Datatreasury Corporation v. Wells Fargo & Company et al

Filing 525

RESPONSE to Motion re #85 MOTION to Dismiss for Lack of Jurisdiction Amended per Judges Order Docket # 394 filed by Datatreasury Corporation. (Attachments: #1 Exhibit #2 Exhibit #3 Exhibit #4 #5 Exhibit #6 #7 Exhibit #8 #9 Exhibit #10 Affidavit)(Bruster, Anthony)

Datatreasury Corporation v. Wells Fargo & Company et al

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July16,2004
O f f i o eofthe Comptoller ofthe Currency 2 5 0 E Stree! SW Attn: Public Reference Room M a i l Stop l-5 W a s h i n g t o n , 20219 DC RegulationComments Office ChiefCounsel's Office of Thrift Supervision 1 7 0 0G Street, NW W a s h i n g t o n , 20552 DC Attention: No. 2004-27 J. J e n n i f e r Johnson Secretary B o a r dofGovemorsofthe F e d e r aReserve l System 20' Streetand Constitution Av., NW W a s h i n g t o nDC 20551 , Re: ProposedlnteragencyStatement SoundPracticesRegardingComplex on StructuredFinanceTransactions(Office ofthe Comptroller ofthe Currency D o c k e tNo. 04-12;Offce of Thrift Superyision 2004-27; No. Reserve Federal B o a r dDocketNo. OP-l189;Securities Exchange and Commission No. 57File 22-04\

RobeftE. Feldman Executive Secreta.ry Attention:Comments/OEs FederaDepositInsurance l Corporation 5 5 017' Street, NW Washington, 20429 DC G. Jonathan Katz Seoretary Securities Exchange Commission and 4 5 0FifthStreet, NW W a s h i n g t oDC 20549-0609 n,

LadiesandGentlemen: HSBCNorthAmericaHoldingsInc.("HSBCNorthAmerica")appreoiates the to on opportunity comment theproposed Interagenoy Statement Sormd on Praotioes (the Conoeming Complex Structured Finance Transactions "Statement") issued the by Officeofthe Compholler ofthe Currency, OfficeofThrift Supervision, Boardof the the Governors ofthe Federal Resewe Commission System, the Securities Exchange and and (oollectivelythe'a.gencies'). HSBCNorthAmericais a wholly-owned , of subsidiary plc H S B CHoldings ("HSBC and through which Holdings"), is theholding company HSBCHoldingsconducts operations theUnitedStates.HSBCHoldingsis the its in largesbankingorganization t in headquarteredtheUnitedKingdomandis the second largesbankingorganization theworld by marketcapitalization. t in

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Comment Letter J u l y16,2004 Page of 8 2 As a bankholdi$gcompany, HSBCNorth AmelicaopoEtes vadoussubsidiaries in theUnitedStates.Its principalbanking subsidiary, HSBCBankUSA,N.A., hasmore than400branches New York, Florid4 Pennsylvania, in and Califomia,Washington, Oregon.Its consumer Inc., finance subsidiary, Household Intemational, is oneofthe country'slargest creditcardissuers offeIsconsumer mortgage and loans 50 to and million customers throughoflicesthroughout theUnitedStafes.Othersubsidiaries in of HSBCNorthAmerica,includingHSBCSecurities (USA)Inc.,an investment bank registered lhe Securities Exohange with and in Commission, engage a broadrange of permissible nonbanking activitiesin theUnitedStates. financialinstitutions As s u p e r v i s e d theAgencies, by HSBC NorthAmerica its subsidiaries wouldbedirectly and provided the Statement. affected the guidance by by HSBCNoth Americastronglysupports Agencies' the ffort to provideguidance on strengthening for safeguards the legal,reputational other sksthatmaybe and ("CSFTS").As a leader associatewith some d structured finance complex transactions in providinga wide anayof financialservices clients,HSBCNorth Americabelieves to that finanoialinstitutions havea vilal role to play in thercsponsible ofCSFTsandrelated use financialproducts applauds Agencies' and the recognition role ofthe important played by CSFTS theinstitutions pafticipating themin serving'lhe legitirnate and structuring or in purposes custome$." business Moreovet appreciales of HSBC NorthAmerica the Agenciesobservation "manyfinanoialinstitutions ' takenmeaningfill that havealready steps improvetheircontrolinfiastructures to in relatingto [CSFTS] light ofcontol weaknesses evidenced recent by events."BothHSBCNorthAmerioa HSBC and Holdings havelong-standing, sophisticated risk-management policiesandprccedures in placethataccount all oomponents risk, inoluding for of risk legalandreputational andwe areconsistently policiesandprocedures. seeking improve safeguards those to the in While it maybetruethatsome financialinstitutions to mayneed adoptlegaland reputational risk-mitigation systems havenot been that takenseriously thepast,we in respectfully not burdens usand urgetheAgencies to impose unnecessary additional on on otherfinancialinstitutions for a longtime haveincorporated thorough that a evaluation legalandreputational sk into our financialstrucfiringandadvisory of c a p a b i l i t i e s . particular, Agencies the In should avoidimposing "one-size-fits-a11" a approach a solutionfor financialinstitutions.Thedegree as ofthese ofxposure institutions therisksposed CSFTs to by depends significantly numerous ol variables, suchasthetypeofrole playedby the institution, typeoftransaction the oontemplated by tho customer, thejurisdictions whichbothoperate.Ofmore importance that and in is suoh approach an threatens expose lo these institutions the very liabiliry ftom which to the Agencies seek protect to them. Wetherefore respeotfully theAgencies issue to urge a final version ofthe Statement allowsfinancialinstitutions that flexibility rn considerable determining whichtransaotions require heightened scrutiny how bestto applythat and scrutiny.The Statement should allow a financialinstitutions setits own standads with to respecto each t ofthe areas whichpoliciesandcontrols suggested that it oan for so are

