Monthly Archives: May 2021

Lansing Former Michigan Gov. Rick Snyder wants a federal bankruptcy court to hold Attorney General Dana Nessel's office in contempt, arguing confidential documents had been released as part of the Flint water proceedings.

Snyder's attorneys filed a motion Wednesday in Michigan's Eastern District, asking a judge to impose sanctions "appropriate to coerce" the office's compliance with 2013 court orders that required secrecy about the Detroit bankruptcy mediation.The filing points to concerns that privileged documents related to the bankruptcy have been shared with other defendants and legal teams involved in the Flint prosecution cases.

The mediation occurred at a time when Flint officials were on course to end their service with the Detroit water system in 2014over concerns that rates were too high. The Eastern District oversaw the mediation that led to the so-called "Grand Bargain" resolving the bankruptcy of Michigan's largest city while Snyder was governor.

"Despite our repeated warnings to the Attorney Generals office about the inappropriate release of protected information, they continued with reckless abandon and now appear to have violated not only the attorney-client privilege, the attorney work product doctrine and executive privilege, but also federal court confidentiality orders related to the Detroit bankruptcy," Snyder's attorney Brian Lennon said Wednesday.

Former Michigan Gov. Rick Snyder has pleaded not guilty to misdemeanor charges of willful neglect of duty in Flint. Snyder's legal team is asking the Detroit bankruptcy court to suppress confidential documents the Attorney General's office has shared in the discovery process.(Photo: Cody Scanlan, AP)

Courtney Covington Watkins, spokeswoman for the Attorney General's office said the filing appeared "to be part of an ongoing strategy of distraction by the defense."

"We look forward to addressing these concerns in court so that we can move forward with the prosecution of those responsible for the Flint Water Crisis," she said.

In January, Nessel's office filed41 charges against nine state and city officials, including Snyder, over allegations tied to the lead-contaminated water crisis that resulted after Flint switched its water source on April 25, 2014. A one-judge grand jury in Genesee County that operated in secret signed off on the Flint charges.

Snyder, who left office at the end of 2018 after two four-year terms, is facing two counts of willful neglect of duty in connection with the Flint crisis. The misdemeanor counts carry a penalty of one year behind bars and a fine of up to $1,000.

The state's prosecution team has begun producing about 21 million documents that were involved in its investigation, according to the Wednesday filing by Snyder's legal team. About 4 million documents have been provided so far, the filing says.

Snyder's lawyers contend that documents they have received include "communications among mediators and parties regarding the substantive issues being mediated" as part of the Detroit bankruptcy.

"On information and belief, the other state criminal defendants, including some parties who did not participate in any mediations related to this bankruptcy case, received the same set of documents," the filing says.

An Aug. 13, 2013, mediation order said proceedings, discussions and writings involved in the Detroit mediation "shall be privileged and confidential and shall not be disclosed, filed or placed in evidence. Snyder's lawyers saidNessel's office had violated the orders, "flagrantly disregarding any privileges or confidentiality protections."

Nessel is a Democrat who took office at the beginning of 2019.

In April 2013, state, Flint and Detroit officials held an unsuccessful last-chance meeting to try to avert Flint's disconnection from Michigan's largest water system. Detroit's Water and Sewerage Department already had sent Flint a notice of termination indicating the flow of water would stop in one year after Flint officials agreed to join a new regional authority based in Genesee County.

Both cities were run by Snyder-appointed emergency managers.

Detroit water officials battled to keep Flint and Genesee County from breaking off, charging that the proposed regional body, the Karegnondi Water Authority, was flawed and too expensive. Flint area officials were convinced that Detroit's estimates about building a new pipeline to Lake Huron and operating the regional authority were inflated.

Nearly all the principal players in the fight over Flint's water future metat the state's Cadillac Place offices in the New Center neighborhood on April 19, 2013. Snyder was there to oversee the debate.

The meeting included DWSD Director Sue McCormick and Detroit water system Chairman Jim Fausone; state Treasurer Andy Dillon and Michigan Department of Environmental Quality Director Dan Wyant; and Flint Emergency Manager Ed Kurtz and Mayor Dayne Walling, Genesee County Drain Commissioner Jeff Wright. Detroit Emergency Manager Kevyn Orr participated by phone.

