NEW YORK, April 20 (Reuters) - MBIA Inc's 2009 restructuring
will be on trial next month, when Bank of America Corp and two
other lenders try to show that New York state insurance
department acted unreasonably in approving it.
"I have to determine whether their approval was arbitrary
and capricious," Justice Barbara Kapnick said in a hearing
before an overflowing courtroom in a New York state court in
Manhattan. She will preside over a non-jury trial beginning on
May 14 that is expected to last two to four weeks.
Bank of America, Natixis SA and Societe Generale
are the only plaintiffs remaining among the 18 that in 2009 sued
MBIA and then-New York Insurance Commissioner Eric Dinallo, who
let MBIA segregate its troubled structured-finance business from
its traditional municipal bond business.
The banks claimed the restructuring was intended to defraud
policyholders and that $5 billion was siphoned from the MBIA
Insurance unit at their expense.
The banks brought two lawsuits against MBIA, with the state
insurance department, now part of the state Department of
Financial Services, a defendant in one of them. The May 14 trial
will address the case involving the New York state agency.
Robert Giuffra, a lawyer for the banks, said at Friday's
hearing that the restructuring should be undone, and that MBIA
should "do it over on current financial information."
He said that Armonk, New York-based MBIA, which has denied
any wrongdoing, hid its finances when it sought approval to
Giuffra also said he wants to question MBIA Chief Executive
Jay Brown, whom he said engaged in insider trading by trading
company stock in advance of approval of the restructuring.
Brown, who watched Friday's hearing in the courtroom, in an
interview called the insider trading accusations "outrageous"
and said they had no place in the court proceeding.
"I think that's so far afield, and so not fact-based," Brown
said. "All of the trades were approved, and these were all
purchases, not sales."
Among those expected to testify are Dinallo, who is now a
partner at law firm Debevoise & Plimpton, and Jack Buckmiller,
an insurance department analyst who reviewed MBIA. Expert
testimony would be limited, the judge said.
"This case really addresses the actions of the insurance
department in approving this transaction," the judge said. "It's
not a case about all these terrible intentional things, about
concealing," that MBIA is accused of having done.
The case is ABN Amro Bank NV et al v Dinallo, New York State
Supreme Court, New York County, No. 601846/2009.
(Reporting By Karen Freifeld)
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