Insights from Winston & Strawn
Comments on Proposed CFPB Arbitration Rule
Last Monday, August 22, was the final day for comments to be filed by the public on the Consumer Financial Protection Bureau’s (CFPB) proposed rule that would prohibit arbitration clauses in consumer financial contracts if such clauses would prevent the filing of, or participation in, class actions. Before that, there was a flurry of activity on the subject.
The House of Representatives, by a vote of 236-181, rejected an amendment to the Financial Services and General Government Appropriations Act bill (H.R. 5485) that would have removed a provision in the bill establishing new requirements for the CFPB to follow before adopting its proposed arbitration rule. The bill would require the CFPB to undertake a further study before adopting the proposed rule and also to consider the costs and benefits to consumers before proceeding, including the practical effect on access to low-cost, fair, and efficient means of claims resolution; the net benefits of class actions in light of agency enforcement and examination authority; the practical effect on the availability of dispute resolution; and the impact on the availability of credit. In March, 2015, the CFPB had issued the result of a detailed study that suggested that consumers rarely bring individual actions against financial service providers either in court or in arbitration.
Democratic Attorneys-General from 17 states and the District of Columbia expressed support for the CFPB’s proposed arbitration rule.
Reuters reported that 8,380 comments had been received by the CFPB on its proposed arbitration rule. That was as of one week before the deadline for comments. It was estimated that the comments were evenly divided for and against, and that 6,000 of the comments were form letters. One of the comment letters supporting the proposal was signed by 38 U.S. Senators, including Virginia’s Senator Tim Kaine, the Democratic Party’s candidate for Vice President.
The Pew Charitable Trusts issued a report on August 17 supporting the CFPB’s proposed arbitration rule. The Trusts reviewed checking account disclosures by 44 of the 50 largest retail U.S. banks and found that 90 percent of consumers would like to be able to participate in class actions. On August 19, it was reported that bank lawyers were criticizing the Pew arbitration report. They suggested that the Pew study asked leading questions and did not inform respondents of how rarely class actions benefit consumers or how arbitration benefits them; and, thus, those lawyers believe that the Pew study was skewed. One lawyer said that the Pew study did not even present survey respondents with an arbitration option. Pew responded that it asked consumers whether the right to pursue a legal action should be taken away and whether banks should be able to restrict the right to sue and received similar responses to both questions.
Some comments filed with the CFPB suggested that consumers are better served by arbitration than by class actions. The American Financial Services Association (AFSA) cited the CFPB’s own study for the statistic that, in 60 percent of class actions studied by the CFPB, consumers received nothing, and, in the 15 percent of cases where they did receive money, the award averaged $32.35 per consumer after a 24-month wait, while plaintiff attorneys received $424 million.
The Consumer Bankers Association (CBA) commented that the average class action attorney fee is 21 percent of the award, but such fees have been as high as 63 percent. The average award to consumers in arbitration was $5,389.
The Washington Legal Foundation (WLF) asked the CFPB to withdraw the proposed rule, as the CFPB’s study does not support the proposal. The WLF suggested that the rule would do more to benefit the plaintiffs’ class action bar than to aid consumers. The WLF noted that the Supreme Court has repeatedly held that the Federal Arbitration Act (FAA) encourages arbitration as a speedier and less expensive alternative to litigation that serves the public interest; the WLF suggested that any rule adopted by the CFPB must be consistent with the FAA.
The U. S. Chamber of Commerce submitted a 103-page letter suggesting that the CFPB “ignored” data from its own study (which the Chamber characterized as having been “gerrymandered” to ignore arbitration’s benefits and class actions’ lack thereof) nonetheless demonstrating both the benefits of arbitration to consumers and the failure of class action lawsuits to provide meaningful benefits to them. The Chamber warned that “the inevitable real world consequence” of the proposed rule would be the elimination of arbitration which would leave consumers without any means of redressing injuries they most often suffer. The Chamber noted that the CFPB’s own Consumer Complaint Database demonstrates that the claims that consumers care most about are small (typically involving several hundred dollars) and are individualized, such that more than 90 percent could not be brought in class actions. The small amounts of such claims preclude retention of counsel and make arbitration the only timely forum in which to vindicate such claims (the Chamber suggests that small claims courts are overcrowded, which causes lengthy delays).
