Galleon Group LLC founder Raj Rajaratnam, who faces criminal insider-trading charges, won a bid to keep confidential wiretap applications that prosecutors say may be disclosed to the public.
Rajaratnam in March opposed the government’s request for a court procedure that would address “the public’s right to access wiretap applications” that investigators probing him confidentially submitted to a judge.
Rajaratnam argued “no such right exists” and that the applications should remain secret until a judge decides whether the wiretaps may be used at his trial. His attorney, John Dowd, said Rajaratnam’s right to try to exclude the wiretaps from his trial “would be irreversibly compromised if the government were permitted to publicize the same evidence in public filings” before a judge ruled.
“Though the First Amendment grants the public and the media a right of access” to such wiretap documents, “that right is far from absolute,” U.S. District Judge Richard Holwell in Manhattan said in a ruling made public yesterday.
“Shielding such material from the public eye is often critical to protect defendants’ fair trial and privacy interests, especially when the material has yet to be tested in court,” the judge said.
Prosecutors had asked Holwell for a procedure that lawyers in the case could follow when submitting wiretap applications.
“The government’s proposed procedure does not address the special concerns that untested wiretap material raises,” Holwell said.
The government’s insider-trading case is based on testimony from cooperating witnesses and wiretaps of Rajaratnam and others. Rajaratnam has pleaded not guilty.
In a related ruling, Holwell denied a request by Rajaratnam’s lawyers for access to unedited documents related to Roomy Khan, a government witness in the case against Rajaratnam.
The U.S. asked for permission to redact portions of the documents that related “to ongoing covert investigations involving two individuals occasionally mentioned in the Khan documents,” Holwell said in a ruling issued yesterday.
The case is U.S. v. Rajaratnam, 09-CR-01184, U.S. District Court, Southern District of New York (Manhattan).
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Ex-AKO Hedge-Fund Trader Charged With Insider Trading
A former hedge-fund trader at AKO Capital LLP was charged by the U.K. financial regulator with insider trading in transactions involving 22 different shares.
Anjam Ahmad, 38, was charged with one count of conspiracy to commit insider dealing relating to trades between June and August 2009, the Financial Services Authority said in a statement yesterday. Ahmad was at AKO Capital until September 2009, according to the FSA’s register.
Robert Brown, Ahmad’s lawyer at London-based Corker Binning, declined to comment. Ahmad faces a maximum of seven years in jail if found guilty.
“We were shocked when, subsequent to his departure from AKO Capital, we were notified by the FSA that it was investigating,” said David Woodburn, a compliance officer at London-based AKO Capital who confirmed that Ahmad used to be an execution trader there. The transactions in question were personal, and AKO Capital hasn’t been accused of wrongdoing, he said.
Ahmad was released on bail and will appear at a London court next week.
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Memphis-Area Man Indicted Over Wheat Futures Trades
A broker who worked in Memphis, Tennessee, was charged with making unauthorized wheat futures trades that cost MF Global Inc. $141 million in losses.
Evan Brent Dooley, 42, of Olive Branch, Mississippi, was indicted in Chicago April 27 on 16 counts of wire fraud and two of violating the federal Commodity Exchange Act’s limit on speculative positions.
Dooley, who was a broker at the Memphis office of MF Global, executed the trades on two nights in January and February 2008, prosecutors said.
“When MF Global authorities learned of Dooley’s overnight trading, they deactivated his account and liquidated the remainder of his position,” resulting in a loss of $141 million in February 2008 which Dooley was unable to cover, U.S. Attorney Patrick J. Fitzgerald said yesterday in a press statement.
Each wire fraud count carries a maximum penalty of as much as 20 years’ imprisonment. The Exchange Act violations are punishable by as much as five years in prison. Dooley’s lawyer, identified by prosecutors as Keri Ambrosio of Chicago, didn’t immediately reply to a voice-mail message seeking comment.