The meeting failed to resolve the situation. Mediation talks followed Detroit's filing for bankruptcy in July 2013.

The court filing bySnyder's lawyers saidMichigan Solicitor General Fadwa Hammoud did not respond when they asked whether she agreed with their interpretation of events.

Hammoud and Wayne County Prosecutor Kym Worthy are leading the state's Flint water investigation.

cmauger@detroitnews.com

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Snyder's legal team wants AG's office sanctioned over bankruptcy records - The Detroit News

The disruption to the global economy that has ensued since the World Health Organization declared COVID-19 a pandemic has resulted in a sharp increase in the number of companies filing for bankruptcy. Notably, the number of U.S. bankruptcy filings by companies with over $100 million in assets increased by 84 percent during the first three quarters of 2020 compared to the same period in 2019.[1] In the second quarter of 2020, such filings reached the second-highest total for any quarter in the last fifteen yearsjust below the all-time high in the first quarter of 2009 during the aftermath of the 20082009 financial crisis (the Financial Crisis).[2]

Bankruptcy and insolvency proceedings can result in litigation filed by trustees and receivers against insiders and third parties. Such lawsuits are generally initiated several months after the beginning of the bankruptcy or insolvency proceeding due to the time needed to investigate claims. For example, a wave of trustee and receiver litigation was filed in the years that followed the Financial Crisis.

This article discusses how certain new accounting and auditing standards implemented after the Financial Crisis could affect the expected next wave of trustee and receiver litigation.

Bankruptcy trustees are typically appointed by the court in (1) Chapter 7 liquidation proceedings; or (2) Chapter 11 proceedings, upon request of a party in interest or the United States Trustee, either when fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management are alleged, or if such appointment is in the interests of creditors.[3] Less frequently, the debtors assets and operations are placed under receivership and a receiver is appointed by the court to administer or liquidate the debtors property.[4]

Trustees and receivers have historically filed claims for fraud and breach of fiduciary duty against the insolvent or bankrupt companys former directors, officers, and/or executives as part of bankruptcy proceedings. It is also not uncommon for trustees and receivers to sue third-party service providers, such as the companys public accountants or attorneys, for professional malpractice or to seek disgorgement or repayment of professional fees. In the years following the Financial Crisis, trustee- and receiver-led lawsuits increased in tandem with the surge in bankruptcy proceedings. Based on this historical evidence, such lawsuits are expected to also arise from the COVID-19 pandemic albeit with some delay.

The number of lawsuits filed by trustees in U.S. bankruptcy courts increased significantly following the Financial Crisis, nearly tripling in 2009 compared to 2008. The number of lawsuits peaked in 2010 and remained high in 2011when the number of filings was five times greater than in 2008. Trustee bankruptcy lawsuits have remained above pre-2009 levels and were on a relatively stable trend between 2012 and 2019 with annual fluctuation.

The COVID-19 pandemic and the resulting global operational and financial disruptions, coupled with the large amounts of corporate debt amassed after the Financial Crisis, has put pressure on the liquidity and solvency of an increasing number of companies.[5] The number of lawsuits filed during the first half of 2020 was three times greater than the number of filings during the first half of 2008 and close to the number of filings during the first half of 2009. As the number of bankruptcy filings increases, trustee and receiver lawsuits are also expected to increase in the subsequent months and years.

Examples of trustee-led cases filed in May and June 2020 include actions brought to recover fraudulent transfers, actions brought against third-party service providers to avoid or recover fees either because the company was insolvent at the time of payment or due to alleged professional negligence, and actions seeking to enforce insurance or guaranty payments.

Although the number of lawsuits initiated by receivers is relatively lower than filings initiated by trustees,[6] a similar increase can be observed during the years after 2007. The number of lawsuits filed by receivers increased steadily in the years following the Financial Crisis. Receiver filings increased by 50percent between 2008 and 2009, and remained high through 2014. As of June 30, 2020, about the same number of filings were registered in the first half of 2020 as during the first half of 2008. Moreover, in 2008, the majority of filings were filed by the FDIC acting as receiver for financial institutions.