The American Bankers Association, Financial Services Roundtable, and CBA filed a joint 42-page comment letter, their fourth submission to the CFPB on arbitration. Their letter highlights the CFPB’s own estimate of the costs of implementing the proposal, i.e., causing 53,000 providers who currently use arbitration agreements to incur costs of between $2.62 billion and $5.23 billion on a continuing five-year basis in defending against an estimated additional 6,042 class actions that would be brought every five years. Much of this cost would be borne by consumers as taxpayers paying for the court systems handling the surge of cases and as litigants encountering increased court backlogs and delayed resolution and as consumers who would face increased prices as litigation costs are passed on to them. These trade associations commented that these costs will not be offset by compensation from class actions, as the CFPB study found that, in 87 percent of class actions settlements, consumers received no compensation and, where they did, it was “a pittance” (the average according to the CFPB study being $32.35). In exchange, consumers would lose a faster, less costly means of resolving disputes, a means that results in average recoveries according to the CFPB study 166 times the size of the average class action per capita recovery.
The CFPB is expected to adopt a final rule in the second half of next year. Meanwhile, consumer financial service companies are adding class action waivers to their arbitration agreements in the hopes that they will be grandfathered in by the final CFPB rule. If the rule is adopted as proposed, it is anticipated that there will be a court challenge that could go all the way to the U.S. Supreme Court.
SEC Adopts Rules to Enhance Information Reported by Investment Advisers
The Securities and Exchange Commission (“SEC”) announced on August 25 that it has adopted amendments to several Investment Advisers Act rules and Form ADV to include additional reporting and disclosure requirements for investment advisers. The amendments were first proposed on May 20, 2015. The amendments are designed to improve the depth and quality of information the SEC collects, fill data gaps, and facilitate risk monitoring initiatives.
The amendments will require investment advisers to provide additional information regarding their separately managed account business, including aggregate data related to the use of borrowings and derivatives, and information about other aspects of their advisory business, including branch office operations and the use of social media. The SEC modified certain questions from the proposed amendments to respond to concern from commenters that the public disclosure of separately managed account information could potentially lead to clients being identified or the disclosure of proprietary or confidential information about investment strategies.
The amendments facilitate and standardize the “umbrella registration” process for groups of private fund adviser entities operating a single advisory business through multiple legal entities. These amendments relate to the 2012 No-Action Letter of the Office of Investment Adviser Regulation to the American Bar Association, Business Law Section, which provided a method for certain affiliates of a registered adviser to “rely” upon the registration of its affiliated adviser when conducting a single advisory business involving private funds. The SEC believes that incorporation of umbrella registration into Form ADV will “make the availability of umbrella registration more widely known” and “provide more consistent data about, and create a clearer picture of, groups of private fund advisers that operate as a single business.”
The last set of Form ADV amendments include clarifying and technical changes to current items and instructions, which are based upon the staff’s experience with the current Form ADV and responses to inquiries, and are intended to make it easier for investment advisers to complete the form.
The SEC also approved amendments to several Investment Adviser Act rules. Amendments to rule 204-2 – the “books and records” rule – will require advisers to make and preserve additional records related to the calculation and distribution of performance information. According to the SEC, such records “will be useful to the Commission’s examinations staff in evaluating adviser performance claim, and could reduce the incidence of misleading or fraudulent advertising and communications by advisers.” Technical amendments will be made to rules under Sections 202, 203, 203A, and 204 to remove certain transition provisions that are no longer applicable.
The amendments will become effective 60 days after publication in the Federal Register. The compliance date for the amendments will be October 1, 2017, with most advisers filing their annual updating amendment using the new Form ADV in the first quarter of 2018.
Feature: Results of the 2016 EU-Wide Stress Test
On July 29th, the European Banking Authority (“EBA”) published the highly-anticipated results of the 2016 EU-wide stress test. The EBA conducted the stress test on 51 banks from 15 EU and European Economic Area banks to assess the resilience of the banks and the effects on their balance sheets in the face of a general macroeconomic downturn scenario over a three-year period. The EBA noted that the stress test did not use a pass fail threshold but is designed to assist the supervisory review of banks and banks’ efforts to maintain capital and support the ongoing repair of balance sheets.
