Investors are likely to overcome the U.S. government’s motion to dismiss lawsuits by shareholders challenging the so-called “net worth sweep” of profits, Bloomberg Intelligence analyst Elliott Stein said. Holders may advance with at least some of their claims in the Court of Federal Claims, he said.
“Oral argument definitely favored investors yesterday except for maybe investors who purchased after the August 2012 third amendment,” as Judge Margaret Sweeney expressed “criticism and concern” about the sweep several times, Stein said. “We think she’ll find that jurisdiction is proper in this court and at minimum allow direct takings or illegal-exaction claims to proceed.”
Stein noted that Sweeney on Tuesday said she already had a draft ruling, which may mean “she could finalize it relatively quickly, likely in a matter of weeks.”
The capital rule re-proposal “really wasn’t a surprise and shouldn’t change the overall calculus too much,” Stein and fellow analyst Ben Elliott said. “We still think most or all of these suits likely settle as part of ongoing reform efforts. A new capital rule could come around the same time as a potential Supreme Court decision in June 2020, setting the table for a potential fourth amendment to the preferred stock purchase agreement, litigation settlement, and consent order in the second half of 2020.”
Elliott and Stein said that “there’s a lot of worry about political risk and the 2020 election, so anything that suggests delay close to or beyond the election raises concern.” Markets may be “foggy” on what the rule re-proposal “means for the capital raise and how the mechanics will work.”
Source: Bloomberg Government
