Credit Suisse, Galleon, DiPascali, UBS in Court News (Update1)

Dec. 16 (Bloomberg) -- Credit Suisse AG may pay $536 million to settle claims that the bank helped process payments that let Iran and other nations avoid government sanctions and gain access to U.S. financial markets.

The bank is in “advanced settlement discussions” with authorities including the U.S. Justice Department and the Federal Reserve, Credit Suisse said yesterday in a statement. The Zurich-based bank in an October filing with the Securities and Exchange Commission said it was co-operating with U.S. agencies and Manhattan District Attorney Robert Morgenthau.

“This will be the biggest settlement ever coming to New York,” said Morgenthau, who in January announced a $350 million settlement with Lloyds TSB Bank Plc for similar acts. “If you violate U.S. sanctions, you’re going to pay a big financial penalty,” he said in an interview.

Credit Suisse, Lloyds and eight other major foreign banks have been investigated for “stripping” wire transfer information to conceal illegal money transfers. Lloyds used the technique to disguise clients in Iran and Sudan who were barred from doing business in the U.S. Lloyds admitted that from 2001 to 2004 it let Iranian banks, including Bank Melli, Bank Saderat and Sepah Bank, and their customers move more than $300 million, the Manhattan District Attorney’s office said in January.

Barclays Plc also was cooperating with the probe, according to its 2007 annual report. The London-based lender said results of its internal review are being shared with U.S. agencies. The report said it wasn’t possible to predict the potential effect of any resolution, which could be “substantial,” though wouldn’t have a “material adverse effect.”

Kerrie Cohen, a Barclays Capital spokeswoman, declined to comment.

Discussions with Credit Suisse relate to a previously disclosed probe of dollar payments from 2002 through April 2007, the bank said. Morgenthau said a final agreement hasn’t been signed.

“Credit Suisse is committed to the highest standards of integrity and regulatory compliance in all its businesses, and takes this matter extremely seriously,” the bank said in the statement. The company “has enhanced its procedures to prevent practices of this type from occurring.”

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Rajaratnam, Chiesi Indicted for Conspiracy, Fraud

Raj Rajaratnam, the billionaire Galleon Group LLC founder, and Danielle Chiesi, an executive at New Castle Funds LLC, were indicted by a federal grand jury for using inside information to profit from stock trades.

The indictment includes 11 counts of securities fraud and conspiracy against Rajaratnam and 10 counts against Chiesi stemming from trades that allegedly generated more than $20 million in illegal profits. It cites multiple schemes dating to 2003 and says the two used secret tips to trade in stocks including Polycom Inc., Hilton Hotels Corp, Akamai Technologies Inc., Google Inc. and International Business Machines Corp.

“Mr. Rajaratnam is innocent and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence,” his lawyer, John Dowd, said in a statement.

Rajaratnam, 52, and Chiesi, 44, were accused in an Oct. 16 criminal complaint of participating with four others in a wide- ranging insider trading case. Yesterday’s indictment formalizes the charges against Rajaratnam and Chiesi, who live in New York, and moves their case toward a trial. U.S. District Judge Richard Holwell in Manhattan will preside. A court hearing is scheduled for Rajaratnam and Chiesi on Dec. 21.

“We intend to plead not guilty and defend the case and hopefully at the end prove the client’s innocence,” Chiesi’s lawyer, Alan Kaufman, said in an interview.

As in the earlier complaint, the grand jury accused Rajaratnam of receiving tips over several years from a network of high-ranking executives including Chiesi, Ali Far, a hedge- fund manager, and Roomy Khan, a former Intel Corp. executive. Far and Khan are among six people who have pleaded guilty and are cooperating with prosecutors.

The criminal case is U.S. v. Rajaratnam, 1:09-mj-02306, U.S. District Court, Southern District of New York (Manhattan).

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DiPascali’s Help Contributed to Three Madoff Arrests

Information from Frank DiPascali Jr., who pleaded guilty to helping Bernard Madoff carry out the largest U.S. Ponzi scheme, was used to prosecute three people associated with the jailed money manager, his lawyer said.

Defense lawyer Marc Mukasey yesterday again asked a federal judge in New York to release his client on bail as DiPascali helps prosecutors unravel Madoff’s scheme. DiPascali’s cooperation already has been very valuable to the government, Mukasey said in the filing.

