May 14 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co., UBS AG and 15 more of the world’s largest financial companies sued MBIA Inc., saying the biggest bond insurer’s split of its guarantee business illegally cut their odds of getting paid on policies.

MBIA stripped $5 billion of assets out of its MBIA Insurance Corp. division to fund a new unit amid “an ongoing financial crisis that has made it increasingly likely that MBIA Insurance will have to pay out billions” of dollars, according to the complaint filed yesterday in New York State Supreme Court in Manhattan.

The case adds to two previous lawsuits filed by funds over the February restructuring by Armonk, New York-based MBIA, which New York State Insurance Superintendent Eric Dinallo approved. Banks concerned that the split of the business hurt them had met with state regulators in March, David Neustadt, a spokesman for the regulator, said at the time.

The decision to move assets from the unit and “render it effectively insolvent was a blatant attempt to enrich MBIA Inc. and its management at the expense of MBIA Insurance and its policyholders,” Vince DiBlasi, a lawyer who represents the group at Sullivan & Cromwell LLP, said in an e-mailed statement.

The group also includes Barclays Plc, HSBC Holdings Plc, Citigroup Inc., Canadian Imperial Bank of Commerce, BNP Paribas, Royal Bank of Canada, Morgan Stanley, Sumitomo Mitsui Financial Group Inc., Societe Generale, Credit Agricole SA and Wells Fargo & Co. or their units.

The case is ABN Amro Bank NV, Barclays Bank PLC v. MBIA Inc., MBIA Insurance Corp. and MBIA Insurance Corp. of Illinois, 601475/2009, Supreme Court of New York (Manhattan).

DirecTV Group Sued by Holders Over Liberty Merger

DirecTV Group Inc., the largest U.S. satellite-TV provider, was sued by investors who contend a planned combination with Liberty Entertainment Inc. undervalues the shares.

Plaintiffs including the Key West Police & Fire Pension Fund are asking a Delaware Chancery Court judge to stop the transaction and award damages, according to a complaint made public yesterday in Wilmington, Delaware.

“The DirecTV directors are obligated by their fiduciary duties” to make sure the transaction “is accomplished by fair dealing and in a fair process that returns a fair price,” shareholders’ lawyers said in court papers.

Officials of El Segundo, California-based DirecTV said in a May 4 statement the company would merge with Englewood, Colorado-based Liberty Entertainment, which would be split from billionaire John C. Malone’s Liberty Media Corp.

Under terms of the deal, DirecTV stockholders will receive one share of single-vote DirecTV Class A common stock for each of their shares and Malone, his wife and associated trusts will get Class B common stock, carrying 15 votes a share.

Liberty Media Corp. owns 54 percent of DirecTV, according to Bloomberg data, and Malone is chairman of DirecTV. The transaction gives DirecTV control of Liberty’s Game Show Network and three regional sports channels.

The case is Key West Police & Fire Pension Fund v. The DirecTV Group Inc., CA4581, Delaware Chancery Court (Wilmington).

To read more on this story, click here.

Take-Two Sues Apogee Over ‘Duke Nukem’ Game Sequel

Take-Two Interactive Software Inc., the maker of the “Grand Theft Auto” video games, sued Apogee Software Ltd.’s 3D Realms over the failed development of a sequel to the “Duke Nukem” game called “Duke Nukem Forever.”

Take-Two, owner of the publishing rights to the game, said Apogee breached an agreement to design the latest installment of Duke Nukem, a game in which the player “shoots” enemies. The new version has been under development since 1997, the company said yesterday in a complaint in a state court in Manhattan.

3D Realms, which was based in Garland, Texas, never produced the game and instead closed its studio on May 6, terminated development of the game and fired employees who had been involved in the Duke Nukem project, Take-Two said.

“Apogee continually delayed the completion date for the Duke Nukem Forever,” Take-Two said in the complaint. “Apogee repeatedly assured Take-Two and the video-gaming community that it was diligently working toward competing development of the PC Version of the Duke Nukem Forever.”

