Lehman Brothers Holdings Inc. may have grounds to sue Goldman Sachs Group Inc. and Barclays Plc (BARC) after they demanded $1.2 billion in additional margin to assume trading positions auctioned by a Chicago exchange, bankruptcy examiner Anton Valukas said.
Goldman Sachs was the high bidder for Lehman’s equity derivatives at options and futures exchange CME Group Inc., and took $445 million of those assets at a private auction in September 2008, according to previously censored details of Valukas’s March 11 report. Barclays was the high bidder for Lehman’s energy derivatives and took $707 million in assets from CME.
DRW Trading was the highest bidder for Lehman’s foreign exchange, agricultural and interest-rate derivatives, Valukas said. The transfer of $2 billion in Lehman deposits for its proprietary trades at the CME cost the defunct investment bank $1.2 billion, Valukas said, adding that CME also may be sued.
“The examiner concludes that an argument can be made that the transfers at issue were fraudulent transfers,” Valukas said in the report, released in its unredacted form yesterday. Under bankruptcy law, Lehman may be able to undo the auction, he said.
Part of Valukas’s job was to explore Lehman’s grounds for suing companies that contributed to, or benefitted unfairly from, the demise of the investment bank and its affiliates including the brokerage Lehman Brothers Inc., and to say which kinds of lawsuits are most likely to succeed and what the possible defenses are.
“Thus, LBI may have a colorable claim against CME, or any of the firms that bought LBI’s positions at a steep discount during the liquidation ordered by the CME, for the losses that LBI sustained as a result of the forced sale of house positions held for the benefit of LBI and its affiliates.
CME could defend itself using the Commodity Exchange Act that gave it power to regulate its exchanges, Valukas said. Goldman and Barclays could use the same act to challenge bankruptcy law, Valukas said. Bankruptcy law also has provisions that might prevent Lehman from clawing back money, he said.
U.S. Bankruptcy Court Judge James M. Peck yesterday agreed to allow previously redacted portions of the report to be unsealed to test the fairness of the auction process. CME had sought to keep the documents confidential.
The $1.2 billion loss to New York-based Lehman came from additional cash that Goldman, Barclays and Chicago-based DRW Trading demanded to offset the risk of taking on the failed firm’s trading positions, said Craig Pirrong, a finance professor at the University of Houston.
Michael O’Looney, a Barclays spokesman, and Michael DuVally, a Goldman spokesman, declined to comment. DRW Trading strategist Lou Brien declined to comment on the potential lawsuit, referring to a statement on its Web site saying it was “pleased that we were able to provide competitive pricing for these very large, complex and risky portfolios.”
CME spokesman Allan Schoenberg declined to comment.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Cuomo Rejected Greenberg’s Settlement Offers, Lawyer Says
New York Attorney General Andrew Cuomo rejected attempts to settle a lawsuit against Maurice “Hank” Greenberg, said a lawyer for the former American International Group Inc. (AIG) chief executive officer.
New York officials haven’t been willing to rekindle settlement talks after an initial proposal fell apart following AIG’s 2008 near-collapse, said David Boies, chairman of Boies, Schiller & Flexner LLP. Greenberg, 84, who ran AIG for 38 years until he was forced to retire in 2005, is accused of using sham transactions to hide losses and inflate reserves at the New York-based insurer. He has denied wrongdoing.
“We’ve proposed to get a respected neutral, a former judge, to get a negotiated resolution,” Boies said yesterday in a phone interview. “We’ve been unable to get the attorney general’s office to be willing to do that. When you have a situation where they won’t listen to anybody, they’ll simply make a demand and sit on that demand, there’s no resolution.”
Richard Bamberger, a spokesman for Cuomo’s office, called the information provided by Boies “inaccurate.”
“We will not comment about this ongoing matter,” Bamberger said in an e-mail.
