Aug. 5 (Bloomberg) -- Apollo Group Inc., owner of the for- profit University of Phoenix, persuaded a judge to throw out a $277 million securities-fraud verdict over the company's failure to disclose a report criticizing the school's operations.

U.S. District Judge James A. Teilborg in Phoenix yesterday ruled Apollo stockholders couldn't show their losses were caused by ex-Chief Executive Officer Todd Nelson's withholding of a U.S. Education Department report that accused the company of violating a federal ban on paying staff on the basis of enrollment numbers. Jurors in January found the company, Nelson and another official liable.

``Securities laws are not insurance to protect against economic losses,'' Teilborg said at a hearing in federal court in Phoenix. Stephen Basser, a lawyer for Apollo investors, said they'll appeal the judge's decision.

The decision comes a month after Apollo, the largest for- profit provider of college degrees, rose the most in seven years in Nasdaq Stock Market trading after beating analysts' earnings estimates for its fiscal third quarter.

``Today's ruling is a vindication for Apollo Group's students, alumni, employees and shareholders,'' Apollo Group spokeswoman Terri Bishop said in an e-mailed statement.

After a two-month trial, jurors found Apollo officials didn't mention the government audit of the university's operations in a press statement, analyst calls or a filing with the U.S. Securities and Exchange Commission over a seven-month period beginning in February 2004.

Jurors concluded that was an attempt to deceive investors, such as the Policemen's Annuity and Benefit Fund of Chicago, about the university's financial stability. They held the company, Nelson and former Chief Financial Officer Kenda Gonzales liable.

The panel awarded investors $5.55 a share in damages, which amounted to at least $277 million, according to court documents and testimony in the case.

Apollo officials countered during the case they didn't disclose the report because their lawyers told them it was preliminary and flawed.

Seven months after they received the audit, Apollo paid a $9.8 million fine without conceding it violated government education rules. After the settlement was announced, the contents of the report became public and investors filed suit.

The case is In re Apollo Group Inc. Securities Litigation, 04-2147, U.S. District Court, District of Arizona (Phoenix).

Facebook Code-Theft Deal Should Hold for Appeal, ConnectU Says

Facebook Inc., operator of the most popular social- networking Web site, shouldn't be allowed to take over a rival as part of a lawsuit settlement until an appeal of the court- approved deal is heard, ConnectU Inc. told a judge.

Implementing the agreement now would let Facebook disrupt the appeals process, ConnectU said in court papers filed July 31 in federal court in San Jose, California. ConnectU, which claims Facebook engaged in fraud during negotiations, is appealing a June ruling enforcing the settlement of the 4-year-old case.

Under the deal, stemming from ConnectU's 2004 allegations that Facebook stole its computer code, ConnectU's founders will get stock in Palo Alto, California-based Facebook and ``millions'' of dollars in cash, according to court papers. Control of ConnectU, based in Cambridge, Massachusetts, will be transferred to Facebook.

``Given that control, Facebook would attempt to dismiss or otherwise hamper ConnectU's appeal from the judgment,'' ConnectU said. ``To prevent irreparable injury to ConnectU, this court should stay enforcement of the judgment pending appeal.''

On June 25, U.S. District Judge James Ware rejected ConnectU's bid to reverse the February settlement. ConnectU claimed Facebook engaged in securities fraud during negotiations by overvaluing the stock portion of the deal.

Facebook, founded in 2004 by Harvard University dropout Mark Zuckerberg, was valued at $15 billion in October, when Microsoft Corp. bought a 1.6 percent stake in the company for $240 million. Facebook's projected value is now closer to $3.75 billion, ConnectU said in court papers.

ConnectU founders Cameron and Tyler Winklevoss, also Harvard students, sued in 2004, accusing Zuckerberg of stealing their idea for the company. The brothers hired Zuckerberg in 2003 to help build a dating Web site. They accused him of delaying the ConnectU project while secretly building Facebook. The claims include copyright infringement and theft of trade secrets.

The California case is The Facebook Inc. v. ConnectU Inc., 5:07-cv-01389, U.S. District Court, Northern District of California (San Jose).

Ford Must Face Fraud Claim Over Explorer Settlement, Court Says

Ford Motor Co., the second-largest U.S. automaker, must defend a lawsuit claiming the company fraudulently induced a family to settle a claim over a death in an Explorer rollover accident, a federal court said.

James L. Haffey was killed in 1997 when the driver lost control of the Explorer after a tire made by Firestone Inc. broke apart. His family sued Ford and Firestone's parent, Bridgestone Corp., claiming defects in the vehicle and tire. The Haffey family in 1999 settled with Ford for $500,000 and with Firestone for an undisclosed amount, attorney Tab Turner said.

