Merrill, Bank of New York, Madoff, Goldman Sachs, Moody's in Court News

Merrill Lynch & Co.’s suit seeking $9.4 million from Indonesian businessman Prem Harjani has no legal basis, a lawyer for the bank’s former private-banking client told a Singapore court today.

“The evidence they’ve presented is not sufficient to fulfill the ingredients of fraud,” Denis Tan, Harjani’s lawyer, said. The businessman has “no case to answer.”

The Bank of America Corp. unit’s lawyers told Justice Andrew Ang of the Singapore High Court yesterday that Harjani conspired with Renaissance Capital Management Co. to deceive the bank in 2008 over shares in PT Triwira Insanlestari which he instructed Merrill to purchase for him. The trial, scheduled to run till April 23, ended today. The lawyers must make their final written submissions by April 30.

Harjani, 51, has denied Merrill’s claims and said the New York-based bank sold the shares without his knowledge and violated its policy of getting prior approval from management before allowing a significant transaction.

Christopher Majeski, Merrill’s head of compliance for its wealth management unit in Asia and its main witness in the case, told the court he didn’t know if pre-approval was given for Harjani’s $14.3 million purchase of Triwira shares.

Rob Stewart, a Hong Kong-based spokesman for Merrill, declined to comment today.

The case is Merrill Lynch Pierce, Fenner & Smith Inc. v. Prem Ranchand Harjani and Renaissance Capital Management Investment Pte., 773/2008/K in the Singapore High Court.

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Bank of New York Mellon Goes to Trial Over Sentinel

Bank of New York Mellon Corp. is defending itself at trial against allegations it knew cash management firm Sentinel Management Group Inc. was using investors’ assets as collateral for a $312 million credit line.

A lawyer for Sentinel liquidation trustee Frederick Grede told the court yesterday the bank extended the firm credit knowing it lacked enough capital to cover the debt, helping its principals finance a heavily leveraged trading portfolio. Grede, claiming the bank enabled Sentinel to deceive its clients, seeks the recovery of about $600 million for its creditors.

“When Sentinel did crash,” trustee lawyer Chris Gair told U.S. District Judge James B. Zagel in Chicago in his opening statement, “it was Sentinel’s customers who took the hit.”

Sentinel, based in Northbrook, Illinois, filed for bankruptcy in 2007, four days after it froze client accounts citing credit market instability. Customer claims have totaled about $1.2 billion. U.S. Bankruptcy Judge John H. Squires in December 2008 approved a liquidation plan under which investors could be repaid 35 cents on the dollar.

BNY Mellon is seeking enforce its collateralized claim for the $312 million in outstanding credit extended to the firm when it failed, plus accrued interest and attorney fees. Grede wants the Zagel to subordinate that lien to the claims of other Sentinel creditors.

“The bankers at the Bank of New York didn’t believe that Sentinel or its insiders were engaged in any misconduct,” the lender’s lawyer, Matthew Ingber, told Zagel during his more than two hours of opening remarks.

The New York-based lender said in a court filing last month there is no evidence that the bank knew Sentinel was in violation of the federal commodity exchange act or that insiders were “misappropriating customer assets for their own benefit.”

“There was no misconduct -- much less the required egregious misconduct -- by the bank justifying the extraordinary remedy” of subordination, the bank said.

The case is Grede v. The Bank of New York, 08cv2582, in the Northern District of Illinois (Chicago).

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Stockman to Pay $7.2 Million to Settle SEC Lawsuit

David Stockman, a former budget director in the Reagan administration, will pay $7.2 million to settle a U.S. Securities and Exchange Commission lawsuit claiming he misled investors while running auto-parts maker Collins & Aikman Corp.

Stockman, who was chief executive officer of the company, neither admitted nor denied liability in the settlement, which was made public yesterday in a filing in Manhattan federal court. The $7.2 million payment will be partly offset by $4.4 million that Stockman previously paid to settle investor lawsuits.

The settlement of the SEC’s allegations against Stockman and four other ex-Collins and Aikman executives ends a case that began with a criminal indictment claiming the defendants intentionally defrauded investors. Federal prosecutors later dismissed the indictment, and the SEC has dropped its claim that Stockman knowingly misled investors. The settlement involves lesser claims.

“The criminal indictment has been dropped, the knowing fraud claims have been dropped,” Stockman’s lawyer, Andrew Weissman, said in an interview yesterday. “What is left is an effort by Mr. Stockman to get on with his life.”

The $7.2 million payment is made up of $6.8 million in disgorgement and interest, and a $400,000 civil penalty.

The SEC alleged in its lawsuit that Stockman, the company and others inflated earnings between the fourth quarter of 2001 and early 2005. Collins & Aikman said in March 2007 that it settled the SEC claims by agreeing not to violate securities laws. The company paid no fine and admitted no wrongdoing.

The case is U.S. v. Stockman, 07-cv-2419, U.S. District Court, Southern District of New York (Manhattan).

Ex-Homestore Chief Executive Sentenced to 4 1/2 Years

Former Homestore Inc. Chief Executive Officer Stuart Wolff was sentenced to 4 1/2 years in prison after pleading guilty in January to conspiracy to commit securities fraud.

