putting the day-to-day noise into the larger context of quarters and years will help make you a better, smarter investor. ~~~ Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. Twitter: @Ritholtz. |
| Posted: 21 Jan 2012 05:00 AM PST We first looked at this back in 2010, but with sailing weather a mere 3 months away, its time to bring this back:
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via Daily Infographic |
| Technical Examination SOPA & PIPA Posted: 21 Jan 2012 04:17 AM PST From Lumin Consulting, via Search Engine Journal, we see this Technical Examination SOPA & PIPA: > click for full graphic
> Brought to you by Lumin Interactive and Condor Consulting |
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