Although the results for individual banks varied widely, the EBA credited significant capital raising efforts by banks since 2011 in producing an outcome from the tests that “demonstrates resilience in the EU banking sector as a whole.” In particular, the EBA noted that the starting point for the stress test was a weighted average CET1 capital ratio of 13.2%, or 400 basis points higher than in 2011. The hypothetical adverse scenario resulted in a stressed impact of 380 basis points on the CET1 capital ratio, lowering the ratio across the sample to 9.2% by the end of 2018. The aggregate leverage ratio decreased from 5.2% to 4.2%. The impact from the adverse scenario was driven by credit risk loss, operational risk, and market risk across all portfolios. Despite highlighting the overall resilience of the banking system, the EBA cautioned that banks’ profitability remained a challenge due to low interest rates and large volumes of nonperforming loans.
Countries with high-performing banks were quick to highlight the EBA’s stress test results as evidence of their financial soundness. The Bank of England issued a statement in which it welcomed the EBA’s results and emphasized that the results “provide evidence that major UK banks have the resilience necessary to maintain lending to the real economy, even in a macroeconomic stress scenario.” Regulators at Norway’s Financial Supervisory Authority maintained that their use of a floor aligned with principles under Basel I standards to limit banks’ use of risk weighting accounted for the high performance by Norway’s largest lender. Conversely, the poorest performer under the stress scenario, Italy’s third largest bank, announced that it would seek to raise €5 billion from private investors and offload €9.2 billion in nonperforming loans to address weaknesses exposed by the stress test.
While the EBA’s overall assessment of the EU banking sector was optimistic, observers registered skepticism about the EU-wide stress test’s methodology and results. Critics noted that the test’s model failed to account for certain risks, including the fallout from the UK’s decision to leave the EU, the threat of negative interest rates, and looming proposals by the Basel Committee on Banking Supervision to increase capital demands. One study conducted by the Centre for European Economic Research and economics professors at New York University and the University of Lausanne concluded that Europe’s largest banks would need to raise more than €1.19 trillion to have enough equity to weather a new financial crisis. Other analysts observed that the EBA’s stress test failed to account for true market-based risks, making the test weaker than those conducted by the U.S. Federal Reserve and the Bank of England. Stephen G. Cecchetti, former economic advisor at the Bank for International Settlements, and Kermit Schoenholtz, economics professor at NYU, used supervisory data and systemic risk measures to conduct a more adverse market-based stress test that projected a 5.5% leverage ratio and a 40% decline in global stock markets. Under that model, Cecchetti and Schoenholtz projected that 34 publicly listed European lenders would experience a capital shortfall of €640 billion. The results of these independent stress tests may lend more weight to U.S. arguments for including stricter capital requirements in the new Basel IV rules that are currently under development.
Banking Agency Developments
FDIC Issues its Supervisory Insights Focusing on De Novo Formation
On August 22nd, the Federal Deposit Insurance Corporation (“FDIC”) announced that it has issued its “De Novo Banks: Economic Trends and Supervisory Framework,” which appears in the Summer 2016 issue of Supervisory Insights. The article provides an overview of trends in de novo formation; the process by which the FDIC reviews applications for deposit insurance; the supervisory process for de novo institutions; and steps the FDIC is taking to support de novo formations.
Treasury Department Developments
FinCEN Proposes Customer ID Programs, AML Programs, and Beneficial Ownership Requirements for Certain Banks
On August 25th, the Financial Crimes Enforcement Network (“FinCEN”) announced that, in an effort to ensure consistent Bank Secrecy Act coverage across the banking industry, it has proposed to require banks lacking a federal functional regulator to establish and implement anti-money laundering programs. FinCEN also proposed to extend customer identification program requirements and beneficial ownership requirements to those banks not already subject to these requirements. Written comments may be submitted to FinCEN by October 24, 2016.