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Comment Letter J u l y16,2004 Page of I 3 accounfor thedifferentrolesandresponsibilities it assumes thett?es ofCSFTs t that and i n whichit is involved. Setforth belowareour two principalcomments the Statement. on Follordng to flrese comments briefly list several we otherpointsof conoem HSBCNorth America thatwe undeNtand becovered greater at lengthin thecommonts ofvariousfinancial will tradeassociations ofwhich we area member, l TheStatement not a that liability should impose newframework irnposes on financialinstitutions the failures ofcustomers otherDarticiDants for or i n CSFTs.

ThStatement draftdfhreafens increase risk to thesafefyandsoundness the as to ofthe bankingindustryby providinggrounds the imposition liability on financial for of institutions beyond law. In some cases, those existunderourrent that langlagein the Statement couldserye a basis whichto impose liability on financialinstitutions as on for fiaudulent activitiesindependently or conducted customers otherparties a CSFT. by to This language includes repeated for financialinstitutions "ensure" certain to the call that steps lakenandrcsultsareobtained thedetailed extensive are and and reviewthatthe Statement contemplates whatthe Statement to for considers behigh-riskCSFTs regardlesofa financialinstitution'sownassessment s ofthat risk. Werespectfully requesthattheAgencies t reconsider useof termsin the Statement may the that inadvertently convertits supewisory guidance a mandate requircrnent into or for "should purposeofcompliance.We suggest theAgencies s that replace phrase the "shouldstrive"or with a lesspresoriptive ensure" termsuchas"shouldconsider," "shouldevaluate needfor." the To avoidtheunintended nther thanreducing consequence expanding of the exposueofthe U.S.bankingindustry legalrisk, HSBCNorth Americaasks the to that Statement cladrythat its guidance no oreates dutyor anyothergroundon whichto impose liability on a financialinstitutionor its direotors officerseitherfor a failue to and follow the Statement's guidance for the actions or ofany customer otherpartyto a or CSFT,beyond those existundercurrentlaw. The Statement should that alsomake olear that it does shiftthe customer's not obligation oomplywith securities to disclosure requirementto the financialinstitution.Weareconcemed unless s that pointsare these cla fied,the Statement discourage ftom participating will financialinstitutions in legitimateeconomically , sound CSFTS at wols! expose and, themto significant liability for the actsof others overwhichtheyhaveno controlandfor whichtheyshould haveno responsibility. grounds liability Two morewaysin whichthe Statement impliesadditional for placs a financialinstitution's areofparticularconcem us. Firs! the Statemnt on to boardof directors burden the implementation the for ofthe contols andpolicies tecommendeby the Statement. Statement d among otherthings,thatthe The states,

