Federal prosecutors in New York have been examining transactions by Goldman Sachs Group Inc., accused of fraud by U.S. securities regulators, to determine whether to pursue a criminal case, according to two people familiar with the matter.
The federal review, which lawyers say is common in such a high-profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity.
The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs on April 16 alleging fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The burden of proof in a criminal case would be higher than in the SEC’s civil case. Criminal allegations have to be proven beyond a reasonable doubt.
Based on public reports about the SEC matter, a criminal case may be difficult, said Douglas R. Jensen, an attorney with Park & Jensen LLP in New York. The case appears “highly complex” and Goldman Sachs would be able to make multiple arguments in its defense, he said in an interview.
“In order to proceed criminally in a case, you need to have very clear evidence of lying, cheating and stealing,” said Jensen, a former deputy chief of the criminal division of the U.S. attorney’s office in the Southern District of New York who served on that office’s securities fraud task force.
The U.S. attorney’s office in the Southern District “pretty consistently” reviews SEC cases that are “higher profile” such as those involving large dollar amounts or policy issues, he said. The reviews may begin before the SEC files a lawsuit.
Yusill Scribner, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment.
Lucas van Praag, a spokesman for New York-based Goldman Sachs, said the company would “fully cooperate with any requests for information.”
“Given the recent focus on the firm, we’re not surprised by the report of an inquiry,” he said.
Goldman Sachs Chief Executive Officer Lloyd Blankfein said in an interview with CBS News this week: “It is my belief that nothing unethical and nothing illegal has happened, but I will tell you if I discovered something like this, or any senior person at Goldman Sachs discovered illegal or unethical behavior, we would eliminate that from the firm.”
The Justice Department sometimes brings criminal charges at the same time the SEC files suit. In other instances, criminal charges come later.
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Seven Deutsche Bank Workers Targeted in CO2 Tax Probe
Deutsche Bank AG, Germany’s biggest bank, said seven employees who trade emissions allowances are suspects in a tax- evasion probe.
Deutsche Bank assumes the allegations made by prosecutors against its employees can be rebutted, spokesman Christoph Blumenthal said by telephone. “In any case the presumption of innocence applies,” he said.
Prosecutors and tax investigators searched Deutsche Bank, HVB Group and RWE AG on April 28 in a raid on 230 offices and homes to investigate 180 million euros ($238 million) of tax evasion. The probe targeted 150 suspects at 50 companies. Three suspects were arrested and none of them works at Deutsche Bank, Guenter Wittig, a spokesman for Frankfurt’s chief prosecutor, said by phone yesterday.
The raids were the biggest related to a fraud that may have tainted an estimated 7 percent of European Union carbon trades in 2009. The U.K., France and the Netherlands have also said they’re investigating “carousel fraud,” where traders buy and sell carbon permits, collect tax and disappear before turning it in to authorities.
Frankfurt-based Deutsche Bank has control and compliance mechanisms in place which ensure that all emissions trading and transactions are in line with applicable law and regulation, Blumenthal said.
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Porsche Short Sellers’ Lawsuit Is Joined by 18 Funds
Funds of David Einhorn’s Greenlight Capital Inc. and Julian Robertson’s Tiger Management LLC are among 18 short sellers of Volkswagen AG stock that joined a fraud lawsuit against Porsche Automobil Holding SE.
The funds were added as plaintiffs in an amended complaint filed yesterday in federal court in New York. The 18 new plaintiff funds bring the total to 35. They accuse Stuttgart, Germany-based Porsche of secretly cornering the market in Volkswagen shares and later causing them more than $2 billion in losses.
The short sellers claim that Porsche misled investors by denying through much of 2008 that it intended to acquire Volkswagen and by using manipulative trades to hide its stock positions. Porsche said on Oct. 26, 2008, that it controlled most of Volkswagen’s common stock, causing the shares to surge as short sellers raced to cover their positions.
“Plaintiffs were forced to cover their short positions at prices that spiraled higher and higher,” according to the amended complaint. “By releasing some of its own positions, Porsche was able to skim off outrageous and illegal profits while still maintaining the bulk of its position for the takeover of VW.”