Take-Two said in 2000 it had an agreement with Apogee and paid $12 million for publishing rights to the forthcoming game. In 2007, the two companies entered into a second agreement.

The case is Take-Two Interactive Software, Inc. v. Apogee Software Ltd. 601457/2009, New York State Supreme Court, New York County (Manhattan).

Redstone Sued by Midway Games Creditors Over Sale of 87% Stake

Sumner Redstone and his National Amusements Inc. holding company were sued by Midway Games Inc. creditors over claims the video-game maker was hurt when Redstone sold his 87 percent stake in it for $100,000.

The November transaction generated more than $700 million in tax losses for Redstone, enabling him and his company to obtain a “massive” tax refund, the official committee of unsecured Midway creditors said in a complaint filed April 12 in U.S. Bankruptcy Court in Wilmington, Delaware.

“The transaction caused Midway irretrievably to lose the ability to take advantage of its valuable accumulated net operating losses and other tax assets,” the creditors committee said.

Midway Games, the creator of the Mortal Kombat video-game series, sought bankruptcy protection from creditors in February, saying the change in ownership accelerated buyback requirements. The creditors accuse Redstone, the chairman of CBS Corp. and Viacom Inc., of fraudulent transfer and breach of fiduciary duty, and they seek unspecified damages.

“This suit is completely without merit,” Brandy Bergman, a spokeswoman for National Amusements, said in an e-mailed statement. “The conduct of Mr. Redstone and NAI was entirely proper and we strongly disagree with any suggestion that Mr. Redstone or NAI breached any fiduciary duties.”

The case is In re Midway Games Inc., 09-10465, U.S. Bankruptcy Court, District of Delaware (Wilmington.)

Lafarge Unit Sued by Maryland Over Pollution Breach

The U.S. unit of Lafarge SA, the world’s biggest cement maker, was sued by the state of Maryland for violating environmental protection laws and may face a penalty of as much as $4.1 million.

Lafarge North America dumped several tons of aggregate, crushed stone and dust into a stream near a company quarry in Cockeysville, Maryland, in March 2007 and left it there for more than a year, state Attorney General Douglas Gansler said yesterday.

The complaint, filed in Baltimore County circuit court, alleges 413 violations of Maryland’s water pollution laws at the concrete production and limestone quarry. Each violation carries a maximum penalty of $10,000.

Serene Jweied, a spokeswoman for Lafarge North America, didn’t return a telephone call seeking comment.

The case is State of Maryland v. Lafarge Mid-Atlantic LLC, Circuit Court for Baltimore County (Baltimore).

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

Lawsuits/Pretrial

Madoff Trustee Still Seeks $150 Million From Vizcaya

The trustee liquidating Bernard L. Madoff Investment Securities LLC is still seeking $150 million from banks in Gibraltar and the British Virgin Islands after dropping one of two parallel cases against the lenders.

One of Irving Picard’s cases against Banque Jacob Safra (Gibraltar) Ltd. and British Virgin Islands-based Vizcaya Partners Ltd. was closed May 11 by U.S. Bankruptcy Judge Burton Lifland in Manhattan, who dismissed the case without giving a reason, according to court papers.

Picard’s remaining lawsuit against the two parties, filed April 8, is active. In that case, Vizcaya has until June 1 to respond to a claim that $150 million was transferred on Oct. 31 for its benefit from Banque Jacob Safra’s Madoff account.

The trustee is responsible for conducting a broad investigation of the fraud to help repay victims. Bernard Madoff, 71, pleaded guilty March 12 to defrauding investors by using money from new ones to pay off old ones in a $65 billion Ponzi scheme. He faces as many as 150 years in prison at his sentencing next month.

Picard’s spokesman, Kevin McCue, declined to comment. Vizcaya’s lawyer, Merritt Pardini of the firm Katten Muchin Rosenman LLP in New York, didn’t return a call seeking comment.

The case is Picard v. Vizcaya Partners Ltd., 09-01153, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more lawsuits news from yesterday, click here.