Receiver-led cases filed in May and June 2020 include actions involving allegations of fraud, actions seeking relief from breach of obligations under an insurance policy, or actions seeking to recover allegedly improperly diverted funds.

These historical trends in trustee- and receiver-led litigation suggest that the COVID-19 pandemic will trigger another wave of bankruptcy and liquidation-related lawsuits.

Recent changes in accounting and auditing standards may affect litigation against corporate and individual defendants. This section assesses the impact of changes related to going concern disclosures and critical audit matters.

One postFinancial Crisis standard that may affect trustee and receiver litigation is the disclosure of going concern issues by reporting entities. At the time of the Financial Crisis, there was no going concern disclosure guidance in Generally Accepted Accounting Principles (GAAP) for reporting entities. Instead, relevant guidance in auditing literature and federal securities law required going concern opinions by external auditors.[7] That changed when the Financial Accounting Standards Board (FASB) issued Accounting Standard Codification Subtopic 205-40, Presentation of Financial Statements Going Concern (Subtopic 205-40).[8] Subtopic 205-40 became effective for the annual period ending after December 15, 2016.

The new going concern standard brought two additional changes from the auditing standards effective during the Financial Crisis. First, the standard requires management to perform a going concern evaluation for every set of financial statements issued, including interim financial statements. As such, for public companies, managements evaluation of going concern should occur at least every quarter to comply with GAAP. The standard related to going concern effective during the Financial Crisis, however, only applied to the annual financial statement audit.[9] These additional requirements of management may affect the decision of trustees and receivers to assert claims against management and/or the external auditor.

Second, the new standard extended the period over which the entitys ability to continue as a going concern needs to be assessed. Specifically, under the prior guidance, including auditing standards issued by the Public Company Oversight Board (PCAOB), the auditor was required to evaluate whether the entity had the ability to continue as a going concern for one year beyond the date of the financial statements.[10] Under the new accounting standard, the one-year period begins on the date the financial statements are issued.[11] As such, trustees and receivers could use this change to claim a failure to disclose going concern issues in financial statements issued for a fiscal year ended more than twelve months before the bankruptcy event. For most public companies, the effects would likely be a matter of weeks. For example, large accelerated filers are required to file their 10-Ks with the SEC sixty days after the year-end.[12] The effect can be greater for private companies that sometimes issue their financial statements months after the year-end. Thus, the timing of a bankruptcy may affect when trustees and receivers assert claims in lawsuits on behalf of the bankrupt entity.

A second postFinancial Crisis standard that may affect trustee and receiver litigation is the disclosure of critical audit matters (CAMs) by external auditors. Under the new standard, external auditors of public companies are required to include in their audit report a disclosure of matters that involve especially challenging, subjective, or complex auditor judgment.[13] The disclosure by the auditor generally includes a description of how the CAM was addressed in the audit, such as the audit procedures performed in response to the CAM. For fiscal years ended starting on June 30, 2019, auditors of large accelerated filers are required to evaluate the disclosure of CAMs, if any.

Assessing the ability of the entity to operate as a going concern represents one of the matters that auditors have disclosed as a CAM. An analysis of 1,451 annual reports filed with the SEC by large accelerated filers between July 1, 2019, and August 31, 2020, shows that going-concern-related CAMs, as well as broader going concern disclosures, have been modest for the largest public companies considering the current economic environment. Going concern was identified as a CAM for a small group of large accelerated filers that also included going concern disclosures in their financial statements. The auditors of only four of the sixteen large accelerated filers identified going concern as a CAM. Going concern was also identified as a CAM for a small group of large accelerated filers that did not include going concern disclosures in the financial statements (four large accelerated filers).[14] That means that management of these large accelerated filers concluded that there was no substantial doubt about the ability to continue as a going concern even though the auditor concluded that this evaluation represented especially challenging, subjective, or complex auditor judgment.

Given the new CAM standard, there may be a greater number of going concern CAMs in early 2021 annual filings for companies with December 15, 2020, or later fiscal year ends if the economic environment remains challenging.