“Though most of the information Mr. DiPascali has provided to the government remains confidential at this time, some of the fruits of his assistance are public: information he provided contributed to the arrest of three individuals to date,” Mukasey wrote. He said the three included Madoff computer technicians Jerome O’Hara and George Perez.

DiPascali, the former chief financial officer in Madoff’s investment advisory business, was denied bail on Aug. 11 after pleading guilty to 10 felony counts. U.S. District Judge Richard Sullivan said then that he was concerned DiPascali might flee before sentencing, even though DiPascali is cooperating in the federal investigation.

Sullivan on Oct. 28 refused to release DiPascali because he wanted more information about his assistance to prosecutors. The judge also wanted more information about the people who would guarantee a proposed $10 million bond for DiPascali.

The case is United States of America v. Frank DiPascali Jr., 09-cr-00764, U.S. District Court, Southern District of New York (Manhattan).

Ospel, Kurer Won’t Face Swiss Criminal Probe Over UBS

Marcel Ospel, former chairman of UBS AG, and former general counsel Peter Kurer won’t face a criminal probe over whether they knew that employees of Switzerland’s biggest bank helped U.S. clients evade taxes.

Breaches of U.S. Securities and Exchange Commission rules aren’t punishable under Swiss law, the Zurich district attorney’s office said in a statement yesterday. Prosecutors also said they lack evidence that senior managers knowingly undertook more risky activities than a prudent businessman would have, a finding necessary for a charge of disloyal management.

UBS in August agreed to disclose data on as many as 4,450 accounts to settle a U.S. lawsuit related to alleged tax evasion by some clients after admitting to have participated “in a scheme to defraud the U.S.” The bank said yesterday in a separate statement that its board won’t sue former senior executives over subprime losses and the U.S. cross-border business.

“There was no evidence of criminal conduct by former senior executives under Swiss law,” Zurich-based UBS said in the statement. “There is no indication that they pursued personal interests to the detriment of UBS.”

Switzerland’s Social Democrats in August filed a complaint with the prosecutors, saying Ospel and Kurer acted “irresponsibly” and damaged the image of the Swiss financial industry.

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SEC Seeks Dismissal of Madoff Victims Negligence Suit

The U.S. Securities and Exchange Commission asked a judge to throw out a suit by two of Bernard Madoff’s victims who accused the agency of negligently failing to uncover a scheme that wiped out at least $19 billion.

The agency has said it missed at least six opportunities to spot Madoff’s fraud because it assigned inexperienced employees to inquiries and failed to pursue leads. If the case succeeds, the SEC could be exposed to thousands of lawsuits.

The complaint seeks to waive the government’s “sovereign immunity” from such cases under a law permitting lawsuits if workers were negligent. The SEC said the victims’ suit fails because the law has an exception for so-called discretionary functions performed by workers, such as deciding how to staff cases and seek evidence, Assistant U.S. Attorney Sarah Normand said in a filing yesterday in federal court in Manhattan.

“The manner in which the SEC investigates suspected violations of the securities laws is grounded in policy and committed to the SEC’s discretion by Congress,” Normand said in the filing. “Even assuming that the SEC acted negligently in the course of its Madoff investigations, the discretionary function exception would still apply.”

The lawsuit was filed in October on behalf of Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million in the fraud, and Steven Schneider, a doctor who lost almost $753,000. The SEC earlier denied their administrative claims, clearing the way for them to file suit under the Federal Tort Claims Act.

Madoff, 71, is serving a 150-year sentence for running the fraud.

The case is Molchatsky vs. United States of America, 1:09- cv-08697, U.S. District Court, Southern District of New York (Manhattan).

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Pfizer Asks Court to Order Prempro Video Removed From Internet

Pfizer Inc. asked a judge to order the removal of an Internet video about its menopause medicines that the company says is misleading and aimed at swaying potential jurors in future trials over the pills.

The video, posted by plaintiffs’ lawyers who recently won more than $78 million in damages in a Pennsylvania trial over Pfizer’s Prempro hormone-replacement drug, violates state legal- ethics rules and threatens the integrity of pending cases, Pfizer’s attorneys said in a court filing. The video, titled “Prempro News Segment,” is posted to the Youtube.com Web site.

“Plaintiff’s counsel should be compelled to remove this video from the Internet and refrain from making any further inflammatory and prejudicial public statements” until the litigation is resolved, Pfizer’s lawyers said in a motion filed yesterday in Philadelphia Common Pleas Court.

