Massey, Argentina, Wal-Mart, Barclays, BA, Visa, Take-Two in Court News

Goldman Sachs Group Inc. was sued by shareholders over a collateralized-debt obligation known as Abacus 2007-AC1 that prompted a U.S. Securities and Exchange Commission lawsuit this month.

Goldman Sachs didn’t disclose the truth about Abacus or the bank’s financial condition, investors said in the complaint filed yesterday in federal court in Manhattan. “As news of Goldman’s misconduct reached the market, Goldman stock immediately plummeted,” according to the complaint.

When the SEC sued Goldman Sachs on April 16, its shares fell 13 percent to close at $160.70. That case centers on whether the New York-based firm should have told investors that hedge fund Paulson & Co. helped pick underlying securities in the CDO -- and then bet against it. Paulson wasn’t accused of wrongdoing.

“Defendants omitted and/or misrepresented material facts concerning Goldman’s participation in structuring the CDO to help one client who was short the CDO while simultaneously selling the CDO to another client,” investors said in yesterday’s complaint.

Investor Ilene Richman filed the lawsuit on behalf of others who bought Goldman Sachs shares from Oct. 15 to April 16.

Michael DuVally, a spokesman for Goldman Sachs, didn’t return a call seeking comment yesterday.

The securities-fraud suit, filed by San Diego-based law firm Robbins Geller Rudman & Dowd LLP, also names as defendants Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, Chief Financial Officer David A. Viniar and President Gary D. Cohn.

The case is Richman v. Goldman Sachs Group Inc., 10-03461, U.S. District Court, Southern District of New York (Manhattan).

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Massey Energy Sued by Pension Fund Over Mine Accident

Massey Energy Co., the largest coal producer in central Appalachia, was sued by a pension fund over claims that directors’ failure to address poor safety conditions led to this month’s accident that killed 29 miners.

Massey directors breached their fiduciary duties by disregarding safety regulations and incurring more than $25 million in assessed violations by the U.S. Mine Safety and Health Administration, the New Jersey Building Laborers Pension Fund said in a complaint filed April 23 in Delaware Chancery Court. The failure to act caused the company “severe reputational harm,” the pension fund said.

“Given Massey’s chronic unwillingness and failure to adhere to mining safety regulations, this tragedy did not come as a surprise to many,” according to the fund. It asked for the removal of Massey Chief Executive Officer Don Blankenship.

Massey officials didn’t return a phone call seeking comment on the suit. Company director Bobby Inman said yesterday in a news conference on benefits for the miners killed that Blankenship has the “full support” of the board.

The April 5 explosion at the company’s Upper Big Branch mine near Montcoal, West Virginia, caused the highest death toll in a U.S. mining accident in 26 years. The cause hasn’t been determined. Massey said it expects a second-quarter charge of as much as $212 million as a result of the disaster.

The case is a so-called derivative suit, which would return any recovery to the company. The fund asked for a court order directing the board of directors to investigate and assess the safety of all Massey mines and remove Blankenship.

The case is New Jersey Building Laborers Pension Fund v. Blankenship, CA5430, Delaware Chancery Court (Wilmington)

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Lawsuits/Pretrial

Barclays, Solent Win Dismissal of ‘Toxic’ SIVs Suit

Barclays Plc and Solent Capital Partners LLP won dismissal of Oddo Asset Management’s lawsuit accusing them of using structured investment vehicles as a “dumping ground for toxic assets.”

New York State Supreme Court Justice Barbara Kapnick dismissed all of Paris-based Oddo’s claims, according to a ruling filed with the court yesterday.

“As Barclays contends, Oddo is a sophisticated entity in the position of appreciating the inherent risks associated with debt securities, including the fact that, under certain circumstances, interest payments may cease and the principal may be lost,” Kapnick said in her ruling dated April 23.

Oddo, a fund management unit of Oddo & Cie, sued Barclays in state court in Manhattan in 2008, claiming the U.K.’s second- biggest bank transferred subprime mortgage-backed securities at “inflated prices” to two SIVs it had created, the Mainsail II Ltd. and Golden Key Ltd. Oddo sought damages from Barclays for allegedly aiding breaches of fiduciary duty by the SIVs’ managers, including London-based Solent Capital Partners LLP.

An Oddo representative couldn’t be reached for comment after regular business hours yesterday. Lance Croffoot-Suede, a lawyer for Barclays, didn’t return a voice-mail message left at his office after regular business hours.

