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Madoff, Citigroup, Continental, American Express, Goldman in Court News

A trustee overseeing the liquidation of Bernard Madoff’s firm is near a “multibillion-dollar” settlement with the estate of Jeffry Picower, the longtime Madoff investor who drowned in his swimming pool last year, a bankruptcy judge said.

U.S. Bankruptcy Judge Burton Lifland said he blocked legal claims filed by two investors against Picower, finding the claims threatened to interfere with the near-complete negotiations between the bankruptcy trustee, Irving Picard, and the Picower estate.

“The trustee has engaged in months of active settlement negotiations with the Picower defendants and has obtained information through his investigation subsequent to the filing of his complaint,” Lifland said in the opinion. “The trustee indicates that he is on the verge of a settlement with the Picower defendants that promises to achieve a substantial, multibillion-dollar sum for distribution to Madoff victims.”

Lifland’s opinion yesterday follows a hearing on the matter last week and the disclosure by a lawyer for Picard on April 30 that the parties were “on the brink” of settling. Picard sued Picower and several related parties in May 2009 to help repay victims of Madoff’s multibillion dollar Ponzi scheme.

“I can confirm that settlement discussions are going on,” said Picower attorney William Zabel of Schulte Roth & Zabel LLP in New York. “We hope we’re getting very close to settlement.”

Madoff, 72, pleaded guilty last year and is serving a 150- year sentence for orchestrating history’s biggest Ponzi scheme.

Picower, who was 67 at the time, had a heart attack in his Palm Beach, Florida, swimming pool and drowned Oct. 25.

Picard claimed in his suit that Picower knew, or should have known, that Madoff was running a fraud.

The case is Picard v. Fox, 10-3114, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more, click here.

Goldman’s Kimelman Trading Records Sought by Defense

Goldman Sachs Group Inc. was asked by a defense lawyer to produce trading records of Michael Kimelman, who is accused of using secret tips in the Zvi Goffer insider-trading case.

Kimelman’s defense attorney Morris J. Fodeman filed the request for Kimelman’s trading records on April 15. A copy of his subpoena was made public in court files yesterday in Manhattan federal court. It seeks “any and all trading records” associated with Kimelman’s account and asks that they be provided by May 14.

Fodeman said in an interview that the subpoena is a routine request for documents. Kimelman was a proprietary trader at Quad Capital and a broker at Lighthouse Financial Group, and his trades were cleared through Goldman Sachs, Fodeman said. He said Goldman Sachs hasn’t objected to the request.

Kimelman was among 14 people, including hedge fund managers and an ex-employee of Galleon Group, as part of a probe of an alleged-insider trading scheme. At the center of the case is Goffer, a former Galleon employee, along with Craig Drimal, who worked at the Manhattan firm’s offices.

The case is U.S. v. Goffer, 1:10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

Kerviel Criticizes SocGen Pre-Trial Investigation, JDD Says

Jerome Kerviel, the former Societe Generale SA trader whose unauthorized positions led to a 4.9 billion-euro ($6.5 billion) loss, criticized the investigation ahead of his trial in an interview with Le Journal du Dimanche.

Kerviel, facing trial next month on charges including forgery and posting false trading data, contested some of the methods of the investigating magistrates, the French weekly reported May 2.

Kerviel is quoted as saying he was twice denied the opportunity to be present during investigations at his former workplace and that no independent checks were made to establish that the Paris-based bank had handed over all relevant documents. Societe Generale spokeswoman Laura Schalk declined to comment when contacted by Bloomberg.

Because the trading loss incurred when the bank unwound the positions after Kerviel’s departure, “it wasn’t me who lost the money,” he was quoted as saying in the report.

If found guilty, Kerviel, 33, faces a prison sentence of as many as five years and a 375,000-euro fine in addition to possible damages. He has admitted to covering up his unauthorized bets on stock-index futures with fake orders, while maintaining that there was no crime because the bank knew what he was doing.

For the latest lawsuits news, click here.

New Suits

Citigroup Says Ex-Employee Told Deutsche Bank Secrets

Citigroup Inc. sued Gautam Hazarika, a former Singapore- based director in its global markets unit, accusing him of handing confidential information to Deutsche Bank AG before joining the German bank.

Deutsche Bank’s head of corporate flow sales for Asia, excluding Japan, denied the allegations and was scheduled yesterday to ask Singapore’s High Court to set aside an order allowing Citigroup to search his apartment, car and home computer.

Hazarika was in “flagrant breach” of his employment contract and duties to Citigroup by sending e-mails containing trade secrets to Deutsche Bank, Standard Chartered Plc and his personal account, the New York-based lender said in its Nov. 30 lawsuit. Deutsche Bank isn’t a defendant in the Citigroup suit.