Porsche received an expanded complaint and is reviewing the allegations, Albrecht Bamler, a spokesman for Porsche, said in a phone interview.
The case is Elliott Associates LP v. Porsche Automobil Holding SE, 10-cv-532, U.S. District Court, Southern District of New York (Manhattan).
Vivendi Says Class-Action Costs May Reach 800 Million Euros
Vivendi SA may eventually have to pay as much as 800 million euros ($1.1 billion) to resolve a U.S. class-action lawsuit, Chairman Jean-Rene Fourtou said.
Vivendi, which has already set aside 550 million euros for a possible award, is now provisioning an additional 250 million euros for past and future legal costs, Fourtou said at the annual general meeting in Paris yesterday.
A New York jury in January ruled that Vivendi was liable for making misleading statements to investors between 2000 and 2002, when the company was run by former Chief Executive Officer Jean-Marie Messier. The Paris-based owner of the world’s largest music company denies wrongdoing and said it will appeal.
“It’s a jackpot for American experts and lawyers,” Fourtou said. “The only shareholders who would get their part of the award would be the ones organized for it, the big financial institutions, above all American ones.”
Vivendi has tried to reduce the number of shareholders eligible for an eventual award by challenging the participation in the class-action process of French investors, who make up about two-thirds of the claimants.
A Paris appeals court ruled April 28 that the company can’t block shareholders based in France, where class-action suits aren’t permitted, from participating in the U.S. suit. The court didn’t rule on whether the final results of the American case would be enforceable in France.
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BP, Transocean Sued By Shrimpers Over Louisiana Spill
Louisiana fishermen and shrimpers sued BP Plc and Transocean Ltd. on claims the oil spill caused by an offshore explosion will destroy the state’s fishing industry.
The lawsuits, filed April 28 in New Orleans federal court, seek class-action status for anyone whose livelihood is dependent on coastal waters imperiled by the spreading slick.
“With the gargantuan area contaminated by the oil spill relentlessly growing on a daily basis, plaintiffs and other class members watch in horror as this grave environmental disaster inexorably moves toward the coastline and imperils the nation’s largest remaining wetlands and vulnerable habitat for fish, oysters, crabs, shrimp, birds and other precious wildlife,” Jonathan B. Andry, the fishermen’s lawyer, said in court papers.
“This ecological calamity may become the worst oil spill ever in the Gulf of Mexico, wreaking billions of dollars of damages to plaintiffs and others similarly situated,” Andry said.
BP was also sued in New Orleans federal court by Louisiana shrimpers claiming damages from the spill, which is leaking as much as 5,000 barrels of crude a day. In addition, the shrimpers’ lawsuit names Geneva-based Transocean and a Halliburton Co. unit, Halliburton Energy Services Inc., which the filing said was responsible for capping the well.
The shrimpers are seeking more than $5 million in the suit, though Daniel Becnel Jr., an attorney for the shrimpers, said actual damages can’t yet be assessed.
Guy Cantwell, a spokesman for Transocean, declined to comment. Previously, he said it was against company policy to comment on pending litigation.
BP declined to comment directly on the pending litigation.
“We are doing what we can to control the flow of oil,” said Sheila Williams, a company spokeswoman. “The scale of service response is unprecedented by BP and the oil industry and we’re applying all the resources available to us and using advanced technology to address this complex problem.”
The cases are Wetzel v. Transocean, 2:10-cv-01222, U.S. District Court, Eastern District of Louisiana (New Orleans); and 10cv1229, Cooper v. BP Plc, U.S. District Court, Eastern District of Louisiana (New Orleans).
U.S. Sued by Widows Over Massey 2006 Coal Mine Fire Deaths
The widows of two men killed in a 2006 fire at a coal mine run by Massey Energy Co.’s Aracoma unit sued the U.S. Mine Safety and Health Administration, alleging improper inspections were linked to the deaths.