The trades were executed through the Chicago Board of Trade, now part of CME Group Inc., using the CME Globex electronic trading platform, prosecutors said.
“We applaud the U.S. Attorney’s Office and grand jury for indicting Mr. Dooley and support their efforts to bring him to justice,” MF Global spokeswoman Maria Gemskie said in a phone interview.
The case is U.S. v. Dooley, 1:10-cr-00335, U.S. District Court, Northern District of Illinois (Chicago).
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JPMorgan Wins Ruling Keeping German CDO Case in U.K. Courts
JPMorgan Chase & Co. won a ruling allowing a U.K. judge to hear a dispute over credit-default swaps sold to Berlin’s public transport provider.
The Court of Appeal in London ruled that the case, filed by Berlin’s BVG transport agency, over a 2007 credit default swap transaction, should be heard by a U.K. Court. Lawyers for BVG argued that U.K. court didn’t have jurisdiction and the case should be tried in Germany.
German municipal agencies have also filed lawsuits in Germany against banks over derivatives contracts used to hedge credit risks. BVG, which has run the Berlin public transport system for 80 years, says it shouldn’t have to pay the bank more than $100 million over a 2007 credit swap arrangement.
Christian Collinson, spokesman for BVG law firm Addleshaw Goddard, didn’t respond to a message seeking comment. JPMorgan spokesman David Wells declined to comment.
BVG claims in the lawsuit that JPMorgan gave it incorrect advice. The bank claims BVG owes it $112 million under the terms of the contract, the judgment says.
The case is A3/2009/1637 JP Morgan Chase Bank NA & anr -v- Berliner Verkehrsbetriebe (BVG), U.K. Court of Appeal.
Vivendi Can’t Block French Investors From U.S. Suit
Vivendi SA can’t block French investors from participating in a U.S. class-action lawsuit, a Paris appeals court ruled.
The French investors can remain in the American case, Judge Jean-Claude Magendie said in a ruling yesterday in Paris. Vivendi in January was found liable in a New York case for misleading investors from 2000 to 2002 with statements that hid a liquidity crisis at the Paris-based owner of the largest music and video game companies.
The company had sought to reduce the number of investors who can claim an award from the class-action ruling. About two- thirds of the plaintiffs in the U.S. case live in France, where such group lawsuits aren’t permitted. Vivendi has set aside 550 million euros ($726 million) to cover a possible payout.
There are “serious ties existing” between the French company, French investors, and the U.S., Magendie said in his 11-page decision. The court rejected a request for damages by the investors.
Vivendi “regrets that the Court of Appeal has decided not to make a ruling at this stage on the question of whether American class actions were in accordance with French public policy,” the company said in an e-mailed statement. The company denies wrongdoing in the U.S. case and has said it will appeal the New York verdict.
A Paris court in January allowed Vivendi’s French investors to participate in the U.S. suit. Vivendi last year sued the Association for the Defense of Minority Shareholders, or Adam, and investors Olivier Gerard and Gerard Morel arguing its French shareholders have remedies available in their home country.
The class-action award will mean “one type of shareholder will be reimbursed by another type of shareholder,” the company said.
Yesterday’s ruling is “satisfactory on all points for us,” Adam president Colette Neuville said in an e-mail. “The court ruled we were correct.”
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Deutsche Bank’s Rorech Broke No Laws, Lawyer Argues
Deutsche Bank AG salesman Jon-Paul Rorech broke no law by giving a hedge-fund manager information on a bond sale, his lawyer said as U.S. regulators’ first trial alleging insider- trading of credit-default swaps came to a close.
“Everything he knew he was allowed to share with customers,” attorney Richard Strassberg said yesterday in his summation. U.S. District Judge John G. Koeltl in Manhattan, who heard the nonjury civil trial that began April 7, said he will rule on the case at a future date.
The U.S. Securities and Exchange Commission accuses Rorech, 39, of illegally feeding information to Renato Negrin, 46, a former Millennium Partners LP portfolio manager, who bought swaps to reap a $1.2 million profit when the 2006 deal was announced, according to the civil complaint filed in May.
