Our task force is supporting the Firm’s many clients impacted by the recent financial developments affecting the global banking industry, monitoring developments, and meeting regularly to coordinate efforts. Our multidisciplinary team brings together key leaders within the Firm’s various practice areas to assist clients seeking to protect their assets and ensure business continuity as they navigate threatened and actual bank closures and the consequences of these events on their operations and the entire economy. We are already advising clients throughout the United States on their rights with respect to receiverships, conservatorships, bridge banks, and bank holding company bankruptcies. Our team includes lawyers with deep knowledge of banking regulation, real estate and construction, securities regulation, intellectual property (IP), entertainment finance, and employment. As government regulators and private litigants seek redress, we also advise and litigate for lenders, private equity funds, hedge funds, venture capital funds, and all manner of portfolio companies.
The current crisis in the banking sector will have legal implications in a variety of areas – including both for particular banks and for all the companies and institutions that use those banks. We are here to help.
The task force is advising clients on bank regulatory issues, including client rights and remedies in connection with bank failures. Our team includes lawyers who have represented banks in crisis, their investors, and the depositors and borrowers impacted by an actual or a potential bank failure. The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $250,000 per employer identification number (or for individuals, by Social Security number), not necessarily per account (with some exceptions). In other words, depositors may be surprised to find their accounts aggregated with a combined single limit of $250,000 in protection. Other assets, including crypto assets, stock and bond investments, mutual funds, and the contents of safe deposit boxes, are unprotected by FDIC coverage. Understanding how best to protect assets going forward and a company’s legal rights and remedies in the event of collapse will be critical if additional banks fail. We can advise.
The banking turmoil further staggered an already sluggish real estate market that was trying to find its bearings following the recent interest rate hikes. The immediate reaction by lenders to the market’s uncertainty has been a pronounced reduction in the availability of financing for real estate projects and a pausing of deals. Gridlock in the financial markets will further impact landlords and tenants as they work through potential illiquidity issues.
With considerable depth of experience in negotiating loan forbearances, workouts, and debt restructuring and the representation of receivers in nationally prominent matters, task force members from the Firm’s real estate department are helping clients navigate the turbulence in the financial and real estate markets. In the wake of the Silicon Valley Bank (SVB) and Signature Bank closures, the task force has identified core secondary impacts and is proactively working with clients to address and mitigate actual and potential issues relating to issues such as backup or standby letters of credit and security deposits in commercial leases and other contracts.
Construction issues will arise out of future bank failures. Fortuitously, the closures of Signature Bank and SVB did not have a meaningful direct impact on contractors or their projects because the federal government stepped in to rescue all depositors and active lending activity. Future bank failures may not receive the same protections and will, in that event, certainly have adverse impacts on construction lending. Even absent any more failures, the lessening availability of funds for new projects and likely rising interest rates make it more important than ever to tighten the financial terms of yet-to-be-signed construction contracts with respect to assurances of performance and financial ability, and to revisit preexisting contracts to ensure companies are protected in the event of a bank failure or the consequences of such. The Firm is especially well suited, with our vast experience in everything from midsize to the very largest projects, to help control risks through these reviews.
Companies may face sudden liquidity issues that in turn will affect their payroll, their employee obligations, and a whole host of related issues. Some businesses, including failing banks, will face tough decisions, including whether to furlough some of their workforce or perhaps even engage in layoffs. This will undoubtedly lead in certain cases to disputes with former employees. Task force members have extensive experience in understanding an employer’s needs; effectively managing the situation will be critical to coming out on top.
The banking crisis may impact the entertainment industry uniquely. With banks more likely to be more cautious about lending, there could potentially be reduced banking and lending options for newer, smaller, and start-up entertainment entities, with the result being that smaller filmmakers and less-known producers, film companies, and investors could face challenges getting a bank to provide production financing. Other impacts on the entertainment industry could include the impairment or delay of payroll or cash needed to maintain development, production, and distribution. In addition, with many entertainment entities maintaining cash above FDIC limits, they potentially risk losing cash in the case of a bank failure, or they could spread the cash around a number of banks, which creates a substantial administrative burden to plan and manage their accounts.
The failed SVB was one of a small minority of banks that focused on emerging technology companies by allowing clients to use IP as collateral for significant loans. Of course, patents, copyrights, and trademarks are typically the most valuable assets of emerging technology companies. However, many banks may be less experienced (and thus less comfortable) using IP as loan collateral even though IP is subject to a legally enforceable security interest. The banking task force is well positioned to advise on the proper use and limits of collateralized IP after a bank failure, how to address the risk traditional banks may initially express about using IP as collateral, and otherwise to assist clients in protecting, monetizing, and enforcing the borrower’s IP.
Securities Regulation and Litigation
In the wake of the bank failures, plaintiffs (and plaintiffs’ securities firms) have moved quickly to file securities litigation, and Securities and Exchange Commission (SEC) and other regulatory investigations have commenced. These actions will multiply if and when other banks begin to fail. The shares of other regional and smaller banks have swung wildly in the wake of the run on SVB and Signature, making it inevitable that additional securities litigation and SEC and regulatory matters will be commenced. Our task force includes senior securities litigators who have each litigated securities matters in federal and state courts, handling SEC and other regulatory investigations and compliance issues and advising issuers, principals, and financial institutions on securities and regulatory liabilities and disputes with counterparties in this arena, as well in internal investigations, which may follow.
When dealing with transactions involving the failure of a bank or other financial institution, it is critically important to navigate a myriad of potential negative tax consequences and tax opportunities, such as avoidance of the cancellation of indebtedness income or other phantom income and the preservation of accumulated loss carryovers. We have extensive experience advising clients in connection with distressed loan transactions (including purchases, sales, modifications, foreclosures, and deeds in lieu of foreclosure) as well as acquiring, restructuring, and/or reorganizing insolvent companies.
White Collar Defense
Task force members have extensive experience defending corporations and their senior executives who become the subject of investigations, including criminal investigations, and are already advising clients in connection with the current crisis. Immediate response at the highest level is required at the outset of any criminal investigation, whether begun by the execution of a search warrant, a grand jury subpoena, or informal contact by an investigator seeking to interview a company’s employees and executives. Misjudgments in the response to any criminal investigation at the early stages can severely prejudice the ability to successfully defend against prosecution. There is also an increasing emphasis by the Department of Justice (as reflected in a recent memo to United States attorneys) to ensure that companies have adequate compliance programs that include protocols for making voluntary disclosures that if done correctly can prevent prosecutions. Our team is led by former federal and state prosecutors and lawyers with substantive experience in all areas of financial services where there is a risk that noncompliance could lead to government investigative and enforcement efforts.
Glaser Weil Banking Response Task Force
For general information on what the task force can do for you, email your contact at the Firm or contact us today at email@example.com:
- Richard Gottlieb (team lead)
- Aman Badyal
- Andrew Baum
- Michael Cypers
- Julie Gerchik
- Jason Grinnell
- Thomas Hanley
- Fred Heather
- Marc Indeglia
- Matthew Jann
- Jeff Joyner
- Emil Petrossian
- James Sargent
- Peter Sheridan
- Elizabeth Sperling
Access our Banking Response Resource Center, where we provide a list of important resources related to the developing banking crisis.