Trials/Appeals

Kmart’s Conaway Misled Investors, SEC Says at Trial

Former Kmart Corp. Chief Executive Officer Charles Conaway misled investors about the company’s ability to pay its bills before its bankruptcy filing in 2002, a government lawyer told a jury.

The case is about “deception, misrepresentation, half truths and omissions made to the public” in a 2001 quarterly filing, Alan Lieberman, a U.S. Securities and Exchange Commission attorney, said yesterday at the start of a trial in Ann Arbor, Michigan. Conaway was responsible for those misstatements, Lieberman said.

“He was the top guy, hands-on,” the lawyer told a jury of five men and five women.

The SEC sued Conaway and former Chief Financial Officer John McDonald in 2005 alleging violations of securities regulations. McDonald settled the suit last month, agreeing to pay $120,000 in fines and accept a five-year ban on working for public companies.

The SEC contends Conaway and McDonald, the top officers at Kmart before the bankruptcy, were responsible for misleading statements in the company’s third quarter 2001 filing and a Nov. 27, 2001, conference call. The men failed to inform investors that the company faced a cash shortage and was delaying payments to vendors, the SEC said.

The jury will determine liability only. U.S. Magistrate Judge Steven Pepe will decide any penalties. The government is seeking to bar Conaway permanently from working for publicly traded companies.

Conaway didn’t mislead investors, his attorney, Scott Lassar, said yesterday in the trial. Conaway wasn’t involved in preparing the quarterly statement because he was too busy trying to keep the struggling company afloat, the lawyer said.

“He had other things to do,” Lassar said. “He was trying to save Kmart. He had no more knowledge of what was in the 10Q than you or I.”

Conaway was involved in developing a strategy to slow the payments, Lassar said. The CEO didn’t mislead vendors, and even in a slowdown Kmart was paying suppliers faster than some companies in the retail industry, he said.

The case is Securities and Exchange Commission v. Conaway, 05-cv-40263, U.S. District Court, Eastern District of Michigan (Ann Arbor).

Former Refco Lawyer Collins Had No Motive, Lawyer Says

Joseph Collins, Refco Inc.’s former outside lawyer, had no motive to help former Chief Executive Officer Phillip Bennett and other executives defraud investors of $2.4 billion, his lawyer told jurors at the start of a trial.

Defense attorney William Schwartz ridiculed a claim by prosecutors that Collins, a corporate lawyer at Chicago’s Mayer Brown LLP, conspired in a fraud so his firm might earn $40 million in fees over a decade. He said Collins earned “not one cent” in a scheme that enriched others.

“It’s ridiculous to say that’s what the motive is,” Schwartz, of Cooley Godward Kronish LLP, told jurors in Manhattan federal court during opening statements yesterday. “Why would he risk it all? Why? They don’t have an answer,” he said, referring to prosecutors.

Collins is accused of helping Refco’s management conceal from lenders the existence of “round-trip loan transactions” that hid $2 billion in guarantees given by the New York-based firm.

Once the biggest independent U.S. futures trader, Refco collapsed in 2005 two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in U.S. history after disclosing that a firm owned by Bennett owed the company hundreds of millions of dollars.

Bennett is serving a 16-year sentence after pleading guilty to fraud. His ex-partner, Tone Grant, is serving 10 years following a conviction at a trial.

The case is U.S. v. Collins, 07-cr-1170, U.S. District Court, Southern District of New York (Manhattan).

For more trial and appeals news from yesterday, click here.

Verdicts/Settlements

Morgan Stanley Fined in U.K. Over Trader Mispricing

Morgan Stanley, the sixth-biggest U.S. bank by assets, was fined 1.4 million pounds ($2.13 million) by the U.K. financial regulator for failing to stop a trader from mispricing positions by as much as $120 million.

The Financial Services Authority also fined and banned former Morgan Stanley proprietary trader Matthew Piper, the London-based agency said in a statement yesterday. Piper, a “senior and experienced trader” of credit-default swap indexes, according to the FSA’s findings, was fined 105,000 pounds and won’t be allowed to hold a role that requires FSA approval after he deliberately falsified trades over a six-month period.