U.S. District Judge Gary Feess at a hearing yesterday in Los Angeles rejected arguments by Wolff’s lawyer for a three- year term, the low end under his plea deal with prosecutors. The judge said Wolff, 46, with a doctorate in electrical engineering from Princeton University, must have known that what he did was inappropriate and morally wrong.

“This was a very calculated deception of the public,” Feess said. “He knew what was going on, and he knew it was wrong when it was happening.”

Wolff’s lawyer, John Gibbons, said his client knew what he did was wrong and that it was out of character. At the time of the 2001 fraud, Wolff was part of the “go-go-go” generation of young entrepreneurs swept up in the Internet bubble, the lawyer told the judge.

The case is U.S. v. Wolff, 2:05-cr-00398, U.S. District Court, Central District of California (Los Angeles).

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New Suits

Connecticut Sues Westport Bank in Madoff-Linked Case

Westport National Bank, a federally chartered bank, is being sued for $16.2 million by Connecticut and accused of aiding Bernard L. Madoff in his Ponzi scheme, authorities said.

The state also targeted PSCC Services Inc., a Westport, Connecticut-based company, and its president, Robert L. Silverman, state Attorney General Richard Blumenthal said in a statement. A complaint was served yesterday on the defendants in Hartford, Blumenthal said. The state seeks restitution and $100,000 for each violation of state banking laws, he said.

“The bank and Mr. Silverman effectively aided and abetted Madoff’s massive fraud, ignoring clear and compelling signals that his investments were bogus,” Blumenthal said in the statement.

The state accused the three defendants of ignoring obvious fraud, failing to verify Madoff investments, miscalculating fees and acting as investment advisers without state licenses.

A call to Westport National Bank wasn’t returned. PSCC Services and Silverman couldn’t be reached.

Madoff is serving a 150-year prison term after pleading guilty to running a $65 billion Ponzi scheme, the largest in history.

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Ex-Societe Generale Trader Accused of Stealing Code

Former Societe Generale trader Samarth Agrawal was charged by the U.S. with stealing the company’s computer code for high- frequency trading.

Agrawal, 26, charged with one count of theft of trade secrets, is accused of making copies last June of one part of the code he’d been given access to and another part that he hadn’t. He was arrested yesterday, according to federal prosecutors in New York. In August and September, he also printed portions of the code from a Microsoft Word file he created, they said.

“Over the past several years, the financial institution has spent millions of dollars to develop and maintain a computer system that allows the financial institution to engage in sophisticated, high-speed trading on various securities markets,” according to a criminal complaint unsealed yesterday.

Agrawal was hired by Societe Generale in New York in March 2007 to work as a quantitative analyst in the high-frequency trading group, according to the complaint. He was promoted to trader last April and resigned in November, prosecutors said. Before resigning he deleted a computer folder on his personal network drive that contained the code, they said.

Agrawal’s lawyer, Steven M. Statsinger, didn’t return a call seeking comment.

The Paris-based bank discovered the misappropriation after conducting an internal probe, informed law enforcement and has been cooperating with the investigation, according to a company statement e-mailed by spokesman James Galvin.

“No client information or funds were involved in the incident,” according to the statement. “SG vigorously protects its propriety information and intellectual property.”

The case is U.S. v. Agrawal, 10-mag-00779, U.S. District Court, Southern District of New York (Manhattan).

SEC, Finra Sued in Luxembourg Over Madoff Investment Losses

The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority were accused of being liable for losses in a Luxembourg fund tied to New York money manager Bernard Madoff.

The Luxembourg suit, which says the SEC and Finra failed to stop Madoff’s fraud after repeated warnings, seeks an order holding the U.S. regulators liable for losses in Access International Advisors LLC’s defunct LuxAlpha Sicav-American Selection Fund. Irving Picard was also sued for damages, in his role as the trustee tasked with liquidating Madoff’s business.

“The SEC and Finra are liable for their extreme misconduct and failures” to prevent Madoff’s “monumental fraud with disastrous effect on the global investment community, particularly on investors within Luxembourg,” according to the suit filed April 13 by lawyers for Access. “Thanks to their poor functioning they enabled a fraud that lasted many years.”

The SEC has been faulted by U.S. lawmakers for failing to detect that Madoff was operating a $65 billion Ponzi scheme. The SEC said last year it would conduct a “top-to-bottom” review of its regulation. Employees at Finra, the U.S. brokerage industry’s main regulator, failed to fully probe transactions at Madoff’s firm, a report found in October.

SEC spokesman John Heine and Finra spokesman Brendan Intindola declined to comment. Picard’s spokesman Kevin McCue said in an e-mail the trustee won’t comment.

Fernand Entringer, the Luxembourg lawyer for Access, Patrick Littaye, co-founder of Access, and Pierre Delandmeter, a board member of LuxAlpha, said in the court filing that the SEC and Finra “should be held accountable” for investor losses.

Access, Littaye and Delandmeter made the claims as part of their defense to a lawsuit by the Luxembourg fund’s liquidators that claims they are jointly liable for losses with UBS AG, the fund’s custodian, and auditor Ernst & Young LLP.

