Merrill, MBIA, Tullett, Morgan Stanley, SAC's Cohen, Qwest in Court News

Takefuji Corp. sued Merrill Lynch Japan Securities Co. for about 29 billion yen ($309 million) over losses from a 2007 bond deal designed to lower the Japanese consumer lender’s interest costs.

The lawsuit alleges Merrill Lynch, now a unit of Bank of America Corp., failed to sufficiently explain the risks in the transaction, which involved Takefuji investing 30 billion yen in a credit-linked security created by the U.S. brokerage, said Takefuji spokesman Kentaro Itai in an interview.

“We deny the allegation, and we will defend ourselves vigorously,” said Takayuki Inoue, a Tokyo-based spokesman at Merrill Lynch.

Takefuji said in May 2007 it would reduce annual interest costs by 1.2 billion yen by transferring the 30 billion-yen, 4 percent bond to an unidentified third party as part of the deal. Instead, the note it bought from Merrill Lynch was liquidated after 10 months as the securities backing it slumped, Itai said. Takefuji was forced to resume paying interest on the original bond, the company said in March 2008.

The Japanese company booked a 29.6 billion-yen loss on the transaction in the fiscal year through March 31, 2008. Shares in Takefuji fell 6.6 percent on the day the loss was announced. It sued Merrill Lynch in the Tokyo District Court on April 28, according to Itai.

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U.K. Arrests 22 as CO2 Trading Tax Probe Widens to 9 Countries

U.K. officials arrested 22 people as part of a Europe-wide investigation into tax fraud related to carbon dioxide emissions-credit trading.

Investigators arrested 13 people in England and eight in Scotland, Jonathan Hall, a spokesman for U.K. tax officials, said in a phone interview. One other person was arrested on a European arrest warrant.

German prosecutors and tax investigators on April 28 searched Deutsche Bank AG, HVB Group and RWE AG as part of raids on 230 offices and homes. The investigation involves 180 million euros ($239 million) of possible tax evasion and is targeting 150 suspects at 50 companies.

Frankfurt prosecutors had asked colleagues in European nations, including Belgium, the Netherlands and Norway for legal assistance, prosecutor spokesman Guenter Wittig said in an interview April 30.

“We’ve been working intensively on the international level in this case,” said Wittig. “The probe is only at the beginning and may result in further investigative action.”

The U.K. arrests took place on April 28, Hall said. Three other suspects were detained in Germany that day, said Wittig. He declined to identify any suspects or companies involved.

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Qwest Communications Sued Over $10 Billion CenturyTel Takeover

Qwest Communications International Inc. was sued by shareholders seeking more money in a planned $10 billion stock- swap acquisition by CenturyTel Inc.

Qwest investors Lorrieann Martin and Mark Respler asked a judge to halt the takeover and award damages in a complaint filed April 29 in Delaware Chancery Court in Wilmington.

Given Qwest’s financial prospects, selling the company at a “relatively low current trading price in a recession-depressed market raises serious red flags” about whether directors are maximizing shareholder value, according to the complaint.

CenturyTel, based in Monroe, Louisiana, said April 22 it would pay 0.1664 CenturyTel shares for each share of Denver- based Qwest.

Diane Reberger, a Qwest spokeswoman, said the company doesn’t comment on pending litigation.

The case is Martin v. Qwest Communications International Inc., CA5446, Delaware Chancery Court (Wilmington).

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MBIA Insurance’s Fraud Claim Against Countrywide Can Proceed

MBIA Insurance can proceed with a lawsuit alleging Bank of America Corp.’s Countrywide Financial committed fraud in obtaining insurance on billions of dollars of mortgage-backed securities, a judge ruled.

The insurer, based in Armonk, New York, claimed in its suit that Countrywide “falsely represented” to MBIA, and to investors in trusts holding the securities, that Countrywide originated the mortgage loans in strict compliance with its underwriting standards and guidelines. The insurer has covered more than $459 million of losses as a result, MBIA said in the 2008 complaint.

New York State Supreme Court Justice Eileen Bransten, in Manhattan, denied Bank of America and Countrywide’s renewed motion to dismiss the bond insurer’s fraud claim. In the April 27 ruling made public April 30, Bransten also refused to dismiss a claim of successor and vicarious liability against Bank of America, which acquired Countrywide in 2009.

Bransten dismissed a claim by MBIA of “negligent misrepresentation,” against Countrywide, ruling the plaintiff had failed to show the commercial relationship existed between the two that would support the allegation.

“We are pleased that the court has allowed our case to move forward against both Countrywide and Bank of America,” Kevin Brown, an outside spokesman for the insurer, said in an e- mailed statement.