Citigroup’s suit comes after Merrill Lynch & Co. sued Deutsche Bank for allegedly raiding its bankers and misappropriating trade secrets last year and Royal Bank of Scotland Group Plc fired its Singapore-based chief currency trader in May last year for sending e-mails allegedly containing confidential data.

The cases highlight the intense rivalry among banks for bankers who can “bring across a decent book of clients,” said Siraj Omar, head of litigation at Premier Law LLC in Singapore, who isn’t involved in the suit. “The idea is to make things as difficult as possible for the bankers who are leaving, which is only logical from the banks’ perspective.”

Citigroup’s Singapore-based spokesman Adam Rahman declined to comment, as did Deutsche Bank’s Mark Bennewith. Hazarika couldn’t be reached for comment.

Citigroup is represented by Drew & Napier LLC and Tan Rajah & Cheah is acting for Hazarika.

The case is Citicorp Investment Bank (Singapore) Ltd. v. Gautam Iswar Hazarika S1008/2009 in the Singapore High Court.

For more, click here.

Continental Shareholders Sue to Stop United Merger

Continental Airlines Inc. shareholders filed suit in state court in Houston to block a proposed merger with United Airlines Inc., saying the deal is rushed and underpriced.

The lawsuit, which names both airlines and Continental’s board of directors, says some Continental directors violated their fiduciary duty to get shareholders a better deal than the $3 billion stock swap announced yesterday.

“The proposed acquisition is the result of a hurried and unfair process that lasted a mere two weeks and offers an unfair price of only 1.05 shares of UAL common” for every share of Continental common stock, Houston lawyer Andrew Edison said in the complaint. The price represents “over $1.50 per share less than where Continental stock traded just two weeks before” the deal was announced.

The proposed shareholder class action asks the court to rescind the United merger and direct Continental’s board members to seek a better price for the Houston-based airline.

The case is Page v. Continental Airlines Inc., 2010-27738, in 113th Judicial District of Harris County, Texas (Houston).

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

Trials/Appeals

Fed Asks Appeals Court to Review Bailout-Data Ruling

The Federal Reserve Board asked an appeals court to reconsider a ruling requiring the agency to disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever.

Attorneys for the Fed yesterday asked the full U.S. Court of Appeals in New York to reconsider a unanimous ruling by a three-judge panel. If the court refuses, the Fed can appeal to the U.S. Supreme Court.

“The decision is of exceptional importance,” the Fed’s lawyers wrote in a legal brief. “The real-world consequence of the panel’s decision will be serious, perhaps irreparable harm to the institutional borrowers whose information will be revealed.”

The Court of Appeals panel ruled March 19 that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upheld a decision of a lower- court judge who in August ordered that the information be released.

The Fed argued in the case, which was launched by Bloomberg LP, the parent of Bloomberg News, that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. The appeals court panel rejected that argument.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the March 19 opinion. “If the board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The Fed argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”

The Clearing House Association, which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co.

Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

For more, click here.

Barclays Had Right to Walk Away From Lehman Deal, Lawyer Says

Barclays Plc had “a right to walk away” from a 2008 deal to buy bankrupt Lehman Brothers Holdings Inc.’s brokerage unit and would have if certain assets had been left out, the U.K. bank’s top in-house lawyer said.

“That was clearly in Barclays’s mind at that point in time,” Jonathan Hughes, Barclays’s global general counsel, told a bankruptcy judge in New York yesterday, referring to the bank’s discovery during the negotiations that Lehman couldn’t deliver all the promised assets.

Hughes testified for a second day in a trial of Lehman’s claim that Barclays should pay Lehman as much as $11 billion for an alleged “windfall” it got as result of the purchase of the brokerage. The deal occurred within days of Lehman’s September 2008 bankruptcy, the biggest in U.S. history.

The fight in U.S. Bankruptcy Court in Manhattan before Judge James Peck pits the U.K.’s third-biggest bank against Lehman, which wants money to pay off creditors and brokerage customers. The brokerage’s trustee, James Giddens, seeks $6.7 billion from Barclays to pay brokerage clients.

The disputed assets include $4 billion in margin deposits that backed part of Lehman’s exchange-traded derivatives -- assets Hughes said Barclays needed to continue Lehman’s derivatives business.

While the trustee and Lehman’s creditors have said transfer of the margin and the other assets weren’t approved by the judge, the terms were spelled out in a so-called clarification letter that was part of the sale documents, Hughes said, when questioned by Barclays’s lawyer David Boies of New York-based Boies Schiller & Flexner LLP. The clarification letter was filed in court as the deal closed.

