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Can someone more knowledgeable shed some light on this?

http://www.huffingtonpost.com/dan-rathe ... 88016.html?

no

no, but they will have to relocate to an apartment above a Gray's Papaya

kwais wrote:no, but they will have to relocate to an apartment above a Gray's Papaya

Where would they hang the art collection???

seriouslyinformative wrote:

kwais wrote:no, but they will have to relocate to an apartment above a Gray's Papaya

Where would they hang the art collection???

The art collection will be liquidated.

Wait... They're gonna turn the paintings... into liquid!?! GET OUT!

seriouslyinformative wrote:Wait... They're gonna turn the paintings... into liquid!?! GET OUT!

lol'ed

This is an interesting article, but I have to imagine that the talking of it taking down the firm is just a hook for readership. The standard for recoverable malpractice is much higher than "made a mistake." There's a famous case where an attorney royally botches a rule against perpetuities issue while preparing a will and the court basically held that the RAP was too complex to expect an attorney to ever get it right or some BS.

Probably more importantly, the big wall street firms are so deeply embedded in the ebb and flow of business that it's unlikely the client would like to see some turned into a blood splatter. A firm also doesn't really have much to liquidate - a building lease, a bunch of blackberries, and some art? Probably not worth it. Although I'd imagine whatever firm submitted the docs asking for a $1.5b judgment from a white shoe firm would feel like that was a pretty good day for their career

First, they have malpractice insurance. Second, the $1.5 billion has not been lost yet. It won't be lost. No bankruptcy judge is going to order JPMorgan to give up $1.5 billion because they accidentally checked the "unsecured creditor" box on some bankruptcy form.

It'll blow over.

Not going to happen because (as some people have mentioned):

(1) Depending on the nature of the error, there's a substantial body of law around scriveners errors that could apply (i.e., intent is clear, but the language is wrong or someone checked the wrong box).

(2) Even if it doesn't, the bankruptcy court is quite unlikely to unwind what is already a settled and done bankruptcy to fix this.

(3) Even if that happens, there may be no malpractice case if the mistake was easy enough to make given the complexity of what they were dealing with, or if JPM's in house attorneys reviewed the work.

(4) Even if STB is liable for malpractice, JP Morgan has little to gain by forcing STB to liquidate, since STB has very few actual assets (essentially, just furnishings and accounts receivable) and the recovery wouldn't even come close to $1.5 billion.

But yes, they messed up big time.

If my reading is correct, wouldn't STB only be liable for however many pennies on the dollar JPM missed out on in the bankruptcy?

Kohinoor wrote:If my reading is correct, wouldn't STB only be liable for however many pennies on the dollar JPM missed out on in the bankruptcy?

As a secured creditor, I believe that would be all of them (i.e. if the process had been done correctly, JPM would be owed $1.5 billion of tangible things and would be "ahead of the line" of all unsecured creditors). The idea of securitization is you lend cash but in return you have a claim on assets usually at or nearly equal to the cash you lend in posession of the firm. If this blows up, then JPM still has a claim, but will be for pennies on the dollar if it sticks as unsecured. So I guess that would be 1.5 billion minus whatever an unsecured creditor with a 1.5 billion claim would receive in liaiblity?

I'm pretty foggy on this area of the law though.

Kohinoor wrote:If my reading is correct, wouldn't STB only be liable for however many pennies on the dollar JPM missed out on in the bankruptcy?

It's unclear from just the article, but my understanding is that in the GM bankruptcy secured creditors got paid out almost in full (or received debt in the new GM at par), whereas unsecured creditors got their claims entirely wiped out in exchange for taking a relatively small piece (<25%) of the equity in the new GM. So basically they'd refund $1.5 billion to the bankruptcy estate, and receive a few shares in exchange (much less than $1.5 billion). I could be wrong though - I'm not very familiar.

Also, more details:

http://www.marketwatch.com/story/gm-cre ... 2011-06-08

Looks like STB actually filed papers releasing the lien, but JPM/STB are claiming that it was done by a paralegal without authorization.

thesealocust wrote:

Kohinoor wrote:If my reading is correct, wouldn't STB only be liable for however many pennies on the dollar JPM missed out on in the bankruptcy?

As a secured creditor, I believe that would be all of them (i.e. if the process had been done correctly, JPM would be owed $1.5 billion of tangible things and would be "ahead of the line" of all unsecured creditors). The idea of securitization is you lend cash but in return you have a claim on assets usually at or nearly equal to the cash you lend in posession of the firm. If this blows up, then JPM still has a claim, but will be for pennies on the dollar if it sticks as unsecured. So I guess that would be 1.5 billion minus whatever an unsecured creditor with a 1.5 billion claim would receive in liaiblity?

I'm pretty foggy on this area of the law though.

I think your conclusion is correct but some of your analyis is a bit off. JPMorgan (and a syndicate of creditors whom they represented) was actually paid out $1.5 billion in the bankruptcy due to their position as a secured creditor. This money actually came from the federal government's injection of capital into the bankruptcy estate. Like you said, if they were instead treated as an unsecured creditor, they would have received very little if anything. Of course, this is the way it should be: secured creditors get paid a lower rate of interest because they have less default risk.

Based on some sort of clerical error (it was actually on the part of a law firm that Simpson contracted out to), the unsecured creditors are trying to claim that JPM should have to give that $1.5 billion back. It's not gonna happen.

(As a side note, "secured debt" and "securitization" are not the same thing. Secured debt is debt that has some assets or collateral backing it up, like real property. Securitization is the process whereby a group of small fixed income loans, like home mortgages, are pooled together and divided up into bigger fixed income securities of varying risk levels, which have names like "collateralized debt obligations (CDOs).")

Thanks much Bronte. I still remember the day I realized the classes "secured transactions" and "securities regulation" weren't the same Obviously I'm still putting the pieces together.

thesealocust wrote:Thanks much Bronte. I still remember the day I realized the classes "secured transactions" and "securities regulation" weren't the same Obviously I'm still putting the pieces together.

Oh I pounced on the opportunity to tell you something for once.