Shirley Norton, a spokeswoman for Bank of America, didn’t immediately return a voice-mail message seeking comment.

The case is MBIA Insurance Corp. v. Countrywide Home Loans Inc., 08602825, New York State Supreme Court, New York County (Manhattan).

CDO-Fraud Case Against UniCredit Unit Is Rejected in New Mexico

A New Mexico judge has tossed out a former public pension manager’s lawsuit to recoup at least $90 million in state funds lost through investments in mortgage-backed securities sold by a firm whose executives donated to Governor Bill Richardson’s presidential campaign.

District Judge Stephen Pfeffer in Santa Fe dismissed the case brought by Frank Foy, a former chief investment officer for the state’s Educational Retirement Board, saying in an April 28 decision that the actions at issue preceded the law under which the case was filed, the Fraud Against Taxpayers Act. The law took effect in 2007. The money-losing investments began in 2004.

Foy claimed that as much as $243 million in state funds were used to buy “worthless” collateralized debt obligations, or CDOs, sold by Chicago-based Vanderbilt Capital Advisors. Vanderbilt was acquired in 2006 by UniCredit SpA, based in Milan, Italy. State records show that as much as $22 million in finder’s fees were shared by the son of a political ally of Richardson, a Democrat.

“We’re very pleased with the decision,” said Peter Simmons, a partner at Fried, Frank, Harris, Shriver & Jacobson who represents the Vanderbilt units named as defendants. He is based in New York.

Alarie Ray-Garcia, a Richardson spokeswoman, didn’t respond to a request for comment April 29. Gilbert Gallegos, Richardson’s deputy chief of staff, earlier described the case as without merit.

Victor Marshall, Foy’s lawyer, said Pfeffer overlooked fraud and misrepresentation laws that predate the investments.

“The judge’s analysis does not dispose of the entire case,” Marshall said. He said he is consulting with New Mexico Attorney General Gary King, who filed a friend-of-the-court brief defending the 2007 fraud law, before taking further steps.

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SAC Capital’s Cohen Will Seek Dismissal of Ex-Wife’s Lawsuit

SAC Capital Advisors LP founder Steven A. Cohen, whose ex- wife accuses him in a lawsuit of cheating her out of money in their 1990s divorce, will ask a judge to dismiss the suit, his lawyer said in court April 30.

Martin Klotz, a lawyer for Cohen, said he will make the motion on May 7. In an April 20 letter to U.S. District Judge Richard J. Holwell, Klotz said a dismissal is warranted in part because the deadline has passed for filing such a suit.

“Plaintiff’s divorce, and the conduct about which she complains, are now ancient history,” wrote Klotz, a lawyer with Willkie Farr & Gallagher LLP in New York.

Patricia Cohen seeks a “substantial, if not controlling, interest in SAC Capital, and various related SAC entities, now valued at over $12 billion,” according to an amended complaint filed in April in federal court in Manhattan.

Gaytri D. Kachroo, Patricia Cohen’s lawyer, asked for and was granted 45 days to respond to the dismissal motion.

Patricia Cohen, who separated from her then-husband in 1988, claims assets were hidden from her and the New York state courts during their divorce proceedings. She said she’s entitled to at least half of his hedge fund business, which was developed in part with $1 million Patricia earned from a real estate business.

The case is Cohen v. Cohen, 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).

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Tullett Prebon Seeks $3.5 Million in Fees in BGC Lawsuit

Tullett Prebon Plc, the second-largest inter-dealer broker by market value, asked a judge to award it at least 2.3 million pounds ($3.5 million) in legal costs in a lawsuit against its rival, BGC Partners Inc.

Tullett’s lawyer, Jeffery Onions, said at a hearing April 30 that the company proved there was “unlawful conduct on the part of BGC” and that it was entitled to the legal fees. Damages in the case will be determined at a later date.

BGC’s “commercial interests took precedence over the rights and wrongs of the situation,” Onions told the court. Its “defense has now been revealed to be based on lies,” he said.

In March, Justice Raymond Jack ruled that BGC and two executives unlawfully conspired to hire Tullett employees in a dispute that featured allegations about lost BlackBerries and threatening phone calls. BGC was granted the right to appeal the verdict at the April 30 hearing.

Tullett sued BGC seeking cash compensation and a court order blocking BGC from poaching its staff. The firm is also suing BGC in New Jersey, alleging racketeering and seeking at least $1 billion in damages for hiring away 164 brokers in Hong Kong, Singapore, Tokyo, London and the U.S.

“This is a case where nobody has come out of it with credit,” said Andrew Hochhauser, a lawyer for BGC. “These are two companies that regularly engage in litigation; it’s part and parcel of doing business.”