U.S. Judge Won’t Intervene in Argentine Swap Offer

Argentina can make an exchange offer directly to holders of defaulted debt who are suing the republic, a U.S. judge ruled, rejecting a request by the bondholders’ lawyers to have the offer made through them.

U.S. District Judge Thomas Griesa in New York said yesterday in a six-page order that he won’t interfere in the swap offer to bondholders. At an April 15 hearing, Griesa said he wanted to review details of the debt swap before deciding the issue.

Siding with the bondholders’ lawyers “would involve the court in actions which could mean the class members are deprived of whatever opportunity the exchange offer affords,” Griesa wrote.

Argentina’s planned exchange offer may help end the court fight with investors who didn’t take part in a 2005 swap. About 20 percent of bondholders didn’t accept that exchange, which paid about 33 cents on the dollar.

The government has proposed similar terms to its 2005 restructuring, granting bonds due in 2033 at a 66 percent discount.

The case is Seijas v. Argentina, 04-cv-400, U.S. District Court, Southern District of New York (Manhattan).

Wal-Mart Workers Can Sue as Group in Gender Bias Case

Wal-Mart Stores Inc. female workers suing the retailer for discrimination won a ruling that said more than 1 million women employees can collectively pursue claims seeking back pay in the biggest private gender-bias case in U.S. history.

A decision yesterday by a federal appeals court in San Francisco means women who have worked at Wal-Mart since 2001 can be part of a single class-action suit over discrimination claims, Brad Seligman, an attorney for the workers, said in a phone interview. The court considered whether the experiences of six original plaintiffs in the case may be common among other female workers. Potential plaintiffs exceed 1 million, he said.

In a 6-5 ruling, the court sent claims for punitive damages and those of employees who had left Wal-Mart when the lawsuit was filed back to a judge in San Francisco for decisions about whether those allegations can be included in the group case. If all current and former workers were included, the case would cover about 2.5 million women. Their claims could amount to billions of dollars.

Wal-Mart General Counsel Jeff Gearhart said in a statement that the discrimination claims by the six women who originally filed suit in 2001 aren’t representative of the experiences of the company’s female workers.

“We disagree with the decision of the sharply divided 6-5 court to uphold portions of the certification order,” Gearhart said.

Ted Boutrous, an attorney representing Wal-Mart, said the company will ask the U.S. Supreme Court to review the ruling. If it’s not reversed, yesterday’s decision would lead to “massive litigation” against U.S. companies, Boutrous said in a conference call.

The case is Dukes v. Wal-Mart Stores Inc., 04-16688, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

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Antiguan Charged in Stanford Case Ordered to U.S.

Antigua’s former top banking regulator, Leroy King, was ordered extradited to the U.S. to face charges he helped financier R. Allen Stanford conceal a $7 billion fraud scheme, Antigua’s top prosecutor said.

Director of Public Prosecutions Anthony Armstrong said that Chief Magistrate Ivan Walters ordered King removed to the U.S. in a decision issued yesterday. Armstrong, who argued for the removal, said King has 15 days to appeal the decision to the nation’s High Court.

King was formerly chief executive officer of Antigua and Barbuda’s Financial Services Regulatory Commission. He has been under house arrest in Antigua since June, when he was indicted by a federal grand jury in Houston for allegedly accepting bribes from Stanford to mislead U.S. securities regulators.

His lawyer, Dane Hamilton Sr. of St. John’s, Antigua, did not return a call seeking comment on the court’s ruling. Andy Laine, a spokesman for the U.S. State Department, said he could not immediately comment.

U.S. prosecutors allege Stanford and his co-conspirators took money from new investors to repay earlier investors who bought allegedly bogus certificates of deposit from the Antigua- based Stanford International Bank Ltd.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).

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Trials/Appeals

Lehman Director Doesn’t Recall Barclays Profit Talks

A Lehman Brothers Holdings Inc. director said he didn’t remember any discussion that Barclays Plc might profit from its purchase of Lehman’s brokerage after the securities firm collapsed in 2008.

Michael Ainslie, the former chairman of Sotheby’s and a Lehman director since 1996, was the first witness in a trial that began yesterday over whether Barclays should pay as much as $11 billion to Lehman for the “windfall” the bank received when it bought the brokerage.

The fight in U.S. Bankruptcy Court in Manhattan before Judge James Peck pits the U.K.’s second-biggest bank, which more than doubled its profit last year, against Lehman, which wants money to pay off creditors and brokerage customers. Lehman said Barclays failed to tell the court how much money it made on the deal, which was sealed in the wake of Lehman’s bankruptcy, the biggest in U.S. history.