Don Bragg, 33, and Ellery “Elvis” Hatfield, 46, were suffocated by smoke after a fire broke out on Jan. 19, 2006, at Aracoma’s Alma No. 1 mine in Melville, West Virginia. Their widows, Delorice Bragg and Freda Hatfield, sued the U.S. April 28, alleging the federal mine safety agency breached a duty to protect the miners, citing a post-fire report by MSHA.
“MSHA found at least 20 specific safety violations that contributed to the accident that killed Mr. Bragg and Mr. Hatfield,” according to the complaint. “For almost every violation, MSHA determined that its inspectors were at fault for failing to identify or rectify grave and obvious violations during its numerous inspections of the Alma Mine prior to the fire.”
Lawmakers and regulators are reviewing mine safety after 29 workers died at Massey’s Upper Big Branch mine in Montcoal, West Virginia, in an April 5 blast, the worst U.S. mining explosion in 40 years.
Massey isn’t named in the lawsuit. Bragg and Hatfield previously sued Massey and Aracoma, which reached a confidential settlement in trial in 2008. Personal injury actions by nine miners who claim they were hurt in the 2006 fire are pending.
Amy Louviere, MHSA spokeswoman, declined to comment. “We do not comment on ongoing litigation,” she said.
The new lawsuit is Bragg v. U.S., 2:10-cv-00683, U.S. District Court, Southern District of West Virginia.
UAL Accused of Theft of Baggage-Delivery Technology in Lawsuit
UAL Corp., owner of United Airlines, was accused in a lawsuit of stealing technology to develop a method of delivering baggage to people’s homes.
Applied Transport Solutions Inc. claims in the suit, filed April 27 in Chicago state court, that it developed a door-to- door baggage delivery system, allowing people to fly without having to check suitcases. United and ATS signed a confidentiality agreement and ATS promised not to work on the system with anyone else, according to the statement of claim.
“United would not have been able to launch door-to-door baggage service without using ATS’s confidential and proprietary information,” ATS said. “United has both earned millions of dollars and saved millions more in operating expenses” as a result of the system.
United announced on Oct. 28, 2008, that it was teaming with FedEx Corp. to ship passengers’ bags overnight.
Jean Medina, a spokeswoman at Chicago-based UAL, didn’t immediately respond to a request for comment.
The case is Applied Transport Solutions Inc. v. UAL Corp. 2010L005046. Circuit Court of Cook County (Chicago).
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Lehman’s Ex-CFO Says Barclays Offered Him a $4.5 Million Bonus
Lehman Brothers Holdings Inc.’s former chief financial officer said Barclays Plc offered him a $4.5 million retention bonus before it bought Lehman’s brokerage so he could help the bank assimilate the firm after Lehman’s collapse in 2008.
“Barclays wanted me and this was a way to retain me,” said Ian Lowitt, now chief operating officer of Barclays’s U.S. wealth-management business. He was Lehman’s first witness yesterday in a trial over whether Britain’s Barclays should pay as much as $11 billion to Lehman for an alleged “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 a group of its executives seeking jobs at Barclays gave the British bank a “secret” $5 billion discount and $6 billion in “extra assets” after Lehman’s 2008 bankruptcy, the biggest in U.S. history.
Lehman lawyer Robert Gaffey of Jones Day portrayed Lowitt as a top financial executive who was distraught about his future and signed up with Barclays for a $6 million compensation package before proceeding to “scramble” to find extra assets for Barclays as it negotiated the brokerage purchase.
If the deal didn’t close, Lowitt knew he wouldn’t have a job, Gaffey said, displaying a slide of an e-mail Lowitt wrote to Lehman treasurer Paulo Tonucci.
“If we don’t succeed you and I are toast,” it said.
Lowitt disagreed with Gaffey that his “professional career” would have been finished if he hadn’t succeeded in gathering the assets. The task had been assigned by Lehman’s president at the time, Herbert “Bart” McDade, and “we needed to make sure we could deliver the collateral to Barclays,” he told the court.
“I was concerned about what might happen to the firm and the whole financial environment if the deal didn’t close,” Lowitt said.