Hochhauser argued April 30 that Jack shouldn’t make a ruling on costs before the damages hearing. Jack said he would postpone making a decision.

The case is: Tullett Prebon Plc v. BGC Brokers LP, HQ09X01241, High Court (London).

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Moore Capital, Morgan Stanley, UBS Settle CFTC Cases

Moore Capital Management LP, Morgan Stanley and UBS AG’s securities division agreed to pay more than $39 million to settle separate allegations regarding trading on the New York Mercantile Exchange.

Moore Capital, the $15 billion hedge fund run by Louis Bacon, will pay $25 million to settle the U.S. Commodity Futures Trading Commission’s allegation that a former portfolio manager attempted to manipulate platinum and palladium futures during a surge in prices two years ago, the regulator said April 29.

Morgan Stanley will pay $14 million and UBS $200,000 for a separate allegation that they concealed a block trade of crude oil from Nymex, the CFTC said in a separate statement.

In the platinum and palladium case, a Moore portfolio manager, who wasn’t identified, used buy orders in the closing moments of trading on Nymex to boost settlement prices from November 2007 through May 2008, the CFTC said. The orders “frequently accounted for a significant portion of the volume” in the two thinly traded markets, the agency said.

New York-based Moore said in a statement April 30 that the portfolio manager left the company in the fall of 2008. None of Moore’s principals or its current management were involved in any improper trading, and none were accused of any wrongdoing, the company said.

“Morgan Stanley fully cooperated with the CFTC’s investigation and is pleased to have reached a resolution with our regulator,” spokeswoman Jennifer Sala said in an e-mailed statement. “As the CFTC indicates, this matter concerned an isolated request by a former Morgan Stanley trader.”

UBS spokeswoman Kelly Smith declined to comment.

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Ex-UBS Client Heller Granted $500,000 Bail in Tax Evasion Case

A disbarred lawyer charged two weeks ago with using an offshore UBS AG account to hide $26 million from the Internal Revenue Service was granted bail April 30 by a federal judge.

Kenneth Heller, 80, must post a $500,000 bond before his scheduled release on May 4, U.S. Magistrate Judge James L. Cott ruled in federal court in Manhattan. Heller has been in custody since his April 15 arrest in Hoboken, New Jersey, on charges of tax evasion and failing to file a report over his offshore account.

Heller was one of seven ex-UBS clients charged that day with collectively hiding more than $100 million from the IRS. Eleven former clients of Zurich-based UBS pleaded guilty since the bank admitted in February 2009, when it avoided prosecution by paying a $780 million fine, admitted it helped U.S. clients evade taxes, and turned over the names of U.S. account holders.

Heller, a disbarred New York maritime attorney, opened a UBS account in 2006 with $26.4 million, prosecutors said. He later transferred $20 million to a smaller private Swiss bank, prosecutors said. They accuse Heller of evading more than $2.3 million in federal income taxes.

Heller initially appeared in court on April 15. His lawyer, Fred Dunne, agreed not to seek bail then because prosecutors discovered an outstanding warrant stemming from a contempt conviction when he was still practicing law.

The case is United States v. Kenneth Heller, 10-mg-00742, U.S. District Court, Southern District of New York (Manhattan).

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U.K. Prosecutor to Seek Approval for $46 Million BAE Settlement

U.K. prosecutors will ask a London court to approve a 30 million-pound ($46 million) settlement with BAE Systems Plc, Europe’s biggest defense company.

The case had been delayed while two anti-arms groups sought unsuccessfully to block the deal. The U.K. Serious Fraud Office’s settlement with BAE was also complicated by an appeal in a separate case that determined whether the agency had the power to conduct plea bargains.

BAE agreed to pay almost $450 million in February to resolve bribery and fraud investigations by U.S. prosecutors and the SFO. The company pleaded guilty in the U.S. in March and has agreed to plead guilty in the U.K. to accounting irregularities.

The SFO notified BAE’s lawyers at Allen & Overy LLP April 30 that they would proceed with the settlement, spokesman David Jones said in an e-mail April 30.

Lindsay Walls, a BAE spokeswoman, declined to comment on the SFO decision.

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Court Filings

SEC Fraud Suit Against Goldman Sachs Tops Bloomberg Chart

U.S. regulators’ lawsuit accusing Goldman Sachs Group Inc. of fraud related to collateralized debt obligations was the most-read litigation docket on the Bloomberg Law system last week.

Goldman Sachs created and sold CDOs linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the Securities and Exchange Commission said April 16. Billionaire John Paulson’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president who helped create the CDOs, known as Abacus.

The case is Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

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

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