Yesterday’s second witness was James Seery, a New York lawyer with Sidley Austin LLP who used to head Lehman’s fixed income loan business. He said he had recommended to the U.S. Federal Reserve and the U.S. Securities and Exchange Commission that they wind Lehman down over a longer period, and they turned him down.

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).

For more, click here.

Bank of America Unit Granted New Hearing on Investor Lawsuit

The U.S. Supreme Court told a lower court to reconsider a ruling letting a woman sue a Bank of America Corp. unit that allegedly promised her the equivalent of an 8 percent annual return.

Bank of America’s Trainer Wortham & Co. unit contends that investor Heide Betz waited too long to press her case, not suing for years after she learned that her $2.2 million investment was losing money.

The justices had deferred acting on the appeal until they decided a Merck & Co. case that raised similar issues. The court unanimously last week ruled against Merck and said the two-year window for shareholder suits doesn’t begin until a “reasonably diligent” investor would have indications of intentional company wrongdoing.

In letting the Betz case go forward, the 9th U.S. Circuit Court of Appeals pointed to evidence she received “active assurances from the highest levels of the securities firm that there was no problem with her account and all would be made right.”

The three-judge panel said a jury should be allowed to consider whether Betz acted reasonably in relying on those assurances, rather than filing her suit earlier.

“The 9th Circuit has declared itself a haven for hucksters and procrastinators and has all but converted brokers and investment advisers into unwilling guarantors of market performance,” Trainer Wortham’s parent company, First Republic Bank, argued in its appeal, filed in Washington.

The case is Trainer Wortham v. Betz, 07-1489, U.S. Supreme Court (Washington).

American Express Gets New Hearing on Merchant Class-Action Suit

The U.S. Supreme Court cast doubt on a lower court ruling that would let merchants collectively claim that American Express Co. violated federal antitrust laws by forcing retailers to honor all its cards.

The justices yesterday told the New York-based 2nd U.S. Circuit Court of Appeals to reconsider its decision, which said the merchants weren’t bound by an arbitration agreement requiring them to press any complaints against American Express individually.

The justices pointed to an April 27 decision in which they said companies can’t be forced to submit to class arbitration unless they had previously agreed to do so.

The New York and California merchants contend that American Express is illegally bundling its products through its “Honor All Cards” policy.

The retailers want to be able to accept the American Express charge cards, which require cardholders to pay their balance each month, without having to accept the company’s newer credit cards, which don’t require full payment. The complaint says the newer cards aren’t used by the high-end customers preferred by stores and consequently aren’t worth the high fees imposed on merchants by American Express.

American Express’s standard agreement with its merchants calls for all disputes to be resolved through individual arbitration.

The appeals court said that clause “cannot be enforced in this case because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.”

The case is American Express v. Italian Colors Restaurant, 08-1473.

Pfizer Rejected by U.S. High Court on Celebrex Shareholder Suit

The U.S. Supreme Court refused to halt a class-action lawsuit that accuses Pfizer Inc.’s Pharmacia unit of misleading investors by distorting the results of a clinical study on the painkiller Celebrex.

The high court yesterday turned away contentions by Pfizer and Pharmacia that six pension funds waited too long to file suit.

The justices had deferred acting on the Pfizer appeal until they decided a Merck & Co. case that raised similar issues. The court last week unanimously ruled against Merck and said the two-year window for shareholder suits doesn’t begin until investors have indications of intentional company wrongdoing.

In the Celebrex case, company investors say Pharmacia falsely claimed that its drug had a better safety profile than other pain relievers. Pharmacia, which Pfizer acquired in 2003, allegedly manipulated data obtained in a long-term clinical study of Celebrex’s effect on the gastrointestinal system, releasing only a six-month portion of the study in April 2000.

In February 2001, Food and Drug Administration officials concluded that Pharmacia hadn’t proved that Celebrex was easier on the stomach than older drugs, scuttling the company’s request to market the drug without the standard gastrointestinal warning label. The investors say that finding sent the company’s shares into a slide.

The investors say they had no reason to suspect intentional company deception until an August 2001 Washington Post story showed that Pharmacia had deliberately concealed data from the study. They filed suit about 18 months later.

The Supreme Court rejection leaves intact a federal appeals court ruling letting the suit go forward.

The case is Pharmacia v. Alaska Electrical Pension Fund, 08-1315.

For the latest trial and appeals news, click here.