Securities and Exchange Commission
Proposed Rules and Requests for Comments
SEC Asks for Public Comments on Disclosure Requirements under Subpart 400 of Regulation S-K
The SEC announced on August 25th that it is seeking comments on disclosure requirements in Subpart 400 of Regulation S-K as part of its Disclosure Effectiveness Initiative. The disclosure requirements subject to the request include those relating to management, certain security holders, and corporate governance matters. Comments should be submitted within 60 days of publication in the Federal Register. SEC Release No 33-10198
SEC Extends Comment Period for Proposed Rules on Property Disclosures for Mining Registrants
On August 23rd, the SEC announced that it has extended the comment period for its proposed rules that would revise the property disclosure requirements for mining registrants. The SEC will accept comments on the proposal submitted on or before September 26, 2016. SEC Release No. 33-10127
No-Action Letters and Exemptive Orders
SEC Extends NYSE Exchanges’ Exemptions from Sub-Penny Rule under Regulation NMS
The SEC issued an order on August 25th that extends the limited exemptions granted to the New York Stock Exchange LLC (“NYSE”), NYSE MKT LLC (“NYSE MKT”), and NYSE Arca, Inc. (“NYSE Arca”) from Rule 612 under Regulation NMS until December 31, 2016. The exemptions, which were granted to the exchanges in connection with the operation of their Retail Liquidity Programs, permit the exchanges to accept and rank orders priced equal to or greater than $1.00 per share in increments of $0.001. SEC Release No. 34-78678 (NYSE and NYSE MKT) and SEC Release No 34-78677 (NYSE Arca).
SEC Clarifies Treatment of Margin Collateral in Calculation of Net Capital
In a no-action letter published on August 19th, the SEC’s Division of Trading and Markets responded to a request by the Financial Industry Regulatory Authority (“FINRA”) for clarification of the treatment of margin collateral under the SEC’s net capital rule. The Division indicated that it would not recommend enforcement action against a broker-dealer that does not deduct the value of margin collateral posted to a derivatives clearing organization (“DCO”) for a cleared swap from net worth when computing net capital. With respect to non-cleared swaps, the Division indicated that it would not recommend enforcement action against a broker-dealer that does not deduct the value of the initial margin collateral posted to a swap dealer or other counterparty, subject to certain conditions. SEC No-Action Letter
SEC to Issue Orders Finding FINRA’s and MSRB’s Rules Restricting Political Contributions Substantially Equivalent to SEC’s Pay-to-Play Rule
On August 25th, the SEC issued two notices of intent to issue orders with respect to FINRA Rule 2030 andMunicipal Securities Rulemaking Board (“MSRB”) Rule G-37, which impose restrictions on broker-dealers and municipal advisors from making political contributions to certain elected officials and prohibit them from providing or agreeing to provide payment to third parties for solicitation of business from government entities. The SEC stated that it will issue orders finding that FINRA’s and the MSRB’s rules impose substantially equivalent or more stringent requirements on broker-dealers and municipal advisors than the SEC’s Play-to-Pay Rule imposes on investment advisers. Hearing requests should be received by the SEC by 5:30 p.m. on September 19, 2016.
Rule on Principal Trades with Advisory Clients Will Expire at Year’s End
On August 19th, SEC Division of Investment Management Director David W. Grim informed the Securities Industry and Financial Markets Association (“SIFMA”) that the SEC will take no further action on Rule 206(3)-3T under the Investment Advisers Act, which provides an alternative means for investment advisers that are also registered as broker-dealers to comply with Section 206(3) of the Advisers Act when acting in a principal capacity in transactions with certain advisory clients. Grim indicated that he expects the rule will expire at the end of 2016. Grim Letter
Luparello Seeks FINRA’s Help in Addressing Gaps in Regulation of U.S. Treasury Securities
Stephen Luparello, Director of the SEC’s Division of Trading and Markets, sent a letter on August 19th to FINRA asking it to complete a thorough review of its rulebook to assist the SEC in identifying potential gaps in the regulatory framework for U.S. Treasury securities. In the letter, Luparello requested that FINRA identify current rules that exclude U.S. Treasury securities and assess the continuing validity for these exclusions. Luparello Letter
EDGAR Updates. On August 19th, the SEC published the Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 38)
Among other things, the draft manual contains changes related to filings by unregistered money market funds, new requirements to designate accelerated filing status on periodic reports, and new form submission types for asset backed securities. If approved, the implementation date for the changes in the draft manual will be September 19, 2016.