In 2001, after reports linked Explorer rollovers to Firestone tire failures, the family filed a new claim. It argued Ford withheld evidence to be able to settle for less than the case was worth. A federal judge in Mississippi dismissed the new suit in 2006. A U.S. appeals court in New Orleans reinstated it July 31, finding the family could sue Ford for deceit.

The Mississippi judge dismissed the lawsuit, concluding that ``the plaintiffs were required but had failed to rescind the settlement agreement and return the proceeds they had received under it,'' the federal appeals court said. ``It is clear from the plaintiffs' amended complaint in this case that they seek to affirm the settlement agreement and maintain an action in damages for deceit.''

The Haffey family will seek an additional $4.5 million in actual damages, the worth of the case had the family known of design problems asked for in the original lawsuit, Turner said. The family will also seek unspecified punitive damages, he said.

Ford spokesman Mark Truby didn't return a call for comment.

The reputation of the Explorer was hurt by a U.S. investigation into at least 271 highway deaths involving tread separations by Firestone tires. Ford and Firestone settled hundreds of lawsuits over rollovers related to tire failures.

Bridgestone recalled 6.5 million tires designed for the Explorer. Ford replaced another 10.6 million Firestone tires in 2001, citing safety concerns.

The 2001 lawsuit claims Ford was aware of design flaws and problems with the Firestone tires on the Explorer and didn't disclose this information as required before trial.

``This is typical for these guys,'' Turner said in a phone interview yesterday. ``It is a clear example of the fraud perpetrated by these companies over a long period of time.''

The lawsuit is Bogy v. Ford Motor Co., 06-60308, U.S. Circuit Court of Appeals for the 5th Circuit (New Orleans).

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

Lawsuits/Pretrial

Brocade Won't Sue After Sonsini Firm Paid $9.5 Million

Brocade Communications Systems Inc. agreed not to sue Silicon Valley attorney Lawrence Sonsini, who advised the company on stock-option grants, or his law firm, in part because the firm paid the company $9.5 million.

Brocade, whose former executives faced criminal, civil and shareholder lawsuits for backdating employee stock grants, said it was ``inappropriate'' to pursue claims against Sonsini or Wilson Sonsini Goodrich & Rosati for many reasons, including the firm's one-time ``contribution'' of $9.5 million, according to a court document filed Aug. 2.

``Brocade continues to be an important and longstanding client,'' said Courtney Dorman, a spokeswoman for Wilson Sonsini. ``We are pleased to put this behind us.''

In June, Brocade agreed to pay $160 million to resolve securities-fraud claims by shareholders over stock-options backdating practices. In May 2007, the company dropped Wilson Sonsini as its law firm in related stock-option litigation after a judge noted a potential conflict of interest.

Sonsini, who is chairman of Wilson Sonsini, sat on Brocade's board from 1999 to 2005.

One of Brocade's reasons for not suing its former law firm was Palo Alto, California-based Wilson Sonsini's claim that attorneys were misled by Brocade employees about stock options, according to the Aug. 2 motion.

``Brocade continues to have full confidence in Wilson Sonsini as its outside counsel and we look forward to that relationship,'' John Noe, a Brocade spokesman, said in a telephone interview.

Stephen Taylor, an attorney for Sonsini, didn't return a call for comment.

Former Brocade CEO Greg Reyes, assisted by former human- resources chief Stephanie Jensen, backdated hundreds of employee grants in 2001 and 2002, a federal jury in San Francisco concluded last year.

Noe declined to comment on the company's lawsuit.

Investors claimed Reyes and others hid the practice and they lost money when the shares fell after the restatements.

Brocade remains a party in two lawsuits, a case comprised of consolidated shareholder derivative actions and a case brought by Mary Barbour, an individual shareholder.

Lawrence Sonsini and his firm are named defendants in the Barbour case. In his position on the Brocade board of directors, and as the board's legal expert, Sonsini ``knew or should have known that Brocade executives were improperly backdating stock- option grants to maximize their personal profits,'' Barbour's attorneys said in court documents.

In the 57-page motion filed Aug. 2, Brocade asked U.S. District Judge Charles Breyer to dismiss the Barbour complaint, saying that an earlier complaint filed in 2005 should be the controlling lawsuit representing the company's interests.

Wilson Sonsini and its chairman are the only defendants Brocade has released from liability to date, according to the Aug. 2 motion. The law firm paid $9.5 million ``to defray some of the significant costs Brocade has incurred over the past four years'' over its stock options practices, the company's attorney, Barbara Caulfield, wrote.

A hearing on the Barbour case is scheduled for Sept. 19.

The cases are Barbour v. Reyes, 08-cv-2029, and In Re Brocade Communications Systems Inc. Derivative Litigation, 05-cv- 2233, U.S. District Court, Northern District of California (San Francisco).