The defendants contend the SEC has no jurisdiction over swaps and no basis for bringing the case.
The commission’s suit focuses on efforts by Dutch media company VNU Group BV, later renamed Nielsen Co., to restructure its debt in 2006 as part of a 7.5 billion euro ($9.9 billion) leveraged buyout.
The agency didn’t accuse Frankfurt-based Deutsche Bank or New York-based hedge fund Millennium of wrongdoing. Rorech is on paid leave from Deutsche Bank.
In July 2006, VNU, whose units include the Nielsen TV- ratings company, announced a $1.67 billion bond offer by subsidiaries. Investors were concerned that the bonds weren’t “deliverable,” or couldn’t be used to settle existing VNU credit-default swaps, according to the trial evidence.
On July 24, 2006, Deutsche Bank announced the offer would be restructured to include a 200 million euro tranche of bonds issued by the holding company that would be covered by the swaps.
The SEC said Rorech tipped Negrin to the restructuring before that announcement. Negrin bought 20 million euros of swaps, and profited by selling them after the deal was announced and the swap price rose.
“Mr. Negrin had perfectly legitimate reasons to buy the credit-default swaps,” his lawyer Lawrence Iason said in his closing argument. “It was because he thought the credit-default swaps were underpriced.”
“The SEC has been wholly unable to carry its burden on any element in this case,” Strassberg said. “It’s time for this nightmare for Mr. Rorech to end.”
“He knows sales people are on the public side and normally only have public information,” said Iason, Negrin’s lawyer, of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer PC in New York. “There is no evidence to support the commission’s claims against Mr. Negrin.”
The case is Securities and Exchange Commission v. Rorech, 1:09-cv-04329, U.S. District Court, Southern District of New York (Manhattan).
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Lehman Bankruptcy Had No Planning, Lawyer Miller Says
Lehman Brothers Holdings Inc.’s bankruptcy was “preceded by no planning whatsoever” and the sale of its brokerage was negotiated amid pressure from regulators to stabilize financial markets, its lead bankruptcy lawyer said.
Harvey Miller, a partner at Weil Gotshal & Manges LLP, was Lehman’s first witness yesterday in a trial that began April 26 over whether Barclays Plc should pay as much as $11 billion to Lehman for the alleged “windfall” the bank received when it bought the brokerage.
“This was not normal merger and acquisition activity, this was very unusual, said Miller, testifying on the third day of the trial. He described the brokerage assets in September 2008 as “a melting ice cube” that would quickly have lost value if not swiftly transferred to a buyer.
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 its advisers didn’t know how much money Barclays would make on the deal, which was sealed in the wake of Lehman’s 2008 bankruptcy, the biggest in U.S. history.
“Values were plummeting,” Miller said. Lehman executives Richard Fuld, Herbert “Bart” McDade and Steven Berkenfeld were concerned about how to preserve some of the brokerage’s value, he said.
Miller’s testimony partly explained why parts of the sale documents were never scrutinized by the court. He said he had explained in court at the sale hearing as “objections were coming in and Blackberries were wearing out” that the deal was “a moving target.”
Peck approved the deal in unfinished form because he “said he didn’t see any other realistic alternative,” Miller said, apologizing to the judge for paraphrasing him.
Peck is handling three lawsuits against Barclays, including one by the Lehman brokerage’s trustee, James Giddens, and one by creditors.
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, Virgin Atlantic Weren’t in a Cartel, Defense Lawyer Says
British Airways Plc didn’t always tell Virgin Atlantic Airways Ltd. before raising fuel surcharges during a period of record oil prices, a defense lawyer said at a criminal price- fixing trial in London.
BA’s eight-pound increase ($12.15) on June 23, 2005, wasn’t discussed with Virgin and is proof the carriers had neither a consensus on prices nor a commitment to a cartel, lawyer Clare Montgomery told a jury yesterday in Southwark Crown Court. Virgin later decided on its own to match the increase, she said.