Morgan Stanley first said it would have to make writedowns because of mispricing last June, joining at least three other competitors including Merrill Lynch & Co. and Credit Suisse Group AG. The FSA fined Credit Suisse 5.6 million pounds in August for mispricing, also called mismarking. The regulator later warned that it would be probing firms for the practice.

“We are pleased to have agreed to an early settlement with the FSA and now consider this matter to be behind us,” Morgan Stanley spokesman Carlos Melville said in a statement. He said the company’s response to the FSA had been “prompt, transparent and comprehensive.”

Piper’s lawyer, Charles Ferguson at London-based Fergusons Solicitors, wasn’t immediately available to comment. Piper also settled and qualified for a 30 percent fine reduction, the FSA said. The regulator dismissed Piper’s claim that he’d been pressured to misprice.

For more verdict and settlement news from yesterday, click here.

Litigation Departments

Madoff Cases Impose Travel Restrictions on Luxembourg Lawyers

Francois Kremer, a lawyer at Luxembourg’s largest law firm, returned from an Easter trip to find an in-box filled with e- mails with a common name: Bernard Madoff. Thirty minutes later he was at a hearing involving UBS AG and a fund that went bust after investing with Madoff.

Luxembourg, the second-largest mutual fund market after the U.S., has been flooded with dozens of lawsuits against banks and funds since Madoff’s Dec. 11 arrest, Bloomberg News’ Stephanie Bodoni reports. Kremer’s firm, which represents UBS and HSBC Holdings Plc, is one of the busiest.

“I haven’t pleaded in court this frequently in a very long time, I basically live at the court,” Kremer, 46, is a specialist in white-collar crime. He said yesterday in an interview at his office at Arendt & Medernach. “We’re handling about 80 cases for UBS and some 12 involving HSBC.”

With hundreds more cases expected to be filed, the country’s 1,600 lawyers realize the spotlight is on them. Madoff’s Ponzi scheme, which forced the closure of as many as 17 mutual funds, has the potential to deal a black eye to the legal system as investors struggle to hire the remaining financial specialists that don’t already have conflicts of interest.

Luxembourg is Europe’s largest fund market with 3,396 registered funds holding 1.53 trillion euros ($2 trillion) in assets. Europe’s funds hold about 4.5 trillion euros.

To read more of this story, click here.

Weil Gotshal’s $55 Million Bid for Lehman Legal Fees Is Delayed

Lehman Brothers Holdings Inc. lawyers and advisers formed a committee to give an independent review of fees in the case, delaying Weil Gotshal & Manges LLP’s request for $55 million in fees.

U.S. Bankruptcy Judge James Peck in Manhattan lauded Weil partner Harvey Miller and other lawyers yesterday for their formation of the committee. He adjourned the requests of Weil, along with 15 other parties. Together, they sought $100 million for work from Sept. 15 to Jan. 31 in the bankruptcy case of what was once the world’s fourth-largest investment bank.

Miller told Peck that because of criticism of the amount of the fees in the press, parties decided to form an independent committee, with representatives from Lehman, the unsecured creditors and the U.S. Trustee to review fee requests.

“There is something about fees and expenses, especially in a bankruptcy case, that is like a honey pot attracting flies,” Miller said. He said the fees requested weren’t unusually large, given Lehman’s debt of over $650 billion.

Other parties seeking reimbursement from the estate for interim fees for the period ended Jan. 31 are Lazard Freres & Co., the investment banker to Lehman, seeking $6.6 million; Milbank Tweed Hadley & McCloy LLP, which represents Lehman’s unsecured creditors’ committee, seeking $12.1 million; and Houlihan Lokey Howard & Zukin Capital Inc., the investment banker for the creditors’ committee, seeking $2.2 million.

Peck said he would hear the fee requests May 24, after the committee has had time to meet.

The case is In re Lehman Brothers Holdings Inc., 08-13555, and the SIPC case is In re Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-1420, both in the U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more litigation department news from yesterday, click here.

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

Last Updated: May 14, 2009 06:50 EDT