UBS Says Investment Bank's General Counsel Aufhauser Resigned

UBS AG's top U.S. legal official, David Aufhauser, quit as New York Attorney General Andrew Cuomo investigates the bank's sale of auction-rate securities.

Aufhauser, general counsel for the investment bank in North America, will remain an adviser to the Zurich-based institution until Sept. 30, spokeswoman Sabine Woessner said in a telephone interview yesterday. She declined to give a reason for his departure. Aufhauser, 57, wasn't immediately available to comment.

Aufhauser was at the center of a civil complaint Cuomo filed against the bank, the Wall Street Journal said last week. The complaint alleges Aufhauser and six other UBS executives sold $21 million of personal holdings in auction-rate securities in the months before the market's collapse, the newspaper said, citing unidentified people familiar with the matter.

Jim Odell and Mark Shelton will take over Aufhauser's responsibility as co-general counsels for the Americas, while David Graham will act as general counsel of the investment bank, UBS said in a memo yesterday confirmed by New York-based spokeswoman Rohini Pragasam.

Cuomo alleged in the lawsuit that UBS began an ``aggressive marketing'' campaign to sell auction-rate securities to investors as demand began to wane last year, forcing the bank to step in as a buyer at the auctions to prevent them from failing. The attorney general is seeking to force UBS to offer to buy back at face value $25 billion in auction-rate securities held by the bank's customers nationwide.

UBS continued selling the securities even as the market unraveled, with at least seven bank executives involved in the marketing campaign unloading $21 million in personal auction-rate holdings, the attorney general said on July 24.

The Swiss bank has declined to identify the names of the executives in the complaint. It said in a statement last week that after an internal review, the bank ``does not believe there was any unlawful conduct by any employee in this matter.''

SocGen Managers Must Have Known Kerviel Trades, His Lawyer Says

Societe Generale SA managers were aware of Jerome Kerviel's trading and a police report given anonymously to the press last week that says otherwise is incomplete, a lawyer for Kerviel said.

Kerviel's unauthorized bets led to a record 4.9 billion euros ($7.6 billion) of losses at the Paris-based bank. The 31- year-old junior trader is under investigation for breach of trust and hacking into computers to execute and hide trades.

``For years, he gets good bonuses and there is no comment about his methods which they knew all about,'' Eric Dupond- Moretti, one of his lawyers, said yesterday before Kerviel was questioned for the 20th time by investigating magistrates. ``He is making money, all is well,'' he said. When ``they think they might lose, he suddenly becomes responsible for everything.''

A French police report leaked to Le Figaro and other news organizations last week said there wasn't any evidence other staff or management conspired with him. The report said he used ``fraudulent'' conduct to circumvent poor internal controls at the bank, France's second largest behind BNP Paribas SA.

``It's an incomplete report that never gets Jerome's side,'' said Dupond-Moretti, part of a new legal team Kerviel hired last month. Dupond-Moretti said he will ask investigative magistrates to probe the leak.

Stephanie Carson-Parker, a Societe Generale spokeswoman, had no comment.

Managers missed 75 warning signs of Kerviel's trading and weren't aware of the extent of his unauthorized trades, an independent report commissioned by the bank and released in February said.

Societe Generale says it uncovered Kerviel's hidden trades the weekend of Jan. 19-20 and unwound them over three days starting Jan. 21.

For more lawsuits news from yesterday, click here.

New Suits

French Prosecutors Charge Kerviel's Assistant Mougard

Prosecutors charged Thomas Mougard, the assistant of former Societe Generale SA trader Jerome Kerviel, with aiding and abetting the fraud that led to a record trading loss at France's second-biggest bank.

Mougard, 24, was charged with ``complicity to fraudulently enter data into a computer system'' on Aug. 1, Isabelle Montagne, a spokeswoman for the Paris prosecutors' office, said in a telephone interview yesterday. He isn't being held in police custody, she said.

Judges Renaud Van Ruymbeke and Francoise Desset are investigating Kerviel, 31, over charges of breach of trust, falsifying documents and hacking into computers to execute and conceal trades. Kerviel has admitted to trading without authorization and faking documents. He has said he acted alone.

Mougard was one of two people named by the judges as a material witness in the case, a status putting them between a simple witness and a suspect. He has denied any wrongdoing, according to a July court document.

Moussa Bakir, a trader at futures brokerage Newedge, is the second material witness in the case.

Without naming Mougard, Societe Generale said in a May 23 report that as many as 15 percent of Kerviel's questionable trades were registered by his assistant.

Frederique Baulieu, Mougard's lawyer, couldn't immediately be reached for comment.

