MBIA’s (NYSE:MBI) chief executive Joseph W. Brown Junior has been accused of insider trading. The allegation comes in the midst of a trial concerning fraud when MBIA was split into two separate organisation. The specific allegation relates to purchases of the company’s stock Mr. Brown made in the months leading up to the restructuring. MBIA committed to a plan to separate its municipal bond insurance business from its mortgage backed securities sector which were in trouble due to the financial crisis. The announcement of that plan was made in February 2009.
MBIA has been surrounded by litigation since the collapse of the housing market. It had been vulnerable on the many mortgages it had insured. The suit in which this allegation was brought up involved eighteen banks at its outset, all suing MBIA for fraud in its restructuring. Since the trial began fourteen of the banks have settled leaving Bank of America, USB, Societe General and Natixis still fighting the insurer. They are seeking to have the 2009 ruling allowing MBIA’s restructuring to be reversed. The allegations of insider trading concern $1 million worth of stocks in MBIA Brown bought from November 2008 until February 2009. He was the chief executive of the company during these months. The counsel for the plaintiff said Brown was “pregnant with inside information”. Despite these accusations it seems clear that Brown has not actually sold any of his stock since retaking the reigns of the company in 2008.
MBIA has fallen in Moody’s ratings from a AAA rating in 2008 to a B3 today. The company was heavily exposed to the collapsing mortgage market after the 2008 financial and property crisis. MBIA’s weaknesses had been exposed by Bill Ackman leading up to the crisis. He shorted on the company among others. He saw the bubble in the mortgage insurance industry that was MBIA’s largest sector. MBIA in line with his prediction suffered large losses in the wake of the crash.
The case brought by the banks is just one of three separate cases involving MBIA regarding its restructuring in 2009. Aurelius Capital Management is suing on the same grounds as the banks. Aurelius owns many mortgage-backed MBIA has secured. MBIA has itself filed a lawsuit against Countrywide and its parent Bank of America. It is accusing the mortgage provider of misleading the insurer on the quality of its loans.