Barclays has said it needed extra assets to cushion it from falling markets, and because as much as $7 billion in promised assets were never delivered.
Lehman, its creditors and the brokerage trustee sued Barclays last November as markets rebounded, saying the bank made too much money on the purchase. Barclays has said the terms of the deal were all known before the sale. It says it is still owed $3 billion on the transaction.
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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Virgin Price-Fix Admissions May Be False, Defense Lawyer Says
Virgin Atlantic Airways Ltd. employees may have decided to make false admissions of conspiring to fix prices with British Airways Plc to avoid the risk of going to prison, a defense lawyer said.
Three former British Airways executives and one current manager are being tried for scheming with Virgin Atlantic Airways to fix fuel surcharges on trans-Atlantic flights. Virgin’s employees gained immunity by admitting their roles in the scheme, under a U.K. policy designed to make it easier for authorities to discover cartels.
Virgin and its employees might not have believed they were taking part in a criminal cartel at the time, and only made admissions to protect themselves and the company from prosecution, Clare Montgomery, a lawyer for one of the former BA executives, said at a London court yesterday. The defendants each face as many as five years in prison if found guilty.
“It’s the world turned upside-down. If you say you did nothing wrong, you are at risk of going to prison. If you say you are dishonest, you keep your job, you will not be charged, you do not go to prison,” Montgomery said.
The case is being brought by the Office of Fair Trading, the U.K. antitrust watchdog. 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, are pleading not guilty.
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Akzo Should Lose Privilege Bid in EU Case, Aide Says
Akzo Nobel NV, the world’s biggest maker of paints, should lose an appeal over alleged breaches of its attorney-client privilege in a case that could limit the European Union’s powers in antitrust investigations, an adviser to the EU’s highest court said.
“In cartel investigations by the European Commission, legal professional privilege does not apply to communications with in-house lawyers,” Advocate General Juliane Kokott of the European Court of Justice said in a non-binding opinion yesterday. The Luxembourg-based EU court follows such advice in a majority of cases.
Akzo is appealing a court’s 2007 decision to reject the company’s bid to extend the legal professional privilege to in- house lawyers. The commission conducted raids at the company’s U.K. offices in 2003 during which the antitrust regulator seized documents, including e-mails, notes and memos, which Akzo said were privileged communications.
The adviser’s opinion “should alert” companies to the scope of the commission’s powers during cartel probes, said Geoff Steward, a litigation partner at Macfarlanes in London. A ruling upholding yesterday’s opinion “will magnify risk when companies are dealing with and communicating about any EU investigations,” he said in an e-mailed statement. “If so, the only way for in-house lawyers to ensure that advice on competition issues is privileged will be for them to involve external counsel.”
The EU court’s final decision, which follows about six months after the opinion, could limit the regulator’s powers to seize documents during antitrust raids. The commission has argued that lawyer-client confidentiality shouldn’t extend to in-house lawyers because they aren’t independent of their employers.
“We need to study the opinion which we only just received,” Akzo spokesman Oskar Bosson said by telephone. “Since this is not yet the final ruling we might not be able to comment.”
The case is C-550/07 Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v the Commission of the European Communities.
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Google Wins ‘Thumbnail’ Images Ruling in German Court
Google Inc., operator of the world’s most-used Internet search engine, won dismissal of a lawsuit in Germany’s top civil court aimed at stopping the company’s use of “thumbnail” preview images.
Google isn’t violating the copyright of an artist who had posted photographs of her works on her Web site, the Federal Court of Justice said in an e-mailed statement yesterday.
Google “was allowed to interpret the plaintiff’s behavior as agreeing to use her works in image searches,” the court said. “The plaintiff made the content of her site available without using technical tools to block search engines from finding and displaying her works.”
The case highlights disputes over how copyrighted material can be used without an owner’s permission. Web sites such as Google have made it easier for consumers to share such content, prompting artists, publishers and sports leagues to step up efforts to protect their property.
The ruling allows the company to continue to serve Internet users and Web site owners, Arnd Haller, general counsel for Google in Germany, Switzerland and Austria, said in blog posting.
