Chrysler, FTC Capital, Kraft, Marsh in Court News

A group of Indiana pension funds that hold first-lien debt of Chrysler LLC objected to a plan to auction the company’s assets and said a U.S. District Court judge should rule on whether the sale is lawful.

The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust and Indiana Major Move Construction filed court papers May 19 and yesterday asking U.S. Bankruptcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and tramples their rights. A hearing to approve the sale to a group led by Fiat SpA, or a bidder that tops its $2 billion offer, is scheduled for May 27.

Gonzalez denied a motion by the funds to stay the sale process while they seek a review by the U.S. District Court of whether the sale is proper. The funds’ attorney, Thomas Lauria, said after yesterday’s hearing that the group already had filed papers with the district court.

The funds also have asked for the appointment of a trustee to run Chrysler, saying the company has “ceded control over their business and their restructuring efforts to the United States Treasury Department,” which is using the bankruptcy to reward certain creditors that “the government deems politically important,” according to one of the filings.

“The Treasury Department has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most fundamental principles of creditor rights,” lawyers for the pension plans wrote.

The funds are represented by Lauria and other lawyers at White & Case LLP, the same law firm that represented a group known as Chrysler’s Non-TARP lenders.

U.S. District Judge Thomas Griesa in New York scheduled a hearing on the pension funds’ request for May 26 at 11:30 a.m. Court papers must be filed before then, he said.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

Sasol Expects Civil Claims After Admission on Cartel

Sasol Ltd., the world’s largest producer of fuel from coal, said it expects civil claims after admitting to breaking anti- cartel rules in South Africa’s fertilizer industry.

The company doesn’t have an estimate of how many claims it may face, Chief Executive Officer Pat Davies said in a speech in Pretoria yesterday. Sasol agreed May 19 to pay an increased fine of 251 million rand ($29.8 million), up from the original 188 million rand, after uncovering more information about the case during an internal investigation.

The Johannesburg-based fuel producer began a review of competition compliance in 2008, when it was fined 318 million euros ($433 million) by European Union regulators for allegedly participating in a wax cartel. The company said in January the review uncovered possible violations of national competition laws in its oil and gas units, triggering an industrywide probe which is still in progress.

Stanford’s Pendergest-Holt a Flight Risk, U.S. Prosecutors Say

Laura Pendergest-Holt, the Stanford Financial Group Co. executive indicted for obstructing a U.S. probe into an alleged $8 billion fraud, is a “flight risk” who needs electronic monitoring, prosecutors said.

Pendergest-Holt, chief investment officer for one of three R. Allen Stanford-led businesses sued by the U.S. Securities and Exchange Commission for misleading investors, pleaded not guilty to the criminal charges on May 14. Freed on a $300,000 bond, she is wearing an electronic monitoring ankle bracelet that her lawyers say is unnecessary. Prosecutors disagree.

“There remain billions of dollars in missing assets of Stanford International Bank Ltd.,” Assistant U.S. Attorney Gregg Costa said yesterday in a filing in federal court in Houston opposing Pendergest-Holt’s request to remove the anklet.

Stanford International Bank Ltd. was the vehicle through which Stanford is accused of selling investors $8 billion in self-styled certificates of deposit, while deceiving customers about government oversight of their assets and how they were being invested, according to the SEC.

As much as $1 billion of Stanford bank assets can’t be accounted for, a receiver appointed by U.S. District Judge David Godbey in Dallas said in an April 23 filing.

Attorneys for Pendergest-Holt on May 14 asked Godbey to remove her monitoring device, saying there’s no truth to the government’s claim that she had access to money to pay for an escape.

The criminal case is U.S. v. Pendergest-Holt, 4:09cv250, U.S. District Court, Southern District of Texas (Houston). The civil case is SEC v. Stanford International Bank, 3:09cv00298-N, U.S. District Court, Northern District of Texas (Dallas).

For more lawsuits news from yesterday, click here.

New Suits

Sara Lee Sues Kraft Foods Over Hot Dog Advertisements

Sara Lee Corp. sued Kraft Foods Inc., saying advertisements that compare Sara Lee’s Ball Park beef hot dogs unfavorably with Kraft’s Oscar Mayer Jumbo Beef Franks are false and misleading.

Kraft’s claims are false because they are based on an unreliable test and because they imply that the Oscar Mayer franks are better tasting compared with more hot dogs than the “mere” two competitor products that were part of the test, Sara Lee said in a complaint filed yesterday in federal court in Chicago. Sara Lee seeks a court order ending the advertisements and unspecified damages.