More than 6 million women have taken hormone-replacement medicines to treat menopause symptoms such as hot flashes, night sweats and mood swings. Until 1995, many patients combined Premarin, an estrogen-based drug made by Pfizer’s Wyeth unit, with progestin-laden Provera, made by Upjohn, another subsidiary of Pfizer, the world’s largest drugmaker. Wyeth scientists later combined the two hormones in its Prempro pill.

The Barton case is Barton v. Wyeth Pharmaceuticals Inc., 040406301, Court of Common Pleas, Philadelphia County, Pennsylvania.

For more lawsuits news from yesterday, click here.

New Suits

U.S. Sued to Block Shell Permit for Arctic Drilling

The U.S. Interior Department was sued by conservation groups seeking to block a permit allowing a Royal Dutch Shell Plc unit to begin oil drilling in the Arctic Ocean’s Beaufort Sea next summer.

The Natural Resources Defense Council and other groups yesterday asked a federal appeals court in San Francisco to review the permit, granted in October after an appeals court last year blocked the Bush administration’s approval of the drilling plans, according to an e-mailed statement.

The drilling, which would take place as close as 20 miles (32 kilometers) from the Arctic National Wildlife Refuge, would emit tons of pollutants, potentially threatening bowhead whales, polar bears and other wildlife, according to the statement.

The Obama administration “followed the same weak permitting process used by the previous administration to approve Shell’s prior drilling for the area,” the groups said in the statement.

Shell has taken many steps to minimize the impact of its drilling program, said Curtis Smith, a company spokesman.

John Romero, a spokesman for the Interior Department’s Minerals Management Service, didn’t return a voice-mail message seeking comment.

The case is Native Village of Point Hope v. Ken Salazar, 9th U.S. Circuit Court of Appeals (San Francisco).

IBM Sued by Neon Enterprises Over Mainframe Software

International Business Machines Corp. is illegally trying to stop customers from using programs that would make its mainframe computers run faster, Neon Enterprise Software LLC said in a lawsuit.

The world’s biggest provider of computer services is violating the U.S. Lanham Act and state competition laws through its unfair practices, which are aimed at protecting a monopoly worth billions of dollars, closely held Neon said in its complaint filed Dec. 14 in federal court in Austin, Texas.

“Having sold products to its customers without limitations on their use, IBM is attempting unlawfully and retroactively to impose such restrictions,” Neon said. The Austin-based company said it has lost tens of millions of dollars in potential sales because of IBM’s tactics.

IBM began developing mainframe computers in the 1940s and 1950s and is now among the few companies offering the systems. The company has stifled competition by withholding licenses to run its operating system on rival hardware, the Computer & Communications Industry Association said in a report sent to the Justice Department in September.

T3 Technologies Inc., a company that builds mainframe computers and is mentioned in the CCIA’s report, made a similar complaint against IBM to the European Commission this year. Antitrust claims brought by T3 against IBM were dismissed by U.S. District Judge Lewis Kaplan in New York in September.

“Neon’s claims have no merit and its product offers no innovation,” Tim Breuer, a spokesman for Armonk, New York-based IBM, said Dec. 14 in an e-mail. “Neon’s software deliberately subverts the way IBM mainframe computers process data. This is akin to a homeowner tampering with his electrical meter to save money. IBM has invested billions of dollars in the mainframe this decade and we will vigorously protect our investment.”

The case is Neon Enterprise Software LLC v. International Business Machines Corp., 09-cv-896, U.S. District Court, Western District of Texas (Austin).

Pride Files $44 Million Suit Against GP Investments

Pride International Inc., a U.S. oil and natural-gas driller, sued GP Investments Ltd., seeking $44 million from Latin America’s largest private-equity fund over the 2007 sale of two of Pride’s Latin American businesses.

Pride filed its breach-of-contract lawsuit Dec. 14 in federal court in New York, alleging that GP and its subsidiary San Antonio Oil & Gas Services Ltd. owe the money from their 2007 purchase of Pride’s Latin American land-based drilling and work-over business and its exploration and production service business.

GP, based in Hamilton, Bermuda, paid Pride about $1 billion in cash on Aug. 31, 2007, in the transaction, while leaving unresolved the amount that GP owed for acquiring Pride’s working capital. The $44 million that Pride says it is still owed for the working capital is the subject of the lawsuit.