Former New York Attorney General Eliot Spitzer sued Greenberg in 2005, alleging he and former Chief Financial Officer Howard Smith misled regulators and investors. Spitzer dropped portions of the suit in 2006 and Greenberg asked a court to dismiss the rest. Cuomo inherited the case.
Greenberg has settled or won most of his other legal disputes. In August, Greenberg agreed to pay $15 million to settle U.S. Securities and Exchange Commission allegations that he manipulated AIG’s earnings. AIG agreed in November to settle suits and reimburse as much as $150 million of his legal fees.
A potential settlement between Greenberg and New York was derailed in September 2008 when losses on soured housing market bets forced the firm into a federal rescue that eventually swelled to $182.3 billion. Assistant New York Attorney General David Ellenhorn told New York State Supreme Court Justice Charles Ramos at a hearing that the parties had reached a deal with Greenberg and Smith.
“We reached an oral agreement,” Ellenhorn told Ramos at a November 2008 hearing. “Then AIG went from $20, $30” a share to “$2, $1, and, unfortunately the deal didn’t happen.” Ellenhorn declined to provide details of the proposed settlement, or why AIG’s share-price drop scuttled it.
Boies said yesterday he and another Greenberg lawyer, Robert Morvillo, intend to ask Ramos at a scheduled April 20 hearing to either dismiss the suit or grant Greenberg’s motion for summary judgment, which is a ruling before trial.
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AstraZeneca Must Face Toprol Lawsuit, Judge Says
AstraZeneca Plc (AZN), the U.K.’s second-largest drugmaker, must face a lawsuit over allegations it wrongly monopolized the market for Toprol XL blood-pressure medicine, a federal judge ruled in refusing to dismiss the case.
The case stems from lawsuits filed in 2006 by drug wholesalers and health and welfare funds contending the company used unfair trade practices to monopolize the market for Toprol -- in part by bringing sham patent-infringement lawsuits against makers of low-cost generics.
AstraZeneca asked Chief U.S. District Judge Gregory M. Sleet in Wilmington, Delaware, to dismiss the actions. Sleet said in an opinion yesterday the case is “fact-intensive” and the plaintiffs “have adequately stated a claim” so the case must continue.
“We’re disappointed in the ruling, believe the claims are unfounded and will vigorously defend ourselves at trial,” said Blair Hains, an AstraZeneca spokesman at U.S. headquarters in Wilmington.
The case is In re Metroprolol Succinate Litigation, 06-52, U.S. District Court, District of Delaware (Wilmington).
Theflyonthewall.com Says Business at Risk, Seeks Ruling Delay
Theflyonthewall.com said it may go out of business unless a court delays a ruling that barred the online financial news service from posting immediate reports about changes to stock ratings.
Customers are canceling subscriptions because Theflyonthewall.com can no longer issue immediate reports, company President Ron Etergino said in a court filing yesterday. He asked that the judge’s ruling from March be postponed until the company’s appeal is decided.
Theflyonthewall.com “is presented with the day-to-day challenge to remain in business during the pendency of its appeal,” lawyers for the company said in a legal brief. A ruling in its favor by the appeals court “would be of little real significance if defendant is ‘put out of business’ during the appeal process.”
U.S. District Judge Denise Cote in New York ruled on March 18 that the company couldn’t post immediate online reports about stock upgrades and downgrades by Barclays Plc, Bank of America Corp.’s Merrill Lynch and Morgan Stanley. (MS)
Benjamin Marks, a lawyer for the banks, didn’t return a call yesterday. Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did Merrill spokesman Bill Halldin.
The banks argued at a March trial that Theflyonthewall.com, a Summit, New Jersey-based firm with about 30 employees, wrongfully obtains and sells reports on changes to the banks’ stock evaluations.
The banks accused Theflyonthewall.com of “free riding” on research reports by sending headlines on upgrades and downgrades. Each bank spends “hundreds of millions of dollars per year in creating the research,” the judge wrote in her decision.