Ainslie said in response to questions from Barclays lawyer David Boies of New York-based Boies Schiller & Flexner LLP, that he didn’t recall “any discussion of the possibility” that Barclays might profit from the deal. Boies was trying to show that Lehman’s advisers didn’t fully inform the bank’s directors about the deal as it was altered, nor did they ask questions about it.

Ainslie said he voted for the brokerage sale to Barclays because it was the alternative to liquidation. Lehman lawyer Robert Gaffey has said he can show that key individuals were kept in the dark about the profitability of the Barclays deal.

After potential buyers for the whole of Lehman lost interest -- including Barclays -- the U.S. Federal Reserve and the U.S. Securities and Exchange Commission told Lehman’s board on Sept. 14, 2008, that its best course would be to file for bankruptcy, Ainslie said. Ainslie said the regulators referred the board to advice they had given Lehman’s then-chief executive Richard Fuld to file for bankruptcy. Barclays became a bidder for just the brokerage after the filing.

Boies showed a slide of a draft of the minutes of a Lehman board meeting in September 2008 just after the filing, saying that liabilities Barclays was assuming were more than $5 billion less than the assets it was taking on.

Ainslie, who was a member of the Lehman board’s audit committee, said he only recalled statements saying the assets and liabilities would be roughly equal.

“It is inconsistent with what I recall we were told at the meeting,” he said. Questioned by Boies, he said he didn’t know if people Barclays was employing from Lehman were considered an asset or a liability.

Barclays began the hearing by seeking documents from its adversaries the bank claims it needs to assess their understanding of the brokerage sale. Peck delayed making a ruling on the request.

The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and James W. Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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BA Sales Chief, Ex-Managers Face Price-Fixing Charges

Three former British Airways Plc executives and one current manager faced claims at a criminal trial that began yesterday over scheming with Virgin Atlantic Airways Ltd. to fix fuel surcharges on trans-Atlantic flights.

The carriers colluded from July 2004 through April 2006 to match fees charged to passengers to cover rising fuel costs, the U.K.’s antitrust regulator said at the trial in Southwark Crown Court in London.

Andrew Crawley, British Airways’ head of sales; Martin George, a former board member; Iain Burns, ex-head of communications; and Alan Burnett, former head of U.K. and Ireland sales, pleaded not guilty in July 2009. Virgin’s employees won immunity by admitting their roles in the scheme.

“The crucial element of the offense to remember is dishonesty,” prosecutor Richard Latham told the jury of eight men and four women. In such cases, “the consumer is blissfully unaware that they’re paying more; every purchaser is a victim.”

The case was brought by the Office of Fair Trading, the U.K. antitrust watchdog, and is being heard by Judge Robert Owen. The men each face as many as five years in prison if found guilty of operating a cartel with the competing carrier.

No Virgin employees were charged because the Crawley, England-based company cooperated with prosecutors, Latham said.

Such deals are often the only way to uncover cartels, since the schemes can be arranged in quick phone conversations and are easily disguised as “price-matching,” which is legal, he said.

Giving immunity to Virgin was a “necessary evil,” he said. “Bringing a cartel to an end outweighs prosecuting all parties involved.”

Virgin Chief Executive Stephen Ridgway and at least two other former Virgin executives were aware of the scheme and will be “important” witnesses in the case, Latham said. Virgin’s owner, billionaire Richard Branson, was also made aware of the price arrangements, Latham said.

British Airways received a total of 64 million pounds from the fuel surcharges from the second half of 2004 and the first half of 2005, Latham said. Detailed figures on surcharge revenue from the whole period weren’t provided.

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Violent Video Game Law Gets Top U.S. Court Hearing

The U.S. Supreme Court will consider reviving a California law prohibiting sales of violent video games to minors, agreeing to review a ruling that the ban is an unconstitutional infringement on freedom of speech.

The nation’s highest court yesterday accepted an appeal by California Governor Arnold Schwarzenegger and Attorney General Jerry Brown. They argue that violent games are akin to sexual materials, which the government can restrict to protect children.

“This is an important issue with national implications, particularly in light of the growing evidence that these games harm minors and that industry self-regulation through the existing rating system has proven ineffective,” Schwarzenegger and Brown argued.

Two industry trade groups, the Entertainment Merchants Association and the Entertainment Software Association, challenged the law and urged the Supreme Court not to hear the California appeal. Members of the two groups include Electronic Arts Inc., Microsoft Corp., Sony Corp. and Take-Two Interactive Software Inc., the maker of “Grand Theft Auto” games.

