JPMorgan, Galleon, Commerzbank, Calpers, Barclays, Goldman in Court News
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Syncora claimed in the lawsuit, filed April 29 in New York State Supreme Court in Manhattan, that JPMorgan and Jefferson County fraudulently obtained more than $1 billion in insurance coverage for the municipal debt.
“Jefferson County is absolutely not responsible for what they are alleging,” Bettye Fine Collins, president of the county commission, said at a press briefing yesterday in Birmingham, Alabama. “The people that collapsed and caused us to collapse are suing us.”
A $3 billion sewer bond refinancing that used interest-rate swaps arranged by JPMorgan in 2002 and 2003 almost bankrupted Jefferson County. The financing fell apart in 2008 when the companies guaranteeing the debt, including Syncora, lost their top credit ratings because of losses on unrelated mortgage- backed securities. As a result, Jefferson County’s interest rates on the sewer debt more than tripled in a month to 10 percent.
In the suit, Syncora claims the county and New York-based JPMorgan purposefully misrepresented and concealed information about the county’s finances and bribes that were paid to county officials to win their business. The $400 million is the amount Syncora has paid or expects to be asked to pay under the insurance policies.
More than 20 criminal convictions and multiple U.S. Securities and Exchange Commission enforcement actions resulted from corruption tied to the refinancing, according to the lawsuit. Larry Langford, Birmingham’s former mayor, was sentenced in March to 15 years in prison for taking $241,000 in bribes in exchange for giving sewer-bond and derivatives business to a friend who was brought into the JPMorgan deal.
A hearing is scheduled for May 6 in state court in Birmingham in a separate suit by Jefferson County against JPMorgan. The bank has asked the judge to dismiss the case and the two sides have been in settlement talks.
Joe Evangelisti, a spokesman for JPMorgan, declined to comment on the Syncora suit. It names the JPMorgan Chase Bank NA and JPMorgan Securities Inc. units as defendants, as well as the county.
The case is Syncora Guarantee Inc. v. Jefferson County, 601100, New York Supreme Court (Manhattan).
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Galleon Probers Searched for Bear, Deutsche Bank Names
Investigators in the Galleon Group LLC insider trading case searched the computer of a key government witness for the names of institutional brokers from Bear Stearns Cos. and Deutsche Bank AG, according to a court filing.
The U.S. Securities and Exchange Commission searched the computer of witness Roomy Khan for the names of Jay Casey and Jeffrey Turnbaugh, according to a Feb. 5 letter to a Manhattan federal judge from Khan’s lawyer, David Wikstrom. Turnbaugh, who worked at Bear Stearns in San Francisco, said by phone yesterday that he knew Khan and declined to comment further. Casey, who works at Deutsche Bank in the same city, declined to comment.
“The SEC has performed a comprehensive keyword search of the hard drives in order to identify computer documents or computer files of conceivable relevance to the action,” Wikstrom wrote in his letter. Among the search terms were the names of Turnbaugh and Casey, the letter said, without explaining why the SEC was looking for those names.
Khan, a former executive at Intel Corp., pleaded guilty in December to insider trading and is cooperating with prosecutors in the Galleon insider trading case. Wikstrom didn’t return a call.
Wikstrom wrote the letter to U.S. District Judge Jed Rakoff in February objecting to requests by Galleon Group founder Raj Rajaratnam for full images of Khan’s computers, saying any relevant discovery is available from the SEC’s searches and anything more would be an invasion of Khan’s privacy. Rajaratnam faces civil and criminal insider-trading charges and has denied wrongdoing. Khan has also been sued by the SEC in a case over which Rakoff is presiding.
Spokesman Ted Meyer of Deutsche Bank, which acquired Bear Stearns, didn’t have an immediate comment. A spokesman for JPMorgan, which has acquired Bear Stearns, didn’t return a call.
The case is SEC v. Khan, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan).
Calpers Suit Against Ratings Services Can Proceed
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings must face the California Public Employees Retirement System’s lawsuit claiming their faulty risk assessments on structured investment vehicles caused $1 billion in losses.
A state court judge in San Francisco rejected the companies’ requests to dismiss Calpers’s claims of negligent misrepresentation, