Aug. 4 (Bloomberg) -- Bank of New York Mellon Corp., the world's largest custodian of financial assets, sued Bank of America Corp.'s Countrywide Financial Corp. seeking repayment of $2 billion in notes.

Countrywide failed to inform holders of its Series B floating rate convertible notes due in 2037 that its acquisition by Bank of America on July 1 gave holders the option to keep the notes or cash them in, lawyers for BNY Mellon said July 31 in a complaint filed in Delaware Chancery Court in Wilmington.

Countrywide was required to mail notices explaining the changes by July 16, according to the complaint. BNY Mellon filed the suit as trustee for the holders of the notes.

``Bank of America has not assumed or guaranteed the liabilities of Countrywide, including the liabilities owed by Countrywide under the indenture, and in fact has stated that it will not do so,'' lawyers for BNY Mellon said in the complaint.

Bank of America Chief Financial Officer Joe Price said July 21 that the company doesn't plan to back public debt issued by Countrywide. Bond investors are concerned that Bank of America may absorb the best assets of Countrywide while the debt remains with a new company created by the merger, Red Oak Merger Corp. The investors speculated that Red Oak could then file for bankruptcy, shielding Bank of America from liability.

Previous filings have shown Countrywide had about $38 billion in outstanding debt.

Had the acquisition been structured as a direct merger, Bank of America would have become obligated for the payment of the Series B notes, according to the complaint.

The current structure gives Bank of America ``the power, in the service of its own corporate interests, to cause Countrywide to engage in acts or transactions detrimental to the business and financial condition of Countrywide,'' lawyers for BNY Mellon said in the complaint.

Bank of America spokeswoman Shirley Norton said the company hadn't seen the lawsuit and couldn't comment.

BNY Mellon is seeking a judicial declaration that Countrywide has defaulted on its obligations under the terms of the indenture. The company is also asking a judge to order Countrywide to immediately purchase the notes surrendered in cash equal to 100 percent of the principal amount plus accrued and unpaid interest.

Bank of America acquired Countrywide last month for 37 percent less than the $4 billion in stock the bank agreed to pay in January amid speculation the home lender might go bankrupt. The acquisition gives Bank of America, the second- biggest U.S. bank by market value, control of one out of every four U.S. home loans.

The case is The Bank of New York Mellon v. Countrywide Financial Corp., CA3935, Delaware Chancery Court (Wilmington).

ImClone Sued by Shareholder Over Bristol-Myers Takeover Bid

ImClone Systems Inc. was sued by an investor who claims a $4.33 billion takeover bid from Bristol-Myers Squibb Co. would allow the buyer to obtain the maker of cancer drugs at ``a bargain price.''

The price is ``not fair,'' shareholder Jay Herman of New York said in a lawsuit filed July 31 in New York State Supreme Court in Manhattan. Herman asked the court to stop ImClone from implementing the merger. His suit also names Bristol-Myers, ImClone shareholder Carl Icahn, Chief Executive Officer John Johnson and company directors.

The defendants ``engaged in a plan and scheme to enrich themselves at the expense of'' ImClone shareholders, Herman said in the complaint, filed as a proposed class-action, or group lawsuit. Both companies are based in New York.

Bristol owned 16.6 percent of ImClone before offering to buy the remainder for $60 a share in a bid to boost its sales of cancer drugs.

``I think the $60-a-share price is unfair,'' said Gregory Nespole, a lawyer who filed the suit, in a telephone interview.

Rebecca Gregory, an ImClone spokeswoman, wasn't immediately available.

Brian Henry, a Bristol spokesman, said the company has a policy of not commenting on pending litigation. ``We believe we've made a full and fair offer for ImClone,'' he said.

The case is Jay Herman v. ImClone Systems Inc., 602237/2008, filed in New York State Supreme Court (Manhattan).

For more new suits news from last week, click here. For copies of recent civil complaints, click here.

Lawsuits/Pretrial

New York to Sue Citigroup Over Auction-Rate Sales

New York Attorney General Andrew Cuomo plans to sue Citigroup Inc., the largest U.S. bank by assets, after accusing it of ``fraudulent'' tactics in selling auction-rate securities as safe, money market-like investments.

Citigroup destroyed ``documents under subpoena,'' Cuomo said in a ``letter of intent' sent Aug. 1 to the bank following a five-month investigation by his office. He said he plans to ``charge'' the bank under the state's Martin Act, which permits civil suits and criminal action in securities cases. Cuomo offered details for a possible settlement of the matter. He won't sue if his terms, including a fine, are met, spokesman Alex Detrick said.

``The investigation has revealed that Citigroup has repeatedly and persistently committed fraud by making material misrepresentations and omissions in connection with Citigroup's underwriting, distribution and sale of auction-rate securities,'' Cuomo said in the letter.

Citigroup's sale of auction-rate securities also is being investigated by the U.S. Securities and Exchange Commission, the bank said Aug. 1. Citigroup and other firms that sold the securities have received subpoenas and information requests from state, federal and industry regulators, the bank said in an SEC filing. The states include Massachusetts, New York and Texas, Citigroup said.

Auction-rate securities are typically bonds whose interest rates are reset by periodic bidding. Brokers abandoned their role as buyers of last resort in mid-February, allowing a $330 billion market to collapse, and investors were stuck with bonds they could not sell.

``Citi has acted in good faith and in the best interests of our clients both before and since auctions began to fail, and there is simply no basis for claims to the contrary,'' company spokeswoman Susan Thomson said in a telephone interview.

She said Citigroup was working with regulators and market participants to find an ``industrywide solution'' to the auction- rate securities issues. She said the company was cooperating with regulatory authorities, including Cuomo, ``to secure the best and fastest route to providing liquidity.''

New York sued UBS AG July 24 over the same matter, accusing the bank of ``aggressive marketing'' of auction-rate securities. Massachusetts and Texas filed similar complaints against UBS in an effort to force that firm to repurchase securities it marketed in their states.

UBS Seeks Order Stopping Vestra From Soliciting Clients, Staff

UBS AG, Europe's biggest bank by assets, asked a judge to stop a company set up by former employees from soliciting clients and staff from its London-based wealth management unit.

UBS lawyer Alistair McGregor QC asked High Court Justice Charles Openshaw to grant the temporary injunction at a hearing Aug. 1 to restrain the company, Vestra Wealth, until a full trial in October.

Fifty-two of UBS Wealth Management's ``most senior'' employees resigned in May to go to Vestra and another 23 have followed since, McGregor said. UBS said the departures were the result of ``an unlawful conspiracy'' to induce UBS staff and clients to switch to the startup.

``The whole scheme was a smash-and-grab raid,'' on UBS, McGregor said at the hearing in London.

The lawsuit ``is aimed at destroying'' Vestra rather then protecting UBS's ``legitimate interests,'' Andrew Sutcliffe QC, a Vestra lawyer, said in court documents.

Merrill `Co-Opted' Analysts Backed Auction-Rate Debt

Four days before Merrill Lynch & Co. stopped supporting the auction-rate securities market and left thousands of individual investors stuck with securities they couldn't sell, the firm's analysts recommended clients buy.

``Reports of the imminent demise of the auction market seem to be greatly exaggerated, again,'' analyst Kevin Conery wrote in a Feb. 8 research note. ``We continue to be impressed by the auction market's resiliency.''

The remarks show Merrill's researchers were ``co-opted'' during a seven-month drive by the New York-based firm's sales force to prevent a meltdown in the $330 billion market, Massachusetts Secretary of State William Galvin alleged July 31 in an administrative complaint filed in Boston. As the sales desk pushed analysts to publish upbeat notes, managers used gallows humor to complain about a ``collapsing'' market and the end of $2,000 dinners.

``Come on down and visit us in the vomitorium!!'' the auction-rate desk's managing director, Frances Constable, wrote to a co-worker in August, as demand began to dry up. ``Market is collapsing,'' another executive cited in Galvin's complaint said in a November 2007 personal e-mail. ``No more $2K dinners at CRU,'' a Manhattan restaurant where the wine list includes dozens of bottles for more than $1,000.

Galvin, 57, wants the third-largest U.S. securities firm to ``make good'' on sales of now-frozen holdings, compensate investors who disposed of their bonds or shares at a loss and pay an unspecified fine. He has already filed a related claim against Zurich-based UBS AG, and is still probing Bank of America Corp.

``Research analysts routinely soft-pedaled significant negative events affecting liquidity in the auction markets,'' he said in the complaint. At the same time, managers knew ``the auction markets were not functioning properly and were in fact in significant danger of collapsing,'' he said.

Merrill denied that its analysts acted improperly in recommending auction-rate securities, also known as ARS.

The analysts mentioned in Galvin's complaint ``are men of integrity and intellectual honesty. They called the ARS market as they saw it, not the way anyone else did,'' Merrill spokesman Mark Herr said. ``Nothing the sales desk could do or couldn't do affected how much these analysts earned or their standing in our research department.''

Auction-rate securities are long-term bonds or preferred shares with interest rates adjusted typically every seven, 28 or 35 days through a dealer-run bidding process, providing them with the characteristics of money-market investments. Firms historically supported the auctions, without contractual obligation, when demand waned.

Merrill is the second bank to face a complaint by Galvin after brokers stopped supporting the auctions in mid-February as losses from securities tied to subprime mortgages mounted. Massachusetts last month filed a complaint against UBS, Switzerland's biggest bank.

For more lawsuits news from last week, click here.

Trials/Appeals

Teck Cominco Proposes $120 Million Pipeline to End Alaska Suit

Teck Cominco Ltd., the world's second-biggest zinc producer, has proposed spending as much as $120 million for a pipeline to settle a suit in Alaska filed by Eskimo villagers who claim a mine polluted their drinking water, documents show.

Teck Cominco, based in Vancouver, asked a federal judge in Anchorage on Aug. 1 to enforce the proposed settlement after the villagers demanded additional money to release the company from future lawsuits. The miner said it wouldn't pay.

``As a result of this issue, the parties are at an impasse,'' Teck Cominco said in court papers.

Teck Cominco, which agreed to the proposed settlement in May and first filed it in court Aug. 1, will pursue the design and construction of the pipeline to abate concerns from six residents of the village of Kivalina. The residents of the community 190 miles (306 kilometers) northwest of Nome sued the company in 2002, claiming waste from the mine taints their drinking water.

Sean Halloran, an Anchorage lawyer representing Teck Cominco, declined to comment in an e-mail.

Luke Cole, executive director of San Francisco-based Center on Race, Poverty & the Environment, which represents the Kivalina villagers, said in a telephone interview Aug. 2 that he will file a response to Teck Cominco's request Aug. 4. He declined to comment further.

Teck Cominco describes the Red Dog zinc mine as the world's largest. In 2007, Red Dog had an $819 million operating profit on $1.4 billion of sales, according to the company's annual report.

The mine has a federal permit allowing it to discharge treated wastewater into Red Dog Creek, which feeds a river that Kivalina residents use for drinking water and to fish. Discharges include trace amounts of cyanide, cadmium and other dissolved solids.

Kivalina villagers have alleged Teck Cominco exceeded the legal limits thousands of times since the late 1990s, in violation of the U.S. Clean Water Act. In a pretrial ruling, Judge John Sedwick said Teck Cominco was liable for 824 violations.

Teck Cominco's lawyers have said in court filings that Red Dog Creek is safe and the mine complies with federal rules.

The parties reached the proposed settlement just before the case was to go to trial. The agreement says the company will construct a 53-mile-long pipeline from the mine's water-treatment plant to the Chukchi Sea, which would eliminate the need to discharge in the creek.

Construction would be contingent on the company receiving regulatory permits to mine its undeveloped Aqqaluk property at the Red Dog site.

The cost should be ``substantially less than $120 million'' according to information that's available, Teck Cominco said.

If Teck Cominco doesn't proceed with the pipeline, it agreed to pay a civil penalty of either $8 million or $20 million, depending on whether it could show ``good cause'' for not advancing the project, according to the settlement.

Teck Cominco also agreed to provide filtration units to villagers and pay for their maintenance until the pipeline is built.

The case is Adams v. Teck Cominco Alaska Inc., 3:04-cv- 00049-JWS, U.S. District Court, Alaska.

For more trial and appeals news from last week, click here.

Verdicts/Settlements

Ambac to Pay $850 Million in Citigroup CDO Settlement

Ambac Financial Group Inc., the bond insurer that lost its AAA credit rating this year, will pay Citigroup Inc. $850 million to extricate itself from a guarantee of a $1.4 billion collateralized debt obligation.

Ambac rose as much as 26 percent in New York trading after the company said it will record a gain of $150 million on the contract because it had previously written down its value by $1 billion. New York-based Citigroup, the largest U.S. bank by assets, said in an e-mail it settled ``for a gain.''

The bond insurer follows Security Capital Assurance Ltd., which earlier this week paid Merrill Lynch & Co. $500 million to cancel $3.7 billion of CDOs. The guarantors are seeking to unwind agreements to insure $100 billion of CDOs backed by subprime mortgages, whose credit ratings have tumbled as homeowner defaults reached records. Analysts and regulators said more deals were likely to follow Security Capital's transaction.

``We expect further deals to emerge from here,'' Bank of America Corp. analysts Michael Barry, Seth Levine and Brian Turner in New York wrote in a report July 31. Tearing up the contracts in exchange for some payment ``can be an important part of a securities firms' broader strategy of stepping away from their mortgage woes,'' the analysts wrote.

Ambac insured about $7.5 billion of Citigroup CDOs that were backed by subprime mortgages, according to data provided by Tavakoli Structured Finance in Chicago.

Ambac is among five of the seven formerly AAA-rated bond insurers that lost their top ratings this year after straying from the business of backing municipal bonds, which rarely default, to guaranteeing more untested securities such as CDOs, which package pools of securities, including those backed by subprime mortgages, and slice them into pieces of varying risk.

The CDO guaranteed by Ambac, known as AA Bespoke, originally comprised AA rated pieces of other CDOs, most of which were downgraded to below investment grade, Ambac said.

``We view the final outcome as favorable in light of the numerous widely circulated models that assumed a 100 percent write off for this transaction,'' Ambac Chief Executive Officer Michael Callen said Aug. 1 in a statement. Some AAA portions of CDOs have returned nothing to investors in liquidation.

JPMorgan Wins Race Bias Case, Loses Dismissal Claim

JPMorgan Chase & Co., the second-largest U.S. bank by assets, won a racial discrimination lawsuit Aug. 1 filed by a former London associate. She successfully argued the bank had unfairly dismissed her.

The bank and Sumanee Tharapatn, who oversaw credit product control at JPMorgan Europe Ltd., agreed to undisclosed compensation on the dismissal claim, her lawyer Damian McCarthy told a London Employment Tribunal. She had also claimed she was targeted because she is a Thai national, an allegation the panel rejected.

Tharapatn testified that she was bullied and left a year into the job in August 2007 because she thought she would never become a vice president. While the tribunal said feedback about her job performance was ``relentlessly negative'' and ``unbalanced,'' that and other incidents didn't amount to racism.

``There is no indication any of these were racially connected,'' the panel said. ``We are satisfied this was an unfair dismissal.''

Tharapatn said she was hired by managers who left almost immediately after she started and was quickly promoted to oversee credit products with little support or assistance. JPMorgan argued that Tharapatn couldn't take constructive criticism and had problems managing staff.

Unfair dismissal claims are generally capped at about 60,000 pounds ($119,000). Companies that lose racial discrimination claims can be exposed to unlimited damages.

Both Tharapatn and a spokeswoman for JPMorgan declined to comment after the hearing.

UniCredit to Pay Parmalat EU271.7 Million in Claims Settlement

UniCredit SpA, Italy's biggest lender, agreed to pay dairy company Parmalat SpA 271.7 million euros ($423 million) to settle claims related to its role in financing the dairy company prior to its 2003 collapse in the country's biggest bankruptcy.

Parmalat has agreed to waive any further legal actions against the bank following the agreement, which settles all claims connected with the dairy company's bankruptcy, Milan-based UniCredit said in a stock exchange statement Aug. 1.

For more verdict and settlement news from last week, click here.

Litigation Departments

UBS Lawyer Is Center of Cuomo Complaint, WSJ Says

A UBS AG lawyer and former Treasury Department official is at the center of a civil complaint filed by New York Attorney General Andrew Cuomo against the bank, the Wall Street Journal said, citing unidentified people familiar with the matter.

The complaint alleges that David Aufhauser, general counsel of UBS's investment banking arm, and six other UBS executives sold $21 million of personal holdings in auction-rate-securities in the months before the market's collapse, the report said.

``The New York attorney general did not identify the names of the executives in his complaint, and we decline to do so,'' said Chris Cockerill, a Hong Kong-based spokesman at UBS. ``After an internal review assisted by independent external counsel, UBS does not believe there was any unlawful conduct by any employee in this matter.''

Symantec General Counsel Courville Retires, Replaced by Taylor

Symantec Corp. General Counsel Arthur Courville stepped down and was replaced by Scott Taylor, the company said in a regulatory filing, a day after a judge approved a unit's $21.5 million lawsuit settlement.

``Mr. Courville's retirement was a personal decision and was not the result of any disagreement with the company,'' Symantec said in the Aug. 1 filing. Courville joined Cupertino, California-based Symantec, the world's biggest maker of security software, in 1993, according to the company's Web site.

Taylor, previously vice president for legal, succeeded Courville July 31, Symantec said. Courville will stay on long enough to ensure an orderly transition and complete some unspecified projects, the company said.

On July 31, Symantec's Veritas Software unit won approval from a federal judge in Delaware to pay $21.5 million to settle a shareholder lawsuit over a drop in the stock price after a negative earnings release four years ago.

For more litigation department news from last week, click here.

Court Filings

Wachovia Sued by Employee Over Retirement Fund Investments

A complaint against Wachovia Corp. and its officers over its investment of employee's retirement funds in its own stock was the most viewed legal document on the Bloomberg system last week.

The suit, brought by Michael Welch, alleges that the bank ``engaged in improper sales and marketing practices'' that made continued investment in Wachovia stock ``imprudent.''

The complaint, filed by Robert Harwood of Harwood Feffer in New York and Michael Goldberg of Glancy Binkow & Goldberg, in Los Angeles, says the defendants should have known the stock was artificially inflated because of the company's involvement with subprime mortgages and home loans.

The complaint cites Wachovia's acquisition of Golden West Financial Corporation, which it says exposed the company stock to losses from the subprime mortgage meltdown. The complaint also said fund managers should have known of the likelihood of losses in relation to Wachovia's home loan portfolio.

Judge Naomi Reice Buchwald, who has been appointed to the case, ordered that the complaint be consolidated with other similar ones on July 31. She also asked for motions for appointment of lead plaintiff to be filed by Sept. 5.

The case is In Re Wachovia Corp. ERISA Litigation, 08-cv- 0530, Southern District of New York, New York City.

On the Docket

Citigroup, Parmalat Trial in New Jersey Begins Five-Week Recess

A five-week recess began July 31 in a civil trial over whether Citigroup Inc. aided looting by corrupt insiders at Parmalat SA, the Italian dairy company that collapsed in 2003.

The trial will reconvene Sept. 8 in state court in Hackensack, New Jersey, where Parmalat Chief Executive Officer Enrico Bondi sued Citigroup, seeking about $2 billion in damages. New York-based Citigroup was a banker for Parmalat, which emerged from bankruptcy and returned to the Italian stock market in 2005 after a two-year reorganization under Bondi.

Citigroup, the largest U.S. bank by assets, countersued, claiming it was defrauded. It seeks $369 million from Parmalat, after recovering $330 million in other proceedings.

Superior Court Judge Jonathan Harris told jurors when the trial began May 15 that it would conclude by July 31. He said earlier this month that the trial would likely go through the end of October.

Citigroup spokeswoman Andrea Hurst and Parmalat spokeswoman Laura Gilbert declined to comment.

Last week, Harris declined Citigroup's request to dismiss the case, ruling Bondi had presented enough evidence for jurors to conclude that $1.9 billion in looting occurred and that the bank should have been aware of it.

Bondi's lawyers called 32 witnesses, including 26 current or former Citigroup employees, before resting their case last week. Citigroup presented two witnesses this week.

The case is Bondi v. Citigroup, BER-L-10902-04, New Jersey Superior Court (Hackensack).

For Bloomberg articles by lawyers on litigation topics, click here.

For news about bankruptcy litigation, click here. For news about intellectual property litigation click here. For news about securities and compliance litigation, click here.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

Last Updated: August 4, 2008 07:48 EDT