The case is Barclays v. Theflyonthewall.com, 06-cv-04908, U.S. District Court, Southern District of New York (Manhattan).
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Seven Charged in U.K. Insider-Trade Ring Case Sent to Trial
The City of London magistrates’ court sent the case to Southwark Crown Court for trial and said the seven could remain on bail. The next hearing will take place on April 22.
The seven are charged with dealing in shares of 12 companies, including Misys Plc and Enodis Plc, between 2006 and 2008 after gleaning information that originated at the banks, according to the Financial Services Authority. They made a profit of about 2.5 million pounds ($3.9 million), the regulator said last month.
The charges follow arrests last month in a separate case that ensnared London-based employees from Deutsche Bank AG, Exane BNP Paribas and Moore Capital Management LLC.
Ali Mustafa, Pardip Saini, Paresh Shah, Neten Shah, Bijal Shah, Truptesh Patel and Mitesh Shah were charged with a total of 12 counts of insider trading by the FSA. Each face as long as seven years in jail if convicted. Mitesh Shah has also been charged in relation to money laundering through spread bets.
Andrew Katzen, Mustafa’s lawyer, and Stephen Smith, Mitesh Shah’s lawyer, both declined to comment.
No formal pleas have been entered in the case.
Barrick Fends Off Bid for Temporary Mine Closing
U.S. District Judge Larry R. Hicks in Reno, Nevada, denied on April 13 the tribes’ request to halt production at Barrick’s Cortez Hills deposit until a trial in an environmental lawsuit. The company can continue to mine, with limited restrictions it proposed to follow an appeals court’s directions.
“The decision of the Ninth Circuit provides the court with little guidance,” Hicks wrote, referring to the U.S. Court of Appeals in San Francisco. “A limited injunction can adequately address the risk to the environment.”
“The court’s order is a great relief to all of us at Barrick, especially to the many people who are directly employed at Cortez Hills,” Greg Lang, president of Barrick’s North American operations, said in a statement.
The two sides are still preparing for a trial for which a date probably will be set near the end of May, Roger Flynn, founding director of the Western Mining Action Project, who represents the Shoshone tribes, said last month. Flynn didn’t immediately respond to a request for comment yesterday.
The appeals court told Hicks to issue an injunction, leaving its scope up to him. The Indian tribes sought a shutdown. Barrick persuaded the court to impose the less-severe restriction of halting truck shipments of ore that must be processed at the offsite plant.
The lawsuit is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 08-cv-00616, U.S. District Court, District of Nevada (Reno). The appeals court case is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 09-15230, U.S. Court of Appeals for the Ninth Circuit (San Francisco).
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Deutsche Bank’s Fedorcik Says He Shared VNU-Deal Information
Mark Fedorcik, Deutsche Bank AG’s (DBK) global head of leveraged-debt capital markets, shared information about a 2006 bond issue with potential investors in the normal course of figuring out how to structure the deal, he testified.
In its first insider-trading case over credit-default swaps, the U.S. Securities and Exchange Commission accuses Jon-Paul Rorech, 39, a bond and credit-default swap salesman at Deutsche Bank Securities, of illegally feeding the information on the bond sale by Dutch media company VNU Group BV to Renato Negrin, 46, a former Millennium Partners LP portfolio manager.
“It was my custom and practice to share information about potential changes back and forth with the market” to get feedback, Fedorcik testified yesterday at the trial in federal court in New York. He said he didn’t believe he disclosed any confidential information.
Negrin bought swaps to reap a $1.2 million profit when the 2006 deal was announced, the SEC said in a complaint in May. U.S. District Judge John G. Koeltl in Manhattan is hearing the nonjury trial, which began April 7.
The agency didn’t accuse Frankfurt-based Deutsche Bank or New York-based hedge fund Millennium of wrongdoing. Rorech is on paid administrative leave from Deutsche Bank.