“EMA obviously would have preferred that the Supreme Court decline review,” said Bo Andersen, the trade group’s president. “We are confident, however, that when the Supreme Court conducts its review, it will conclude that the lower court correctly analyzed the law and reached the appropriate conclusion.”

A San Francisco-based federal appeals court said the state hadn’t produced enough evidence that violent games cause physical and psychological harm to minors. The ruling upheld the decision of a federal trial judge.

The case is Schwarzenegger v. Video Software Dealers, 08- 1448, U.S. Supreme Court (Washington).

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Verdicts/Settlements

Altria, Reynolds, Liggett Lose $20 Million Verdict

Altria Group Inc.’s Philip Morris USA and two other cigarette makers lost a $20 million verdict in Florida state court in Fort Lauderdale.

A six-person jury yesterday found Philip Morris, R.J. Reynolds Tobacco Co. and Liggett Group responsible for the cancer death of Margot Putney, a Lighthouse Point, Florida, woman who began smoking in about 1953 at the age of 15 and died in 1995.

“She started smoking in an era where cigarette advertising was pervasive, on TV -- in its infancy -- in print media and on radio,” Charles Baumberger, a lawyer representing three Putney children, said yesterday in a telephone interview.

The verdict follows a series of losses by the tobacco industry in Florida after a 2006 ruling by the state’s Supreme Court in the “Engle” tobacco class action case. In its decision, the Florida high court decertified a statewide class of addicted smokers and permitted individual suits to go forward.

Jurors reached the verdict after deliberating less than four hours last week and this morning, Baumberger said.

The jury awarded Putney’s family $20 million in compensatory damages. Jurors assigned 35 percent of the responsibility to Putney for her death; 15 percent to Philip Morris; 30 percent to Reynolds; and 20 percent to Liggett. Jurors also assessed $2.5 million in punitive damages each against Philip Morris and Reynolds.

In most of the post-Engle cases, the compensatory portion of the award has been reduced by the plaintiffs’ percentage of responsibility as found by the jurors. Baumberger said the issue hasn’t yet been determined in the Putnam case.

“We believe this verdict should be reversed because the court’s trial plan improperly eliminated any requirement that plaintiff prove that the companies did anything wrong to recover damages,” Murray Garnick, Altria senior vice president and associate general counsel said in a statement.

David Howard, a spokesman for Reynolds American Inc.’s R.J. Reynolds unit said the company is disappointed in the verdict and will appeal. Carrie Bloom, a spokeswoman for Liggett, a unit of Vector Group Ltd., didn’t return a voicemail message seeking comment on the verdict.

The case is Putney v. Philip Morris USA, Florida Circuit Court (Fort Lauderdale).

Visa Europe Offers to Settle EU’s Card-Fees Case

Visa Europe Ltd., operator of the largest payment-card network in the 27-nation European Union, offered to reduce debit card transaction fees paid by retailers in a bid to resolve an EU antitrust case.

The European Commission said it may close its investigation into debit-card charges after Visa Europe promised “to significantly cut” fees to 0.2 percent. A separate probe into fees for credit-card and deferred-debit transactions, where customers must settle their bills at the end of the month, will continue, the Brussels-based agency said.

“This does not mean that the Visa case is over,” Amelia Torres, a commission spokeswoman told journalists at a regular briefing in Brussels yesterday. “We still have an investigation concerning credit cards and that continues.”

Out of 390 million Visa-branded cards in Europe, about 256 million are debit cards, the London-based company said. The so- called interchange fee, based on Visa’s guidelines, is paid by the retailer’s bank to the bank that issued the customer’s card. MasterCard Inc. settled a similar case with the commission last year, agreeing to reduce the interchange fee to 0.3 percent a transaction for credit cards and 0.2 percent a transaction for debit cards.

“In proposing these commitments Visa Europe has acted in the best interests of consumers, retailers and our member banks,” said Peter Ayliffe, president of Visa Europe, in a statement yesterday.

The commission will seek comments on the debit-card proposals before formally adopting the commitments.

EuroCommerce, a group representing retailers such as Carrefour SA and Tesco Plc, said the commission had accepted a “weak interim compromise” only on debit card fees.

“We are very disappointed that the commission has opted for this marginal way out on Visa,” Xavier Durieu, EuroCommerce’s secretary general, said in a statement. “Since EuroCommerce lodged the first complaints 13 years ago, neither Visa nor MasterCard have brought convincing justification for interchange fees on card transactions.”

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

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