The disclosure of CAMs could affect lawsuits by trustees and receivers against management and the auditor. During the standard-setting process, the PCAOB acknowledged that the new CAM standard could generally increase the risk of litigation in connection with financial disclosures. Trustee and receiver litigation represents one type of litigation that may be affected by the implementation of the CAM standards.[15]

Bankruptcy and insolvency lawsuits by trustees and receivers against insiders and third parties are generally initiated months after the beginning of the bankruptcy or liquidation proceeding. The COVID-19 pandemic has created substantial uncertainty and has particularly affected certain industries such as travel, entertainment, and retail. These lawsuits may differ from past litigation due to the new accounting and auditing standards that became effective after the Financial Crisis.

The views expressed in this article are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research.

[3] U.S. Code 1104. Appointment of trustee or examiner; 11 U.S. Code 701. Interim trustee.

[4] U.S. Code 3103. Receivership.

[5] The debt of large companies stood at $10 trillion (48% of GDP) as of mid-2019, up from $6.6 trillion in 2008 (44% of GDP). Considering small and medium-sized companies and other businesses adds another $5.5 trillion to the U.S. corporate debt load, raising the debt-to-GDP ratio to 74%. See Mayra Rodriguez Valladares, U.S. Corporate Debt Continues to Rise As Do Problem Leveraged Loans, Forbes, July 25, 2019, https://www.forbes.com/sites/mayrarodriguezvalladares/2019/07/25/u-s-corporate-debt-continues-to-rise-as-do-problem-leveraged-loans (last accessed 9/18/2020). See also G-20 Surveillance Note, G-20 Finance Ministers and Central Bank Governors Meetings, July 18, 2020, pp. 6, 1920, https://www.imf.org/external/np/g20/pdf/2020/071620.pdf (last accessed 9/18/2020).

[6] Between January 2007 and June 2020, only 320 filings were registered by receivers (in U.S. District Courts and Federal Bankruptcy Court), compared to a total of 74,535 filings by trustees (in U.S. Bankruptcy Courts).

[7] PCAOB, AU Section 341, The Auditors Consideration of an Entitys Ability to Continue as a Going Concern; (The Codification of Financial Reporting Policies, Section 607.02; AICPA, Auditing Standards Section AU-C 570, The Auditors Consideration of an Entitys Ability to Continue as a Going Concern.

[8] FASB, Accounting Standards Update No. 2014-15, August 2014.

[9] Auditors of public companies are still required to perform reviews of interim financial information in conformity with auditing standards and federal securities laws, see, PCAOB, AS 4105: Reviews of Interim Financial Information).

[10] PCAOB, AS 2415: Consideration of an Entitys Ability to Continue as a Going Concern, at .02.

[11] Or, in certain circumstances, available to be issued.

[13] Greg Eastman, Elaine Harwood, Steven McBride, and Jean-Philippe Poissant, Will PCAOBs New Audit Rule Trigger Shareholder Litigation?, Law360, October 16, 2019.

[14] Three of four entities prepared their financial statement pursuant to US GAAP. The other company prepared its financial statements pursuant to the international financial reporting standards (IFRS). The relevant IFRS guidance differs from Subtopic 205-40.

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How Will Bankruptcy Trustee and Receiver Litigation Change? - The National Law Review

In an explosive video interview to Telly Stars Talk, Rakhi Sawant opens up about her husband Ritesh like never before. She also demands answers on why she's judged so often, why she's targetted so often. Further, Rakhi rewinds to reveal how she landed up in a financial mess which made her bank balance zero. Rakhi also spoke about Karan Johar, Salman Khan, Sohail Khan and Priya Dutt.Is your marriage status, today A) Sorted B) Complicated C) To Be Decided?It's a mix of all three. But my husband Ritesh has told me that he wants to be with me. However, he isn't able to come down in today's times. I am waiting. I am a firm believer in Jesus Christ and I haven't exchanged fake marriage vows with him. I can't be sharing him with any other woman. The fact that he was married before tying the knot with me and is a father as well has jostled me. I have left the decision to him. The ball is in his court. Why isn't he appearing before the world? What complex is he suffering from? Can I ask you his age?He is 37/38. I had asked him this question before marriage too. Little did I know the reason was his first marriage. But I still respect and love him from the bottom of my heart. I didn't love him earlier, but now I do. However, now, I will decide after contemplating each and everything about him. I have taken many hasty decisions in my life. If this marriage does not sustain, I shall never marry. Having said that, I must add here that Ritesh has spent a lot on my mother and me and has promised me a flat in Mumbai.