The artist in yesterday’s case, whose name wasn’t disclosed, posted images of her works on her Web site in 2005. A Google search with her name resulted in the display of thumbnail photos showing previews of her works. Her suit was also dismissed by two lower courts.
The case is BGH, I ZR 69/08.
J&J to Pay $81 Million, End Federal Cases on Topamax
Two units of Johnson & Johnson will pay more than $81 million to resolve criminal and civil claims over illegal promotion of the epilepsy drug Topamax, the U.S. Justice Department said.
Ortho-McNeil Pharmaceutical LLC agreed to plead guilty to a misdemeanor and pay a $6.14 million criminal fine for misbranding the drug, the government said. Ortho-McNeil-Janssen Pharmaceuticals also will pay $75.4 million to resolve civil allegations that it illegally promoted Topamax and caused false claims to be submitted to government health programs.
Ortho-McNeil-Janssen also will make a corporate integrity agreement with the U.S. Health and Human Services Department.
The settlement resolved two suits filed under the False Claims Act, which lets citizens with knowledge of fraud sue on behalf of the government and share in a recovery. Since January 2009, the U.S. recovered $3 billion in False Claims Act cases.
“This resolution underscores the government’s unflagging commitment to combating pharmaceutical fraud in all its forms, and in securing a just and meaningful outcome that deters those who would consider off-label marketing in the future,” Carmen Ortiz, the U.S. Attorney in Massachusetts, said in a statement.
Drug Patent Settlements May Be Illegal, Appeals Court Says
Patent settlements reached by drug companies including Bayer AG may violate antitrust laws, a U.S. appeals court said, citing an increase in cases in which makers of brand-name medicines pay rivals to delay generic products.
A three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York made the determination yesterday in saying it was reluctantly upholding dismissal of a challenge to an agreement between Bayer and generic-drug maker Teva Pharmaceutical Industries Ltd.’s Barr over the anthrax treatment Cipro because of legal precedent.
U.S. courts have upheld such agreements as long as they don’t delay the entry of the generic drug beyond the terms of patents held by the brand companies. The appeals court yesterday urged objectors to that precedent, including pharmacy chain CVS Caremark Corp. and labor unions, to ask the full court to look deeper into the issue.
Federal Trade Commission Chairman Jonathan Leibowitz has said the agreements affect the timing of the entry of copycat medicines without regard for the quality of the patents used to block competition and, as a result, cost American consumers $3.5 billion a year in higher drug prices.
The case is In Re Ciprofloxacin Hydrochloride Antitrust Litigation, 05-2851 and 05-2852, 2nd U.S. Circuit Court of Appeals (New York).
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Doral’s Levis Found Guilty in Securities-Fraud Case
Mario Levis, a member of the family that founded Puerto Rican bank-holding company Doral Financial Corp., was found guilty of securities fraud for lying to investors in a scheme that generated billions of dollars in losses.
Levis, 46, Doral’s former treasurer, was convicted of manipulating the value of mortgage-related assets to inflate the price of Doral stock. In March 2005, the Levis family owned 8.2 percent of the company’s shares, prosecutors said.
“Senior executives of publicly traded companies have to tell the investing public the truth, even when it hurts,” U.S. Attorney Preet Bharara in Manhattan said in a statement.
Roy Black, a lawyer for Levis, didn’t return a call seeking comment.
A federal jury yesterday found Levis guilty of one count of securities fraud and two counts of wire fraud, according to Bharara’s statement. Levis faces a maximum prison sentence of 20 years on each count. He was acquitted of one wire-fraud charge, and the government dropped another before jury deliberations began. The trial started March 30.
Doral, based in San Juan, Puerto Rico, announced in September 2005 that it would restate its finances up to the end of 2004 and cut shareholder equity by $720 million because of overvalued assets. The company eventually paid $129 million to settle an investor lawsuit and a $25 million fine to the U.S. Securities and Exchange Commission.
The case is U.S. v. Levis, 08-cr-00181, U.S. District Court, Southern District of New York (Manhattan).
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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at email@example.com.