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Comment Letter J u l y16,2004 P a g e of8 4 directors "ultimatelyresponsible thefinancialwell beingofthe institutions are for they overseeand"shouldestablish financialinstitution's " the threshold therisksassociated for with [CSFTS]."We agree a finanoialinstitution's that boardshouldoversee riskits confiolfiameworkandregularlymakeeffortsto shengthen however, impose it; to responsibility tfie boardfor anyshortcoming thatframework on in wouldbea mistake. qualifiedindividuals To do sowoulddiscourage ftom serving a direotor financial as ofa participation frank institutionand,at a minimum,wouldthreaten their active and discussion boardmeetings. in Secondthe Statement financialinstitutions obtaininformation , to asks and parties, asswancefrom other s implyingthatthefailureto do sois a failureto comply with the guidelines. The Statement that,in thecase CSFTS "posehigher says of that levelsoflegal andreputational risk," a financialinstitution"shouldensure staff that approving transactions the obtainanddocument complete acourate and infomationabout proposed the customer's accounting treatment ofthe transaclion, financialdisclosures related thetransaction well asdrcustomer's to as objecfives ente.inginto the for transaction." The Staternent for financialinstitutions "consider calls io seeking representations warranties and from thecustomr stating purpose the ofthe hansaction, howthecustomer aooount thetransaction, thatthecustomer account will for and will for thetransaction accordance applicable in with accounting standards, consistently applied." Finally,the Statement contemplates only thatthird-party not be to accountants retained reviewtransactions thatthose but accountants discuss CSFTt ansaction the the with customer's independent auditor. Therealities ofthe financialma*etplacemakecompliance these guidelines with impractioal.A financialinstitutionmayfind thatits oustomer sirnplyrefuses comply to gpes ofinformationandassurances thatit hasdefensible with requests these for and reasons doingso. A customer's for outside auditorwouldtypioallyhaveeveryreason not to prcvideits client'scounterparty infomation on whichthatcounterpafy with oould laterclaimto haverelied. A finanoialinstitutionmayresponsibly choose to pu$ue not certain ofthe approaches suggested the Statement entirelylegitimate in for business particularly circumstances whichit hasreliedon outside reasons, in in counsel other and traditional resources fully sufiicientprotection these for on points. 2. The Statemedt needs allow a financialinstitution oDerates a to in that multi-jurisdictional environmenl flexibility adopt rhe p;liciesand to procadurethatreflectforeignregulations globalrisk-management s and Dractoes.

The Statementshouldmake clear that it doesnot apply to non-U.S.bank holding c o m p a n i esuchasHSBC Holdingswith respect the CSFTactivities s to oftheir non-U.S. subsidiaries.In the caseofa non-U.S.bank, the Statement limits its applicationto that b a n k ' sU.S.agencies, branches subsidiaries, clearlydefering to the non-U.S. or bank's home-countryregulatoron the questionofhow CSFTSentercdinto by its non-U.S.