The case is Securities and Exchange Commission v. Rorech, 1:09-cv-04329, U.S. District Court, Southern District of New York (Manhattan).
N.Y. Judge Rejects Plea Deal for Ex-Merrill Broker
A New York state judge rejected a proposed plea deal for former Bank of America Corp. Merrill Lynch broker Steven Mandala, who is charged with stealing $780,000 from the firm and using a chunk to buy a Ferrari.
Acting state Supreme Court Justice Carol Berkman yesterday nixed a defense offer that Mandala plead guilty to the top count, grand larceny, with a promised sentence of one to three years behind bars if he made upfront restitution of about $400,000, including about $300,000 cash and the proceeds of auctioning off the sports car, for which he paid $245,000.
The Manhattan District Attorney’s office had recommended two to six years in prison, though prosecutor Vimi Bhatia didn’t oppose Mandala’s offer in court.
“I thought three to nine (years) was appropriate,” Berkman said in rejecting the proposed deal. “You steal money. You give it back. You buy yourself out of state prison. I don’t get it.”
The judge set June 2 as a trial date. Before then, she said, “Maybe you could make a submission to persuade me your recommendation isn’t totally off track.”
Outside the lower Manhattan courtroom, defense attorney Franklin Rothman said his client has a “serious medical condition” involving his heart that he would document for the judge.
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Chiquita Faces New Claims by Families Over Colombia Terrorism
Chiquita Brands International Inc. (CQB), owner of the namesake banana label, was sued by hundreds of families who claim relatives were kidnapped and murdered after the company helped Marxist rebels in Colombia.
The complaint filed yesterday in federal court in West Palm Beach, Florida, represents more than 240 people who were victims of violence. The plaintiffs, using a 1992 law allowing Americans to sue U.S. firms over terrorism-related deaths abroad, claim that the company aided and abetted in the murders and provided material support and resources to terrorists.
The company was fined $25 million after pleading guilty in March 2007 to engaging in transactions with a terrorist group for paying Colombian paramilitary militias $1.7 million from 1997 to 2004. The plaintiffs are seeking unspecified damages.
“Chiquita has already admitted to engaging in criminal conduct that violated federal law by making systematic financial payments to a foreign terrorist organization,” Lee Wolosky, a Boies Schiller & Flexner LLP attorney for the plaintiffs, said in a statement. “Yet it has refused to provide compensation to the victims of terrorist atrocities made possible by its regular, repeated and knowing financial support.”
A representative for Cincinnati-based Chiquita didn’t return a call seeking comment yesterday.
At least seven other lawsuits have been filed since the guilty plea. The company reached a settlement with shareholders in January.
The case is Angela Maria Henao Montes v. Chiquita Brands International Inc., 10-cv-60573, U.S. District Court, Southern District of Florida (West Palm Beach).
Greece Sued by EU Over Illegal Aid to ThyssenKrupp Shipyard
Hellenic Shipyards has to reimburse the money, plus interest, because the government didn’t abide by conditions laid out by the European Commission, the Brussels-based regulator said yesterday in a statement. The commission said it is taking the case to the European Court of Justice in Luxembourg.
“In those cases where the aid is found to be illegal it must be recovered swiftly to restore the level playing field and to preserve the credibility of the rules themselves,” Competition Commissioner Joaquin Almunia said in the statement.
ThyssenKrupp, which is selling assets and reducing its workforce in a bid to return to profit this year, is in talks with the Greek government and shipbuilder Abu Dhabi MAR over the possible sale of the shipyard. In a separate deal, the Duesseldorf, Germany-based steelmaker agreed yesterday to sell maritime operations, including ship-repair and yacht-building businesses, to the Abu Dhabi company.
Cosima Rauner, a ThyssenKrupp spokeswoman, said she couldn’t comment on whether the company would have to pay back the money.