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

Verdicts/Settlements

UBS Wins U.K. Court Order in Vestra Wealth Dispute

UBS AG, the world's biggest manager of money for the rich, won a court order stopping a company set up by former employees from its London-based wealth management unit from soliciting UBS staff and clients.

High Court Justice Charles Openshaw said that it was likely that some of the employees had been acting as ``recruiting sergeants'' for Vestra Wealth LLP, the startup company they quit for, while still working at UBS.

``Every business is entitled to expect loyalty, fidelity and diligence from their staff,'' Openshaw said at a hearing yesterday in London. ``That is part of the bargain for which they are paid.''

UBS said May 6 that clients withdrew more money in the first quarter than they added for the first time in almost eight years, after it suffered the biggest losses from the subprime crisis of any European bank. The bank has lost 75 wealth management employees to Vestra since May, UBS lawyer Alistair McGregor said at a hearing last week.

UBS asked Openshaw to grant the temporary order at a hearing Aug. 1 against Vestra until a full trial in October.

Openshaw refused Vestra lawyer Charles Bear's request for permission to appeal. Bear said the effect of the ruling ``will be to disrupt Vestra's business'' and he will prove at the October trial that ``UBS is bringing a completely false claim.''

Fifty-two UBS Wealth Management's employees resigned in May to join Vestra, including some of their ``most senior'' executives and another 23 have followed since, McGregor said at last week's hearing. He said the departures were the result of ``an unlawful conspiracy'' to induce staff and clients to switch to the startup. Openshaw said yesterday he had a ``formidable case.''

Vestra spokesman Jonathan Hawker said that UBS is ``complaining about successful competition,''

``This recruitment campaign was conducted in good faith and after taking legal advice every step of the way. This only makes today's provisional decision more surprising,'' he said in an e- mailed statement.

Zurich-based UBS said that the suit was design to protect the company's ``legitimate business interests.''

``This legal action, which the court yesterday upheld pending trial in October, was to ensure that certain senior departing employees abided by the contractual obligations that they agreed to when they joined UBS,'' company spokeswoman Hana Dunn said in a statement.

The case is UBS Wealth Management v. Vestra Wealth, High Court of Justice Queen's Bench Division Case No. HQ08X02801.

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

Litigation Departments

Hunton Hires Nine From Akin Gump; Wyatt to Co-Head Litigation

Hunton & Williams has added nine partners including seven litigators from Akin Gump Strauss Hauer & Feld, led by Richard L. Wyatt Jr., a former member of Akin's executive committee and past chairman of the litigation department, the firm said in a statement.

Six of the new partners will join the firm in Washington; two will join in Houston; and one will join in Los Angeles. Seven of the new partners are class-action litigators who will join the firm's 300-member litigation practice. One of the partners is a corporate, securities and M&A attorney and one is an intellectual property attorney.

Wyatt will become co-head of Hunton's litigation group in Washington. Joining him are litigation partners Michael J. Mueller, who will be co-head of the firm's commercial litigation practice, Joseph P. Esposito, Michael A. O'Shea and Todd M. Stenerson. J. Steven Patterson will be co-head of its corporate, securities and M&A practice.

In the firm's Houston office, partners Kevin J. White and Holly H. Williamson, labor and employment litigators, will be joining. In Los Angeles, Phillip J. Eskenazi, who focuses on complex business litigation, will be joining the firm.

The firm hired eight labor and employment class-action lawyers from Akin Gump last month, the firm said.

For more litigation department news from yesterday, click here.

On the Docket

BNY Mellon Says Hearing in Russia Case Postponed Until October

Bank of New York Mellon Corp., the world's largest custody bank, said a hearing in Russia's $22.5 billion lawsuit against the company was postponed for two months after a government witness didn't appear in court yesterday.

The hearing will resume on Oct. 6, BNY Mellon spokesman Jeep Bryant in New York said yesterday in an e-mail. The bank plans to continue cross-examining G. Robert Blakey, a U.S. legal scholar testifying on behalf of the Russian Federal Customs Service.

Blakey, the author of the U.S. Racketeer Influenced and Corrupt Organizations Act, or RICO, was being questioned by BNY Mellon attorneys on July 29 when he fell ill. Harvard University law professor Alan Dershowitz, who is an expert witness for Russia, took the stand after Blakey cut short his testimony.

Russia sued BNY Mellon last year under civil RICO law, accusing the bank of illegally helping to wire more than $7 billion out of the country in the 1990s. BNY Mellon denied the claim and said only U.S. courts can hear RICO cases. The company has enlisted former U.S. Attorney General Richard Thornburg as an expert witness.

The court is currently considering BNY Mellon's motion to dismiss the lawsuit on the grounds that the Moscow Arbitration Court lacks jurisdiction to determine whether U.S. statutes were violated.

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 5, 2008 07:09 EDT