“There was a genuine debate at Virgin about what independent decision they should make” to respond to BA’s increase, Montgomery told the jury. “There was no agreement to stop competing and fix surcharges.”
Three former BA executives and one current manager face claims by the U.K.’s antitrust regulator that they schemed with Virgin from July 2004 through April 2006 to keep surcharges as high as possible without losing customers.
Andrew Crawley, BA’s 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.
The case, the first of its kind since criminal antitrust laws were enacted, was brought by the Office of Fair Trading and is being heard by Judge Robert Owen. The men each face as many as five years in prison if found guilty.
No Virgin employees were charged because the Crawley, England-based company admitted its role in the scheme and cooperated with authorities, prosecutors said. Montgomery, the defense lawyer, said Virgin admitted guilt to be cautious and wasn’t necessarily doing anything wrong.
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Chi Mei Executive Agrees to Prison for Price Fixing
A Chi Mei Optoelectronics Corp. sales executive, charged in the U.S. with participating in a conspiracy to fix prices of display panels, agreed to a prison sentence of 270 days and a fine of $25,000.
Prosecutors and an attorney for Chu-Hsiang “James” Yang said in a plea agreement filed yesterday in U.S. federal court in San Francisco that Yang will plead guilty to participating in a conspiracy to suppress and eliminate competition by fixing the prices of liquid-crystal display panels sold in the U.S. from 2004 to 2006.
The government recommended a reduced sentence for Yang because he helped prosecutors in its investigation and prosecutions of LCD price fixing, according to the agreement. The maximum penalty for price fixing is 10 years in prison and a $1 million fine, or twice the gain or loss from the conduct plus restitution, according to the filings.
“It’s unfortunate for the executive and his family, but it’s not surprising and not unprecedented that some of these Asian tech executives have gone to jail,” said Matt Cleary, who rates Chimei Innolux “buy” as an analyst at Deutsche Bank AG in Taipei. “This brings a chapter to a close for Chimei Innolux.”
A judge still must approve the sentence for Yang, who is scheduled to appear in court to enter a guilty plea on April 30.
Chi Mei pleaded guilty in December and agreed to pay $220 million in fines. The investigation has led to more than $860 million in fines for LCD makers and guilty pleas by at least four executives.
William Lawler, an attorney for Yang, didn’t return voice- mail messages seeking comment after regular business hours yesterday.
The case is U.S. v Yang, 10-00335, U.S. District Court, Northern District of California (San Francisco).
Sempra Settles Litigation, Cuts Earnings Forecast
Sempra Energy, the co-owner of an energy-trading venture with Royal Bank of Scotland Group Plc, agreed to a $410 million settlement of claims arising from the California energy crisis in 2000 and 2001. The company also cut its 2010 earnings forecast.
The deal with the state resolves “substantially all of the remaining litigation related to the energy crisis,” San Diego- based Sempra said yesterday in a statement. The cost of the settlement reduced first-quarter earnings by $96 million, or 38 cents a share, and trading venture RBS-Sempra Commodities will pay most of the agreement, according to the statement.
“This settlement closes another chapter on California’s energy crisis,” Governor Arnold Schwarzenegger, a Republican, said in an e-mailed statement from the California Public Utilities Commission.
The state has negotiated $3.2 billion in settlements with energy companies who profited during the crisis, when electricity prices soared and power shortages caused blackouts, according to the statement.
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Knauf Ordered to Pay $164,000 for Louisiana Home
U.S. District Judge Eldon Fallon, who is overseeing federal lawsuits filed against Chinese drywall makers throughout the U.S., ruled that homeowners Tatum and Charlene Hernandez are entitled to have their home restored to its original condition. He also granted damages to replace personal property and cover the couple’s living expenses.