SEC Publishes Updated Money Market Fund Statistics
On August 18th, the SEC’s Division of Investment Management released updated money market fund statistics. The updated statistics include data as of July 31, 2016. Money Market Fund Statistics
Federal Rules Effective Dates
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Exchanges and Self-Regulatory Organizations
Financial Industry Regulatory Authority
SEC Approves FINRA’s Pay-to-Play Rules
On August 25th, the SEC issued an order approving FINRA’s proposal to adopt FINRA Rules 2030 (Engaging in Distribution and Solicitation Activities with Government Entities) and 4580 (Books and Records Requirements for Government Distribution and Solicitation Activities) to establish “pay-to-play” and related rules that would regulate the activities of member firms that engage in distribution or solicitation activities for compensation with government entities on behalf of investment advisers. SEC Release No. 34-78683
FINRA Offers Guidance to Firms about Amendments Relating to Use of the ADF for Trade Reporting Purposes Only
FINRA published a Regulatory Notice on August 24th that reminds members of new requirements for firms with Financial Information eXchange connections that use the alternative display facility (“ADF”) solely for trade reporting purposes. Under the new requirements, which will become effective on September 12, 2016, these firms will be required to participate in annual connectivity and capacity/stress testing and will be charged a monthly fee of $500. FINRA Regulatory Notice 16-33
FINRA Prepares Firms for New Requirements For Educational Communication Related To Recruitment Practices And Account Transfers
FINRA issued frequently asked questions on August 19th regarding requirements under new rules effective on November 11, 2016, that will require firms to deliver an educational communication to customers in connection with member firm recruitment practices and account transfers. The FAQs address issues related to the effective date, the format of the educational communication, the delivery requirement, and the definition of “individualized contact” and “former customer” under the rule. FINRA FAQs
FINRA Launches New Web-Based System for the Collection of Short Interest Positions
FINRA announced on August 19th that it will introduce a new web-based interface for firms to submit short interest reports to FINRA. Effective January 17, 2017, firms will be required to use the new system, which will be accessible via the Firm Gateway. FINRA will make a test environment available beginning on October 3, 2016 so firms may assess any necessary program modifications. FINRA Regulatory Notice 16-32
FINRA to Hold Annual Meeting of Firms in September
In an Election Notice published on August 19th, FINRA announced that it will hold elections for an individual to fill one small firm seat on the FINRA Board of Governors at its annual meeting of firms, which will be held on September 19, 2016. FINRA indicated that all small firms should be represented by proxy or in person at the meeting and urged firms to vote using one of several methods described in the Notice. FINRA Election Notice
National Futures Association
NFA Reminds Members to Designate Executive Representative for Electronic Voting Purposes
On August 24th, the National Futures Association (“NFA”) published a notice that reminds members that they must designate an Executive Representative as part of the NFA’s new electronic voting process, which will be used during the 2017 election of members of NFA’s Board of Directors in October 2016. The NFA provided an overview for the designation process for the Executive Representative, who will be the only person who can submit a petition to nominate someone for election as a Director, cast votes on a member’s behalf in a contested election, or vote to approve or disapprove amendments to the NFA’s Articles of Incorporation. NFA Notice I-16-18
SEC Takes More Time to Consider NYSE’s Proposal on New Rules Related to New Pillar Trading Platform
On August 23rd, the SEC designated October 12, 2016, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding NYSE’s proposed rule change to allow NYSE to trade pursuant to unlisted trading privileges (“UTP”) any NMS Stock listed on another national securities exchange; establish listing and trading requirements for exchange-traded products; and adopt new equity trading rules relating to trading halts of securities traded pursuant to UTP on the Pillar platform. SEC Release No. 34-78641
NYSE Exchanges Propose Amendments to Co-Location Services and New Access and Connectivity Fees
On August 22nd, the SEC requested comments on NYSE MKT’s and NYSE Arca’s separately filed proposals to amend their respective rules governing co-location services to provide additional information regarding the access to trading and execution services and connectivity to data provided to Users with local area networks available in the data center; and to establish fees relating to a User’s access to trading and execution services; connectivity to data feeds and to testing and certification feeds; access to clearing; and other services. Comments should be submitted on or before September 16, 2016.