“We’re the nation’s beef hot dog leader,” Ball Park brand director Chuck Hemmingway said in a statement. “Millions of Americans have voted Ball Park with their wallets and their taste buds and we’re not going to stand by and allow these consumers to be misled.”

Kraft stands by its reputation for accurate advertising, Syd Lindner, a spokesman for the Northfield, Illinois-based company said in a statement.

The case is Sara Lee Corp. v. Kraft Foods Inc., 09-3039, U.S. District Court, Northern District of Illinois (Chicago.)

FTC Capital Markets Office Raided, Executives Charged

Two executives at FTC Capital Markets Inc., a broker- dealer, face criminal charges for misusing about $200 million dollars from Venezuela’s state oil company and its parent.

FTC Operations Manager Lina Lopez, 34, was arrested in Miami May 19 and prosecutors have a warrant for the arrest of her boss, FTC Chairman Guillermo Clamens, 45. FTC’s offices in New York were raided yesterday by postal inspectors as part of the probe, a person familiar with the matter said.

The case relates to a civil complaint filed March 9 by Citgo Petroleum Corp. and its parent, PDV Holding Inc., and which was settled on May 7, the person said. The lawsuit in Manhattan federal court alleged that FTC used funds from Citgo and PDVH for its own trading in risky investments. Lopez and Clamens then gave phony account statements to Citgo and PDVH, according to court papers.

FTC “diverted and misused plaintiffs’ investment funds as a ‘slush fund’ to finance defendants’ own self-interested, unauthorized and speculative trading in unregistered, risky, illiquid investments in which they had financial interests,” the complaint says.

A criminal complaint against Clamens and Lopez accuses the pair of promising to invest hundreds of millions of dollars from two unnamed investors in short-term certificates of deposit. Instead, they bought about $200 million in risky FTC notes and Venezuelan and Argentine bonds without telling the investors, the complaint says.

The scheme unraveled in late October and early November as the investors sought to withdraw funds from their accounts, the complaint says. Clamens and Lopez are charged with wire fraud, securities fraud, and conspiracy.

William Brodsky, a lawyer for New York-based FTC Capital, didn’t return a call. Howard Greitzer, Lopez’s attorney, and Citgo spokesman Fernando Garay declined to comment.

The civil case is Citgo v. FTC, 09-cv-2116, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. FTC Capital, 09-cv-4755, U.S. District Court, Southern District of New York (Manhattan).

Joseph Stevens Brokers Charged With Racketeering

Sixteen brokers, traders and principals associated with Joseph Stevens & Co., a defunct brokerage firm, were charged with racketeering and collecting unlawful commissions, Manhattan District Attorney Robert Morgenthau said.

The company and the employees netted $6.2 million in unlawful commissions, Morgenthau said at a press conference yesterday. The defendants, which also include the firm, were charged with enterprise corruption, grand larceny, criminal possession of stolen property, securities fraud and falsifying business records.

Morgenthau said his probe found the company was a criminal enterprise from January 2001 through December 2005, defrauding 800 victims in more than 5,000 trades, valued at $151.3 million.

The defendants often manipulated stock prices higher after having pre-arranged customer orders, Morgenthau said. For example, Morgenthau said, a trader would tell brokers he was going to get a block of stock and would ask the brokers to commit to selling a certain number of shares.

Once the trader got the commitments, the brokers would hold the customer orders until the price of the stock had increased, often because of manipulation. The extra profit would be shared between the trader, the broker, and the firm.

Former Joseph Stevens principal Joseph Sorbara, of Long Island, was among those who surrendered to the Manhattan District Attorney this morning, according to his attorney Michael Bachner. Former broker Scott Tierney, of Staten Island, also surrendered, said his attorney Roland Riopelle.

“Mr. Sorbara committed no crimes and we are confident that he will be completely vindicated at the end of the day,” Bachner said in a telephone interview.

“We are anxious to see what the charges are so we can begin the process of defending ourselves,” said Riopelle, also in a telephone interview.

To read more of this story, click here.

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


HealthSouth’s Scrushy Takes Stand Over Claims He Misused Funds

HealthSouth Corp. founder Richard Scrushy, acquitted in 2005 of fraud, took the witness stand yesterday to rebut investor claims he wrongly spent company money on breast implants, leisure trips and an all-girl band.

Scrushy’s testimony in state court in Birmingham, Alabama, is his first since the FBI raided HealthSouth offices in March 2003 and 15 executives pleaded guilty to faking profits. They said they did so at Scrushy’s direction.

Shareholders suing on behalf of HealthSouth claim Scrushy used company money for personal expenses, including real-estate purchases and 400 flights to his lake house on a company helicopter. Scrushy’s attorneys said he often paid the company beforehand for private expenses and his employment contract allowed personal use of the aircraft.