Verdicts/Settlement

Wal-Mart Will Pay $27.6 Million to Settle Waste Case

Wal-Mart Stores Inc. agreed to pay California governments $27.6 million to settle a lawsuit over accusations that the company illegally dumped pesticides, paint, aerosols and acids at its stores.

District Attorney Bonnie Dumanis of San Diego County and the state announced the settlement yesterday in a statement, as did the Bentonville, Arkansas-based company.

The governments claimed Wal-Mart, the world’s largest retailer, and its Sam’s Club stores as well as distribution and storage facilities violated environmental laws in dumping the waste.

“It’s important to note that these incidents happened at least four years ago,” Phyllis Harris, Wal-Mart vice president for environmental compliance, said in an e-mail statement. “Since then, we have worked closely with the State of California on a comprehensive hazardous-waste plan that includes improved training programs, policies and procedures.”

Wal-Mart said the settlement won’t affect fiscal 2011 first-quarter results.   The case is California v. Wal-Mart Stores, Inc., 37-2010- 00089145, California Superior Court (San Diego County).

For the latest verdict and settlement news, click here.

Litigation Departments

Goldman Sachs Said to Be in Talks to Hire Law Firm Paul, Weiss

Goldman Sachs Group Inc., buffeted by a fraud lawsuit from the U.S. Securities and Exchange Commission and a 21 percent decline in market value, is in talks to hire Paul, Weiss, Rifkind, Wharton & Garrison LLP to bolster its legal team, said a person briefed on the discussions.

The talks are likely to lead to an agreement to hire the firm, said the person, who asked to remain anonymous because the negotiations are confidential. The intention is to supplement, not replace, the company’s current legal advisers including Sullivan & Cromwell LLP, the person said.

Goldman Sachs, which generated a record $13.4 billion profit last year, is seeking additional legal advice as it faces issues tied to its sale of mortgage-linked securities that include the SEC suit and a U.S. Senate subcommittee hearing last week, according to the person. Federal prosecutors are also investigating the firm’s activities in the area, people familiar with the matter said last week.

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment. Madelaine Miller, a spokeswoman for Paul Weiss, didn’t return a call seeking comment.

Richard H. Klapper at Sullivan & Cromwell is among the partners leading Goldman Sachs’s defense against the SEC lawsuit. The firm also received advice ahead of the Senate hearing from K. Lee Blalack II of O’Melveny & Myers LLP, who has previously worked as the subcommittee’s chief counsel and staff director. Gregory Craig, President Barack Obama’s former White House counsel, is now the partner at Skadden, Arps, Slate, Meagher & Flom LLP assigned to advise Goldman Sachs.

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

For more, click here.

For the latest litigation department news, click here.

Court News

Christie May Be Blocked in Replacing New Jersey Justice Wallace

New Jersey Senate President Stephen Sweeney plans to block Governor Chris Christie’s choice of Anne Murray Patterson for the state Supreme Court, replacing John E. Wallace Jr., the court’s only black member.

Sweeney, a Democrat from West Deptford, said yesterday that he won’t authorize confirmation hearings on the nomination of Patterson, 51, a registered Republican. The senate president controls the chamber’s agenda, including nomination hearings.

Wallace, 68, is the first sitting justice not to win reappointment, the court’s chief justice said. Nominated by former Governor James McGreevey, a Democrat, Wallace’s seven- year term ends May 20. Christie, a former U.S. Attorney, cited “differing judicial philosophies” yesterday in naming Patterson, a lawyer, to replace Wallace.      “It’s the wrong message,” Sweeney said, explaining why he won’t act on the nomination. “If I called a hearing, I’d be sending the wrong message to all of the justices and judges on the bench right now that the governor can remove you if you make the wrong decision,” he said in a telephone interview.

Christie won’t withdraw Patterson’s nomination because of Sweeney’s “reflexive” threat, said Michael Drewniak, a spokesman for the governor.      “The court, over the course of three decades, has gotten out of control and has invaded the executive and legislative constitutional functions,” said Christie, a Republican who took office Jan. 19. “This is about a different constitutional philosophy. I believe that New Jersey has suffered mightily because of some of the decisions of the court,” he said yesterday.

At a briefing for reporters, the governor declined to specify exactly which of Wallace’s decisions he disagreed with and said he had reviewed them “extensively.”

Patterson is a partner with the law firm Riker, Danzig, Scherer, Hyland & Perretti LLP in Morristown, New Jersey, specializing in state and federal product-liability and commercial litigation. She is a registered Republican, Christie told reporters. His office said she has been a member of the state Bar Association for 27 years, and was a deputy attorney general and special assistant to former state Attorney General Peter N. Perretti Jr. in 1989 and 1990.

For more, click here.

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

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