NYSE Issues Revised Memorandum on Trading Floor Conduct
NYSE published an Information Memo on August 19th that revises its policies governing conduct on NYSE premises, including the trading floor. NYSE advised members to provide a copy of the revised Information Memo, which supersedes and replaces the version issued on June 1, 2016, to all floor employees. NYSE Information Memo 16-11
Options Clearing Corporation
OCC Propose Changes to Rules Related to Its Escrow Deposit Program
On August 25th, the SEC requested comments on a proposal filed by The Options Clearing Corporation (“OCC”) that would make changes to the rules governing the OCC’s escrow deposit program designed to increase OCC’s visibility into and control over collateral deposits; strengthen clearing members’ rights to collateral in the program in the event of a customer default; clarify the manner in which OCC or clearing members would take possession of collateral in the program; and consolidate rules governing the program into a single location in OCC’s rulebook. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of August 29, 2016. SEC Release No. 34-78675
Plaintiffs Fail to Show That BlackBerry Executives Knowingly Made Incorrect Public Statements About Release of Z10 Smartphone
Plaintiffs alleged that BlackBerry and others made material misstatements and omitted material information related to the release of the BlackBerry Z10 smartphone. The Second Circuit affirmed dismissal on August 24th, finding that plaintiffs failed to establish scienter in merely asserting that individual defendants were high-ranking executives at BlackBerry and had an incentive for it to succeed. The panel added that plaintiffs failed to show that defendants actually possessed information contradicting their public statements about the release of the Z10. The panel remanded on plaintiffs’ motion to amend. BlackBerry
Permanent Injunction and Disgorgement in SEC Enforcement Action Are Remedial and Not Subject to 28 USC §2462
The SEC brought an enforcement action against defendant for misappropriating funds from SEC-registered business development companies. After a jury returned a verdict in the SEC’s favor, the district court enjoined defendant from violating provisions of federal securities laws, ordered disgorgement of $34.9 million plus prejudgment interest, and imposed a civil penalty. The Tenth Circuit affirmed on August 23rd, holding that the injunction and disgorgement are remedial and not subject to 28 U.S.C. §2462, which sets a five-year limitations period for government suits seeking penalties or forfeitures. SEC
Payments to Golf Channel for Advertising Services, While Considered Fraudulent Transfers, Were Also for ‘Value.’
Stanford paid $5.9 million to Golf Channel in exchange for advertising services aimed at recruiting investors into Stanford’s Ponzi scheme. After the scheme was uncovered and the district court seized Stanford’s assets, the receiver sued to recover the money. The district court held that while the payments were fraudulent transfers, Golf Channel received them in good faith. The Fifth Circuit initially reversed, finding the payments were not for “value,” but after the Supreme Court of Texas held that the payments were actually for “value,” the panel on August 22nd affirmed summary judgment for Golf Channel. Golf Channel
Regulators Set to Issue Report on Risky Investments
On August 26th, Bloomberg reported that the Federal Reserve and other agencies will soon issue a long-overdue report, required by the Dodd-Frank Act, that lays out recommendations beyond the Volcker Rule in an effort to restrict Wall Street’s risky investments. According to unnamed sources, the document will include plans for limiting banks’ investments in copper and hard-to-value assets.
Former Williams Companies Director Unveils Disputed Plan for Board
Keith Meister, the former director of energy company The Williams Companies, Inc. and the managing partner of hedge fund Corvex Management, issued an open letter to the rest of the shareholders and submitted the names of 10 nominees for directors at Williams. Meister noted that since he did not have time to come up with a full list of independent directors before the deadline, he instead nominated himself as well as analysts and managing directors from Corvex, which holds a 4% stake in Williams, to serve as “placeholder nominees” while the fund identifies its actual candidates over the next few weeks. Williams stated that it would “seriously consider” candidates who were qualified to serve on the board. Williams also said that it was disappointed that Corvex had begun a “distracting and costly proxy contest.” DealBook
JPMorgan and FDIC Settle Over Washington Mutual Crash
On August 23rd, CFO reported that JPMorgan Chase will receive $645 million in a settlement with the FDIC over who was responsible for the legal liabilities of Washington Mutual (“WaMu”) after the bank crashed in 2008. The FDIC, which acts as WaMu’s receiver, seized WaMu after it failed during the financial crisis and then sold most of its assets to JPMorgan for approximately $1.9 billion. This settlement resolves four lawsuits in which JPMorgan was seeking to recover “substantially in excess of a billion dollars” from the FDIC, contending that it should be indemnified for claims alleging WaMu fooled investors into purchasing residential mortgage securities.