Scrushy said under oath that he hired outside help to detect and prevent fraud.

“We opened the door to everything,” by hiring an outside law firm and accountants and implementing a new software system, he said. “Fraud would be absolutely impossible,” under the new system, he testified.

Scrushy didn’t testify in his defense at his 2005 criminal trial or in a 2006 federal corruption case in Montgomery, Alabama. Scrushy is serving a federal prison term of six years and 10 months after a jury convicted him on charges he bribed former Alabama Governor Don Siegelman.

In the current case, Judge Allwin Horn will decide the outcome without a jury.

The case is Tucker v. Scrushy, CV 02-5212, Jefferson County Circuit Court of Alabama (Birmingham).

AstraZeneca Planned Off-Label Drug Sales in 2000

AstraZeneca Plc set a strategy of marketing its Seroquel antipsychotic drug for unapproved, or “off-label,” uses as early as 2000, according to documents unsealed as part of litigation over the medicine, Bloomberg News’ Margaret Cronin Fisk and Jef Feeley report.

“Key Success Factors: Broaden Seroquel use on and off label,” AstraZeneca officials wrote in a December 2000 “Seroquel Strategy Summary” provided by a spokeswoman for the plaintiffs’ lawyers in the cases. Under required actions by the company, the plan called for sales managers to “utilise whole selling team. Educational programmes to share off label data,” according to the documents.

The plan is among thousands of pages of files lawyers suing AstraZeneca over Seroquel planned to release on a Web site yesterday, according to Kerri Axelrod, a spokeswoman for the plaintiffs’ lawyers, who released some of the documents May 19, along with a chart describing dozens more.

“These documents do not advocate the inappropriate promotion of Seroquel,” Tony Jewell, AstraZeneca’s spokesman, said in an e-mailed statement. He noted the company’s researchers have “invested significant resources” seeking to find new ways to have the drug help mentally ill patients.

More than 15,000 patients have sued AstraZeneca, claiming the company withheld information of a connection between diabetes and Seroquel use from doctors and users of the drug.

The U.S. Food and Drug Administration first approved Seroquel in 1997 for use in treating symptoms of psychotic disorders and then granted AstraZeneca the right in 2001 to market it as a schizophrenia treatment. Its usage was expanded twice more during a two-year period starting in 2004 to treat bipolar disorders.

Many of the lawsuits contend AstraZeneca promoted the drug for unapproved uses. Some of the suits have been consolidated before a federal judge in Florida. The company has denied any wrongdoing. The first trial over the drug is set to start June 29 in state court in Delaware.

The case is In Re Seroquel Products Litigation, 06-MD- 01769, U.S. District Court, Middle District of Florida (Orlando).

To read more of this story, click here.

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


Marsh’s Mercer to Pay $45 Million to Wisconsin County

A unit of Marsh & McLennan Cos., the second-biggest insurance broker, agreed to pay $45 million to Milwaukee County in Wisconsin to settle charges it was negligent while advising on a pension-benefits package.

Mercer (US) Inc., formerly known as Mercer Human Resource Consulting, reached the settlement May 19, spokesman Charles Salmans said. The agreement came after two weeks of a jury trial in federal court in Milwaukee, according to a statement by one of the county’s law firms, Houston-based Susman Godfrey LLP.

Milwaukee County and the Milwaukee County Employees Retirement System sued in 2006, accusing Mercer of “actuarial negligence” regarding the county’s 2000-2001 pension package.

“From the outset of this litigation, we have strongly believed that the quality of our work on behalf of Milwaukee County met all applicable professional standards,” Mercer said in a statement e-mailed by Salmans. “Given the uncertainty of trial outcomes involving complex technical matters, we believe that reaching a resolution was prudent and in the best interest of our shareholders, clients and employees.”

The company continues to believe the suit was without merit, according to the statement.

The county changed its benefits in 2000 to retain employees “in a tight labor market,” according to the 2006 complaint in the case. It hired Mercer to advise on the costs of the changes and what impact they would have on employee behavior.

“Mercer made repeated, serious actuarial mistakes, grossly underestimated costs and totally failed to assess the actuarial effect,” according to the complaint.

As a result of the mistakes, health-care costs the county sought to decrease instead increased and more than 1,600 of the 5,000 employees retired in four years, it said in the complaint.

The case is Milwaukee County v. Mercer Human Resource Consulting Inc., 06-cv-372, U.S. District Court, Eastern District of Wisconsin (Milwaukee).