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Comment Letter J u l y16,2004 P a g e of8 5 officesandsubsidiaries The same should truefor non-U.S. be shouldberegulated. holdingcompanies. thecase theHSBCGroup, Statment should In of the applyto HSBC NorthAmedca its subsidiaries, and including HSBC BankUSA,N.A. andHSBC Secu ties(USA) Inc.,buttheAgencies should deferto theFinancial Seryices Authority andothernon-U.S. rcgulators how CSFTS on entered to HSBCHoldings'non-U.S. into subsidiarieshould supervised. s be HSBC NorthAmerica's holding status a subsidiary non-U.S. as ofa company and m e m b eofa global r organization does that business 79countries tenitories in and prompts related two points. First,the Statement needs recognize a financial to that institutionsuchasHSBCNorthAmericawill be morelikely to be involvedin CSFTS to which a non-U.S. affiliateor othernon-U.S. entitywill bea pa.fy simplyby virtueof its membershiin a globalorganization. Statement p govide these The should institutions with the flexibility to tailor their intemalpoliciesandprocedues with respect CSFTS to in a waythatreflects factthatthese parties be subject non-U.S. the non-U.S. will to regulatory regimes.HSBCHoldings decades managing has ofexperienoe in opemtions numeroujurisdictions, s whichrequires to integrate reconcile it and differentregrrlatory r e g i m eon a continuous highlysophisticated HSBC s NorthAmerioa and basis. and similarlysituated financialinstitutions shouldbeallowedto rely onthis unusual expertise andexperience evaluating monitoring participation CSFTS. ill and its in Secondthe statement "[t]Ensactions cross , lists that multiplegeographic or "that jurisdictions"asanexample characteristic should considered regulatory ofa be m determining whether not a transaolion several mightneedadditional or or transaotions scrutiny." Eitherthis charaoteristio fiom the list or the Statement should removed be should makeclearthatit is a characteristic needs beconsidered for that to anly institutions withoutsignificant director afliliatedforeignoperations. HSBCNorth Americais a financialinstitution principalshategic a advantage ofwhich is its ability to qoss-border strucfure transactions se e customets counterparties morethan and and in onegeographic portionof its region. This admonition applies a substantial thus to businessWrespeotfully . th d)at on dispute implioation sucha transacti isper selikely to need additional scrutinyon theground that'lrocessingandoversight" made is more difficult. HSBCNorth Americaandits non-U.S. affiliatesdistinguish themselves from their competitors thebasis "processing overcight" not moredillicult for on that and is them,i.9. on the basis theirexpetisein these that transactions enable themto evaluate these transactions withoutthediflicultiesencountered finanoialinstitutions do not by that enjoythebenefits HSBCGroup'sglobalrisk-management infrastruoture. 3. Additional Comments

Wehavesummarized belowthreeadditional concems we haveaboutthe that Statement thatwe share and with a broader range financialinstitutions.We of understanthattheywill bediscussed moredetailby otherinterested d in parties who plan to comment the Statement. on

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Comment Letter J u l y16,2004 Page of 8 6

a.

The Statement should allow a financialinstitutionto tailor its CSFT policiesnot only to thetypeoftransaction to the scope ofthe but makeclear institution'sinvolvement anyCSFT. TheStatement in should (i) thatdifferentrolesplayed financialinstitutions the development in by of or structure ofCSFTspresent differenltlpes anddegrees sk, (ii) that in heightened scrutiny maynot benecessary circumsfances wlich in playa limitedrole in a CSFTtransation, (iii) that financialinstitutions and financialinstitutions should exercise discretion flexibility to apply the and gridancedifferentlywhenrolesor responsibilities the Statement's vary. Therequirement a financialinstitutionestablish special that a SPEapprovaprocess monitortheuseof SPES redundant l and is and uDecessary. continuous The rcviewandmonitoring ofan institution's will beunneoessary manyinstances whichan SPEis in in useofan SPE properlybe foldedin to theheightened scrutiny formedandshould this imposed CSFTS the institutionhasidentifiedasrequiring on that treatment.Forexample, SPE an created a customer well oall for a by may differentlevelof scrutiny thanan SPEshuctured thefinancial by SPE needs becontinuously to institution.Whether useof a particular the based monitored should left to thedisqetionofthe financialinstitution, be on thetypeoftransaction question thesoope in and ofthe institution'srole andresponsibilities thattransaction. in Terminology throughout Statement the should revised avoidthe be to peroeption For the urges financial ofvagueness. xample, Statement policiesandconholsfor institutions implement to recomrnended "the evaluating appropriateness transaction(s)" "preventing ofthe and the financialinstitutionfrom participating inappropatetmnsactions." in The tems "appropriateness" "inappropriate" not defined the or are by "approp ateness" to or StatementWesuggest referenoes . that "inappropriate that, transactions" replaced be with "transactions in the poseanunacoeptably level high determinatioofthe financialinstitution, n reputational risk." Also,thestatement "[t]he more that oflegal or tnnsactions have. . . complex variations selected of structuedfinance placed pressuae tle interpretations and on ofthe accounting tax rules" be liom unnecessarilysksdiscounging innovation, should removed and the final Statement.

b.

c.

We hopethat this letter is helpful to the Agenciesas they begin to finalize the Statement.We would be more than happyto discussany ofthe mattersraisedin this

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CommentLetter J u l y 16,2004 P a g e7 of8

letter at greaterlength. Pleasedo not hesitateto call or e-mail m at [phone]or [e-mail], ifyou haveany questionsaboutour comments.

Sincerely,

Janet Burak L.

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