Madoff, 71, last year pleaded guilty to running a Ponzi scheme in federal court in Manhattan and was sentenced to 150 years in prison.

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Legal Reviews

Goldman Sachs Faces U.K., German Regulatory Reviews

U.K. and German financial regulators are investigating whether they can take action against Goldman Sachs Group Inc. in relation to a lawsuit filed last week by the U.S. Securities and Exchange Commission.

The Financial Services Authority is investigating “whether there are any implications for the U.K.-regulated entities of Goldman Sachs,” Leigh Calder, an FSA spokesman, said in an interview. “If there are, we will take appropriate action. We work closely with overseas regulators and will cooperate fully with the SEC.”

The FSA’s preliminary investigation follows comments from Prime Minister Gordon Brown yesterday that the regulator would probe the bank because there were “individuals that had questions to answer.” He repeated that employees of the bank exhibited “moral bankruptcy.”

The SEC filed a suit against the New York-based bank on April 16, citing fraud and misrepresentation in the marketing of a collateralized debt obligation linked to subprime

Germany’s BaFin will request information from the SEC and review the facts before deciding on what steps to take, the regulator’s spokeswoman Sabine Reimer said in an interview yesterday. The German securities regulator only learned about the suit when the SEC disclosed it on April 16, Reimer said.

The FSA will need to show that either individuals or companies based in the U.K. were involved in wrongdoing to take action, lawyers said. The regulator can ban individuals or fine companies, they said.

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French Regulator Reviewing SEC’s Goldman Lawsuit

France’s financial-markets regulator is reviewing the lawsuit filed against Goldman Sachs Group Inc. last week by the U.S. Securities and Exchange Commission to see if local action is warranted.

The Autorite des Marches Financiers is verifying whether French investors were exposed to financial products that are the subject of the U.S. lawsuit to determine if the regulator should open its own probe, a spokeswoman for the Paris-based agency said yesterday in a telephone interview. She declined to be cited by name, citing agency policy.

The SEC sued the New York-based bank April 16, citing fraud and misrepresentation in the marketing of a collateralized debt obligation tied to subprime mortgages. Goldman Sachs said it would fight the suit and denies wrongdoing.

The AMF has no evidence so far that French companies or investors have been affected, the agency spokeswoman said.

The SEC named Fabrice Tourre, a Goldman Sachs vice president, in the suit as “principally responsible” for creating and marketing the CDO known as Abacus 2007-AC1, according to a statement from the regulator.

Tourre, 31, is a French citizen. He joined Goldman Sachs in July 2001, and worked for the bank in New York and London. He isn’t under the AMF’s jurisdiction.

When reached at his London office the day the suit was announced, Tourre declined to comment.

California Asks Court to Enforce Moody’s Subpoena

California asked a court to enforce a subpoena against Moody’s Investors Service Inc. that demands documents in an investigation of the company’s evaluations of asset-backed securities linked to subprime mortgages.

California Attorney General Jerry Brown filed the original subpoena in September seeking the documents from the Moody’s Corp. unit and yesterday filed a petition for enforcement, Brown said in a statement.

“The need for court action to enforce a state subpoena is highly unusual,” Brown said in the statement, “because companies almost always comply without such a drastic step being necessary.” Moody’s, which played a central role in the run-up to the collapse of housing prices, has refused to explain its ratings practices to the state and said it would be a “waste of time” to respond to the subpoena, Brown said.

Brown has said the investigation will determine whether Moody’s violated state law when it gave the highest ratings to securities that fell so much in value that they jeopardized investors’ savings and put homeowners into foreclosure.

Moody’s has been working with Brown’s office for months to provide documents for the investigation, Moody’s spokesman Michael Adler said in a phone interview.

“In fact, we’ve already provided the attorney general with tens of thousands of pages of documents in response to his request and are continuing to provide additional material,” Adler said. “We will maintain our ongoing dialogue with the attorney general to resolve the concerns he raised today.”

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Court News

Garland’s Openness to ‘Learn My Craft’ May Lead to High Court

Merrick Garland is a lawyer who knows what he doesn’t know.

In 1988, the man who might become the newest Supreme Court justice was working part-time for the independent counsel investigating an ex-White House aide. Lawrence Barcella, the defense lawyer, was impressed as he watched Garland question two witnesses and offered some advice.

“I am glad you didn’t have more witnesses,” Barcella recalls saying. “Just one suggestion: Slow down a bit.”

The next year, Garland left private practice to try cases as a federal prosecutor in Washington. “I think I have to learn my craft better,” he told Barcella. “You can count the number of people that would do something like that on very few digits,” Barcella said.

Garland’s drive to become a better trial lawyer put him on a path that may make him the most easily confirmable candidate on President Barack Obama’s short list. Garland, 57, later supervised the prosecution of Oklahoma City bomber Timothy McVeigh and became a federal appeals court judge known for sticking to precedent during 13 years on the bench.

Republican Senator Orrin Hatch of Utah said Garland would be “terrific” and could be confirmed “virtually unanimously.”

The encouraging words from Republicans may worry Democrats seeking a justice to push for expanding individual rights.

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

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