“Plaintiffs have made repeated attempts -- in telephone conferences, written correspondence, and in-person meetings --to persuade GP and San Antonio to fulfill their contractual obligations,” Houston-based Pride said in its complaint.

The case is Pride International v. GP Investments, 09-cv- 10174, U.S. District Court, Southern District of New York (Manhattan).

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

Trials/Appeals

Boeing Unit Torture Case Argued in U.S. Appeals Court

A lawsuit alleging a Boeing Co. unit disguised the delivery of suspected terrorists to secret prisons threatens national security if it’s permitted to go forward, the U.S. told a federal appeals court.

Douglas Letter, a Justice Department lawyer, said yesterday that a lower-court judge was correct last year in ordering the case dismissed based on government claims that the litigation might reveal state secrets. Letter told the appeals court yesterday that classified information confirming or denying Chicago-based Boeing’s Jeppesen Dataplan Inc.’s relationship with the Central Intelligence Agency may be revealed if the case proceeds.

“We can’t declassify things, we don’t have the authority to do that,” Alex Kozinski, chief judge of the San Francisco- based appeals court, told Ben Wizner, a lawyer at the American Civil Liberties Union, which filed the case. “Just because the government has declassified in one case doesn’t mean they have to in this case. What is legally wrong with the government deciding to invoke secrecy in one case and not in another?”

In April, a three-judge panel of the appeals court overruled the district judge and revived the lawsuit against Chicago-based Boeing’s Jeppesen Dataplan Inc. The Obama administration is relying on the same arguments that former President George W. Bush’s Justice Department put forth after the case was filed in 2007. The U.S. won a chance to have the case reconsidered by an appeals court panel with 11 judges.

The government is inappropriately relying on a classified statement by General Michael Hayden, the former Central Intelligence Agency director, to argue the case should be “terminated before it has even begun,” Wizner told the court. He said the case can’t go forward if the appeals court permits the CIA to rely on statements that “declare its own crimes state secrets.”

The case is Mohamed v. Jeppesen, 08-15693, 9th U.S. Circuit Court of Appeals (San Francisco).

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GN Asks German Court to Overturn Veto in Resound Case

GN Store Nord A/S, Sonova Holding AG and Siemens AG asked Germany’s top civil court to overturn an antitrust veto in a case they see as an obstacle to future mergers and acquisitions in the hearing-aid industry.

Germany’s antitrust regulator was wrong to prohibit the sale of GN’s Resound unit to Sonova over competition concerns when all other national regulators cleared the deal, GN’s lawyer Horst Satzky told the Federal Court of Justice in Karlsruhe, Germany, yesterday. The 2007 veto paralyzed any merger activity within the sector, he said at a hearing in the case.

“Everyone in the industry is looking at this case now,” said Satzky. “If this court overturns the veto, it would allow much more leeway in the market.”

The Resound hearing-aid unit, for which Sonova bid $2.9 billion in 2007, was dropped after GN and Sonova lost a Dusseldorf court bid against the veto. Ballerup, Denmark-based GN nevertheless pursued an appeal to the top court to help expand merger options in the hearing-aid industry, Chief Financial Officer Anders Boyer said last month.

Presiding Judge Klaus Tolksdorf set the date of a ruling for April 20.

The German Cartel Office had said in April 2007 the purchase of Resound would harm competition because Sonova, Danish rival William Demant A/S and Siemens control about 80 percent of the German market. The takeover would have pushed that figure to 90 percent.

Resound only had 4.5 percent of its sales in Germany, so that nation’s regulator shouldn’t have the power to veto a transaction between a Swiss and Danish company when 95 percent of the sales concerned are outside of the country, said Rainer Bechtold, an attorney for Staefa, Switzerland-based Sonova.

Yesterday’s case is BGH, KVR 1/09.

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

Verdicts/Settlements

Broadcom’s Ruehle, Nicholas Win Backdating Dismissal

Broadcom Corp.’s former chief executive and financial officers won dismissal of criminal charges over stock-option backdating after a federal judge found that prosecutors had intimidated witnesses.

U.S. District Judge Cormac J. Carney, at a hearing yesterday in Santa Ana, California, ended the trial of former finance chief William Ruehle and threw out the charges against former CEO and co-founder Henry Nicholas, who was scheduled to go trial in February. Carney scheduled a hearing for February to decide whether to proceed with a separate trial against Nicholas over narcotics-related charges.