But Ritesh was your WhatsApp friend. How could you marry your WhatsApp friend without knowing much about him?

'Log mithai khaane ke liye aur shopping karne ke liye desperate hote hain. I was desperate to get married. My marriage with Ritesh was the outcome of another chapter in my life. A very violent guy from Gujarat was forcing me to marry him. I had gone out on a date with him to Goa where my friends had also accompanied me. I saw a video there which had him beating up someone in his farmhouse. Later, he threatened to kidnap me if I didn't marry him.

One day I was fervently praying that God should get this aggressive man out of my life. At that point, my phone rang. It was Ritesh. I told Ritesh that he should find a good guy for me. Those days, though, it was felt that I wouldn't make a good wife, daughter-in-law and and mother as I was very controversial. Kyun bhai? Yahan to log saalon saal jail me kaatte hain, unki bhi shaadi ho jaati hai, bachche bhi ho jaate hain. I have done no crime. We are a democracy and I reserve the right to speak my mind. Excuse me, why am I judged? Just because I dance in the industry? Don't I pay my taxes? Anyway, Ritesh promised to help and we began talking more and more with the passing of each day. Suddenly he popped the marriage question and sent me his bank statement. Seeing that statement, I felt I must marry him as that would mark the end of my struggle. Lekin...

Lekin?

He didn't turn up for our marriage. He apologised. This happened not just once. I asked him in no uncertain terms that why was he dilly-dallying our marriage. Finally, he came down to Mumbai and we tied the knot. This marriage helped me to ward off the Gujarat don.

No, but I have seen her photos.

Moving on to your financial crunch...

My bank balance had turned zero.

Why didn't you raise an alarm?

I didn't do it until my mother was diagnosed with cancer. Think of it, whom should I have called out to? I had gone bankrupt because my CA duped me. He had transferred my entire money to someone else's account, who did not return my money to him. Later, my CA passed away. I have seen hell on earth.

During this period, did you call up filmmakers to give you work?

(Gets emotional) I did and whatever work I got, I did with honesty. I even got Bhojpuri movies. A large part of my years in the industry have gone in paying my mother's medical bills. In fact, not just her, I have been paying for the rest of my family too. That's exactly why I was looking out to marry a rich guy who can look after my mother.

But you didn't get much work in Bollywood after calling up filmmakers...Yes. So, I started making videos which showcased my talent. Those videos helped me to get shows.

Has your outspoken nature come in the way of making friends (in the industry)?

Yes, certain celebrities used to laugh on my face and say 'Oh my God, Oh s**t'.

Over to 'Bigg Boss 14'. Did you feel from Day 1 that Rubina Dilaik will be the winner?

Yes. 'Bigg Boss' has made many lives; it helped me too, financially. The Rs 14 lakh- and even the money I got from the spoof marriage with Deepak Kalal- helped me in my mother's treatment.

It is strongly felt in the industry that you seek publicity...

I don't know why that tag hasn't left me. On the contrary, my acts aim at just comedy.

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Telly Stars Talk - Rakhi Sawant on her complicated marriage and bankruptcy: 'I have seen hell on earth' - Times of India

The CDC said Thursday that those who have been fully vaccinated against COVID-19 largely no longer need to wear masks or practice social distancing indoors. "If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic," CDC Director Rochelle Walensky said. The exceptions are where masks are "required by federal, state, local, tribal, or territorial laws, rules, and regulations, including local business and workplace guidance," the CDC said. Masks are also still required during travel, and the CDC is advising they still be worn when going to doctors, hospitals, or long-term care facilities, as well as in prisons, jails, or homeless shelters. Unvaccinated people remain at risk and should still mask. But "we have all longed for this moment when we can get back to some sense of normalcy," Walensky said, and for vaccinated people, "that moment has come."

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5 things you need to know now - Federal judge dismisses NRA's bankruptcy case - The Week Magazine