Procter & Gamble’s Pringles Are Potato Chips, London Court Says

Pringles are potato chips, a London court ruled yesterday in a dispute over the salty Procter & Gamble Co. snack stacked in a tube.

A three-judge panel at the Court of Appeal in London threw out a lower court’s ruling that for tax purposes the snack isn’t a potato chip, stick or puff. The earlier ruling allowed Pringles to be sold without a sales duty.

While most food is exempt from Britain’s 15 percent sales tax under British law, the U.K. tax office claimed Pringles are covered by an exception for “products made from the potato, or from potato flour, or from potato starch.”

P&G’s lawyers argued Pringles don’t look like a chip, don’t feel like a chip and don’t taste like a chip. They also claimed the snack isn’t made like a chip since it’s cooked from baked dough, not potato slices. Justice Nicholas Warren in July agreed and ruled Pringles aren’t “made from the potato” for the purposes of the tax exemption.

Justices John Mummery, Robin Jacob and Roger Toulson in yesterday’s ruling said it wasn’t the lower court’s job to look into “scientific or technical questions about the composition” of Pringles. A child would be able to give a “more relevant and sensible” answer than a food scientist, the judges said.

The court’s decision could cost Cincinnati-based P&G as much as 20 million pounds ($31 million) a year, said the judgment, citing company lawyers.

“We are disappointed with the court’s conclusion,” P&G said in an e-mailed statement. “We have always asserted that Pringles are treated in the same manner as other savory snacks of similar composition.”

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

Litigation Departments

Lawyers at U.S. Firms Face FSA Insider-Trading Case

Two lawyers who worked at the London offices of U.S. law firms face insider-trading charges next month brought by the U.K. Financial Services Authority, according to court documents.

Andrew Rimmington, a corporate partner at Dorsey & Whitney LLP, and Michael Gerard McFall, an ex-corporate partner at McDermott Will & Emery LLP face FSA prosecution. Former Neutec Pharma Ltd. financial director Peter King will also be charged. The criminal prosecution relates to Novartis AG’s 2006 takeover of Neutec, according to the court documents.

It’s the fifth criminal insider-trading case prosecuted since January 2008 by the FSA, which is trying to take a tougher stand on financial crimes.

King and McFall face charges of insider dealing and disclosing non-public information. Rimmington will only be charged with insider trading, according to court documents. The men were ordered to appear before a London criminal court in June in connection with the charges, the documents show.

Ian Mason, Rimmington’s lawyer at London-based Barlow Lyde & Gilbert, confirmed that his client is involved in the case and declined to comment further.

“I don’t know what to say,” said McFall, declining to comment further. He left McDermott earlier this year to set up a private-equity advisory firm.

A voice-mail message left at a mobile-phone number for King wasn’t returned. King doesn’t work at Novartis, according to the company. Eric Althoff, a spokesman for Novartis, declined to immediately comment.

The three men could get as many as seven years in jail each if found guilty.

Rimmington, who qualified as a lawyer in 1994 after attending Nottingham Law School, joined Dorsey in 1998 from London-based law firm Nabarro.

McFall was also at Dorsey for six years until 2004, when he joined McDermott. He qualified in 1992, according to data from the Law Society, a U.K. professional group for lawyers.

Attorney Paul Bergrin Charged in Witness Murder Case

Paul Bergrin, a defense attorney and former federal prosecutor in New Jersey, was arrested and charged in the murder of a witness in a federal drug case.

Bergrin, 53, a former Essex County assistant prosecutor and Assistant U.S. Attorney, was arrested yesterday with three others and indicted by a federal grand jury in Newark, New Jersey, on charges of racketeering and conspiracy related to one murder and another attempted murder, the U.S. Attorney’s Office said yesterday in a statement.

Bergrin allegedly conspired to kill a witness preparing to testify against one of his clients in a drug case. He is also accused of conspiring to hire a Chicago hit man to kill a witness in another federal drug case. If convicted, Bergrin faces a maximum penalty of death and a mandatory sentence of life in prison, prosecutors said.

“Bergrin was directly involved in the successful plot to murder a federal informant,” Drug Enforcement Agency agent Michael Smith said in court papers. The lawyer “has used his law firm to carry out a pattern of criminal activities.”

The murder took place in March 2004, when a drug informant was shot three times in the back of the head while crossing a street in Newark, according to a statement yesterday by Acting U.S. Attorney Ralph J. Marra.

The assailant, Anthony Young, had been told by Bergrin several months earlier that if the murder took place, it would ruin the case against a client, William Baskerville, who was in jail on charges of distributing crack cocaine, according to the statement.

For more litigation department news from yesterday, click here.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

To contact the editor responsible for this story: David E. Rovella at

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