Ruehle and Nicholas were indicted last year for retroactively deciding the dates when Broadcom employees received their stock-option grants to increase the employees’ profits. Irvine, California-based Broadcom had to reduce reported earnings by $2.22 billion from 1998 to 2005 for underreported compensation expenses, the largest backdating- related restatement for any company.

“The government has threatened and intimidated three witnesses,” Carney said. “To submit this case to the jury would be a mockery of justice.”

The judge said his ruling was based on evidence that one of the prosecutors leaked information about former Broadcom Chairman Henry Samueli’s grand jury testimony to newspapers in order to force him to plead guilty. The same prosecutor also tried to influence the testimony of Broadcom’s former general counsel David Dull after the judge had granted him immunity, Carney said.

In addition, the judge said, the same prosecutor caused Broadcom’s former head of human resources, Nancy Tullos, to lose her job at a different company as part of an effort to get her to cooperate with the investigation. Tullos, who pleaded guilty to obstruction of justice, was a key government witness at the trial.

Acting U.S. Attorney George Cardona said at the hearing that the government disagreed with the judge’s order and would consider its options.

The case is U.S. v. Nicholas, 08-139, U.S. District Court, Central District of California (Santa Ana).

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Lehman Unit Failed to Isolate Vast Sum of Client Cash

Lehman Brothers Holdings Inc.’s U.K. unit failed to segregate “vast sums” of client money in a “shocking underperformance,” a London judge said in a ruling that affects the return of billions of dollars.

Lehman Brothers International Europe didn’t put all client money into separate accounts from its house accounts in accordance with U.K. Financial Services Authority rules, Justice Michael Briggs said in a judgment yesterday.

There was a “falling short” of the rules by LBIE “on a truly spectacular scale,” Briggs said.

Clients that should have had their money put into separate accounts, and didn’t, can’t claim money from the pool of client funds controlled by PricewaterhouseCoopers, Lehman’s bankruptcy administrator, the accounting firm said in a statement. Other Lehman units are “the most significant group of clients whose money LBIE failed to segregate,” Briggs said.

LBIE affiliates have made client-money claims of more than $3 billion, according to the judgment. The amount LBIE held in segregated accounts when it went into administration in September 2008 was $2.16 billion.

The case is: In the matter of Lehman Brothers International Europe, 7942/08, High Court of Justice, Chancery Division.

For more, click here.

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

Litigation Departments

Madoff Victims Urge Judge to Reject Trustee’s Fees

Helen Chaitman, a victim of Bernard Madoff’s fraud and a lawyer representing hundreds of other investors, said the trustee for the con man’s firm shouldn’t be paid $22 million for five months of work because Madoff customers aren’t being fully repaid.

Trustee Irving Picard and his team with Baker & Hostetler LLP are accumulating fees by doing forensic accounting of decades’ worth of records to set claims, instead of using customers’ last account statements as required by law, Chaitman said in a filing Dec. 14 in U.S. Bankruptcy Court in New York.

Picard’s method for setting claims based on cash deposits minus withdrawals ensures most victims will have their claims approved at lesser amounts or denied outright, Chaitman says. She made the same allegation Dec. 9 in Washington at a Congressional subcommittee hearing about the Madoff case.

The law firm “is deliberately acting to delay and frustrate the payment of customer claims, even to the point of misrepresenting the law to destitute customers who cannot afford to retain their own counsel,” Chaitman said in the filing. “Such misrepresentation is grounds for denial of fees.”

Picard’s spokesman Kevin McCue declined to comment yesterday.

Earlier this month, Picard said in an e-mail that, “getting visibility into older account records has unfortunately been a slow process.” He said he is processing claims as quickly as possible, and declined to estimate when he’ll finish.

Picard, hired by the Securities Investor Protection Corp. to recover assets and repay victims, made the fee request last month. In August, he won his first request for $14.7 million in fees for work from Dec. 15 to April 30. Some victims objected to that request too, claiming Picard was burning through cash while approving victims’ claims too slowly.

Picard has recovered about $1.4 billion in assets for victims who thought they had $65 billion in their accounts. He is also seeking the return of about $15 billion in fake profit through so-called clawback lawsuits against Madoff’s biggest investors and beneficiaries, including Madoff’s wife and sons.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, 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.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.