MBIA is the Municipal Bond Insurance Association. It is a monoline insurer that expanded into the Collateralized Debt Obligation market in the 90s and naughty aughties.
As it became undeniable that they’d engaged in Insurance Fraud and didn’t have nearly enough assets to pay off their policies their Insurance Financial Strength (IFS) rating declined from AAA in April of 2008 to BBB in March of 2010.
In 2009 they restructured the company, splitting off the original (and still profitable because they never default) municipal bond operation from the highly speculative and money losing CDO business.
The Insurance Superintendent of New York State oked this and MBIA has been using his approval to prevent defrauded customers like Bank of America, Morgan Stanley, UBS AG and RBS from bringing suit for fraudulent conveyance and breach of contract. Well today the New York State Court of Appeals (don’t let the name fool you, this is the final court in New York) ruled that this was not legal and the suits could proceed.
NY Court: MBIA Policyholders Can Sue
By ERIK HOLM, The Wall Street Journal
JUNE 28, 2011, 12:57 P.M. ET
The judges in the majority in Tuesday’s ruling wrote that MBIA was wrong in its contention that a provision in New York state insurance law allowed the state insurance superintendent to be the “exclusive arbiter of all private claims” related to the MBIA restructuring plan.
“A cursory reading of the plain language reveals that it does not vest the Superintendent with the power to consider causes of action, such as plaintiffs’,” the judges wrote.
…
ABN AMRO and the other policyholders contend the restructuring wrongly left the account that backed the policies sold on structured securities without enough money to pay claims.“The Court of Appeals has squarely rejected MBIA’s efforts to shut the courthouse door,” said Robert Giuffra, lead counsel for the banks and a partner with Sullivan & Cromwell LLP, in a statement. “We’re confident that MBIA’s fraudulent restructuring will be reversed.”
Much as I hate rooting for objectively bad actors like BoA to succeed, the truth is that having the vampire squid cannabilize each other in a feeding frenzy of fear and greed is the most likely avenue to punishing them the way they deserve.
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