“Plaintiffs purchased a new home and are entitled to have it restored to a new condition,” Fallon wrote in a 47-page decision in the case.
Fallon’s ruling comes after a trial in March, where he presided without a jury. The case, part of coordinated multidistrict litigation over defective drywall, is intended as a bellwether to help determine property damage issues in other cases against manufacturers.
More than 2,100 homeowners in the U.S. have filed federal suits claiming their homes were damaged or ruined by defective drywall that gives off noxious odors and chemicals that can corrode wiring, plumbing and heating equipment.
Knauf said it may appeal the Hernandez decision. Evidence introduced by Knauf at trial “showed that a home impacted by Chinese drywall could be repaired for a much more reasonable amount than what was awarded by the court,” Don Hayden, a lawyer for the company, said in a statement.
The case is In re Chinese-Manufactured Drywall Products Liability Litigation, 2:09-md-02047, U.S. District Court, Eastern District of Louisiana (New Orleans).
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EU Court Upholds Price-Fixing Fines in Threadmakers’ Cartel
A European Union court upheld antitrust fines totaling 23.44 million euros ($31 million) levied against five makers of industrial thread for colluding to fix prices for the product used in clothes, car seats and mattresses.
The court “rejects the arguments relied on by the companies in support of their actions for annulment of the decision,” the EU General Court in Luxembourg, the 27-nation region’s second-highest tribunal, said in a statement yesterday.
The European Commission, the EU’s antitrust regulator, fined the threadmakers, including units of German companies Amann & Soehne GmbH and Guetermann GmbH, in September 2005 for agreeing on prices and exchanging information in meetings throughout the 1990s. The EU regulator can fine companies as much as 10 percent of their annual sales.
Guinness Peat Group Plc’s Coats unit, based in Uxbridge, West of London, didn’t appeal its 15 million-euro fine, the highest among the group of threadmakers. Yesterday’s decision can be appealed a last time to the EU’s top court.
Petra Grathwohl, a spokeswoman for Gutach-Breisgau-based Guetermann, and Johannes Ibach, group marketing manager at Boennigheim-based Amann, said they were unable to immediately comment.
Belgian Sewing Thread’s fine was reduced to 856,800 euros from 980,000 euros “on account of its cooperation” during the commission’s investigation into the cartel, the court said.
The cases are T-446/05 Amann & Soehne and Cousin Filterie, T-448/05 Oxley Threads, T-452/05 Belgian Sewing Thread, T-456/05 Guetermann and T-457/05 Zwicky v. European Commission.
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Rothstein Firm Official Pleads Innocent to Conspiracy
The former chief operating officer of the defunct Fort Lauderdale, Florida, law firm at the center of an alleged $1.2 billion Ponzi scheme pleaded not guilty to a charge of money- laundering conspiracy.
Debra Villegas, 42, was accused yesterday of helping Scott W. Rothstein sell investors discounted stakes in bogus cases that were supposedly being handled by his firm, Rothstein Rosenfeldt Adler PA. Villegas was charged by federal authorities in Fort Lauderdale.
Villegas is to be released on a $250,000 personal surety bond. Her attorney said the defendant isn’t going to oppose the government’s forfeiture request.
Prosecutors asked that Villegas be required to forfeit real estate in Weston, Florida, a 2009 Maserati and $1.2 billion in cash -- the total losses in the alleged scheme -- according to both the charging document and an FBI statement.
“She is, at this point, basically indigent,” Villegas attorney Robert Stickney told U.S. Magistrate Judge Robin Rosenbaum yesterday in federal court in Fort Lauderdale, Florida.
Rothstein pleaded guilty in January to two counts of wire fraud and three conspiracy charges. He used the Ponzi scheme to keep afloat his law firm, fund a lavish lifestyle and buy political influence, he admitted. He faces as much as 100 years in prison at his sentencing June 9.
The case is U.S. v. Villegas, 10-60126, U.S. District Court, Southern District of Florida (Fort Lauderdale).
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