The ongoing credit crisis, described by
former Federal Reserve Chairman Alan Greenspan as a “once in a lifetime
tsunami,” is affecting markets and economies around the globe. NERA has created this area as a central repository of our current
thinking on issues and developments relating to the crisis, including
but not limited to litigation connected to all aspects of the crisis,
bankruptcy and restructuring concerns, financial risk management issues,
and the various regulatory and agency responses to the crisis. We invite
you to check back often, as we will continue to update this section as
events warrant.
Examples of disputes that have already arisen include allegations of
predatory lending, misrepresentation and omissions related to the valuation
of the loans and the profits from selling or servicing them, suitability of
investments, breach of contract related to loan servicing, and fraudulent
conveyance issues. Litigation stemming from the crisis began in areas
related to subprime lending, such as suits against issuers and lenders of
mortgage-back securities, as well as ratings agencies, bond insurers, and
asset management companies, but the range of litigation has expanded to
include the commercial paper market, the leveraged buyout industry, and
auction-rate securities, to name a few examples. As the write-downs continue
to accumulate, additional types of lawsuits are expected.
In recent years the SEC has imposed unprecedented penalties in its enforcement actions. NERA has developed a proprietary database of settlements in SEC enforcement actions by reviewing every litigation release and administrative proceeding document published from July 31, 2002 through March 31, 2009.
For financial and non-financial
firms alike, there is heightened interest in the role that effectively
managing risk plays in aligning their strategic plans and capabilities with
shareholder value. In response to the deepening credit crisis, companies
that seek to remain viable and retain shareholder and employee trust must
find new methods, best practices, and market solutions in order to meet the
challenges of the increasingly changing risk landscape. Areas of focus for
these efforts include compensation and benefits, credit risk, energy risk,
insurance, integrated risk assessment, litigation risk, and cash flow risk.
Key concerns for entities affected by the credit crisis include analysis of
market factors and what was reasonably known at the time of a transaction,
determining fair market values of loan portfolio and other assets,
conducting econometric analysis of defaults, assessing solvency and capital
adequacy, examining fraudulent conveyance issues, performing deepening
insolvency analysis, and forecasting what a company's future cash flows are
likely to be, or what they would have been at an earlier point in time.
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