Konstantinos Pappas, a spokesman for Greece’s representation to the EU in Brussels, declined to comment. George Petalotis, a government spokesman based in Greece, wasn’t available to comment when called on his mobile phone.
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Madoff Victim Seeks $1.17 Million From Standard Chartered
A Hong Kong investor is seeking $1.17 million from a local unit of Standard Chartered Plc (2888) after he allegedly bought shares in an equity fund operated by Bernard Madoff based on advice from a private banker.
John Li Kwok-heem’s investment in Fairfield Greenwich Group, one of the funds used by Madoff to defraud investors, shrunk to $1,600 by December 2008, after U.S. authorities froze Madoff’s assets and a receiver was appointed to oversee the fund, according to a writ filed in Hong Kong’s High Court on April 12.
Li bought shares in the fund in August 2005 based on a recommendation from Amy Chau of American Express Bank, which was renamed Standard Chartered International (USA) after it was taken over by the London-based lender, the writ said. The bank employs more than one person named Amy Chau.
Madoff, 71, pleaded guilty last year to orchestrating a $65 billion fraud and was sentenced to 150 years in prison for running a Ponzi scheme that used money from new clients to pay earlier investors.
The information given by the bank to Li was “false” because the fund wasn’t an “authentic investment,” according to the writ.
Gabriel Kwan, a spokeswoman for Standard Chartered in Hong Kong, declined to comment.
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Ex-J&J Unit Executive Pleads Guilty to Bribery, Gets 12 Months
A former executive at Johnson & Johnson’s (JNJ) U.K. unit, DePuy International, pleaded guilty to taking part in paying 4.5 million pounds ($7 million) of bribes to Greek doctors. He was sentenced to 12 months in jail.
Robert John Dougall, 44, the former director of marketing at Leeds, England-based DePuy, admitted in a London court yesterday to paying commissions in advance on sales made by Medec SA, a Greek distributor of the health care company’s orthopedic products. Some of the money was used to make “incentive payments” in an effort to persuade Greek surgeons to use DePuy’s products, the U.K. Serious Fraud Office said in a statement.
The incentives “were no more than euphemisms to make corrupt payments,” the SFO said. The money for the payments was sent to an Isle of Man-registered company called Madison Management Ltd., owned by the parent of Medec.
Dougall’s lawyer, Shaul Brazil, declined to comment. Representatives for New Brunswick, New Jersey-based Johnson & Johnson weren’t available to comment.
Dougall, who cooperated with the probe, didn’t seek or gain any personal benefit from the payments, the SFO said. He was charged in December with conspiracy to corrupt.
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On the Docket
Toyota Judge in Sudden-Acceleration Lawsuits Sets First Hearing
Toyota, the world’s largest automaker, is facing at least 180 consumer and shareholder lawsuits seeking class-action status and at least 57 individual suits claiming personal injuries or deaths caused by sudden-acceleration incidents. The federal lawsuits were combined April 9 in a multidistrict litigation, or MDL, before U.S. District Judge James V. Selna.
The judge will oversee the lawsuits, deciding issues such as evidence-gathering and allowable legal arguments. The May 13 hearing is an initial organizing conference, Selna said in a court filing yesterday.
Selna’s scheduling was “a little quicker than normal,” W. Mark Lanier, a lawyer for plaintiffs, said in an e-mail. “This is a good sign that this judge will get out in front of this litigation.”
Brian Lyons, a spokesman for Toyota’s U.S. sales unit, said yesterday the company didn’t immediately have a comment.
The Toyota City, Japan-based company has recalled more than 8 million vehicles for fixes related to sudden, unintended acceleration. The automaker announced in September that it was recalling 3.8 million Toyota and Lexus vehicles because of a defect that may cause floor mats to jam accelerator pedals. The company later recalled vehicles over defects involving the pedals themselves.
The cases are combined as In Re. Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
To contact the editor responsible for this story: David E. Rovella at email@example.com.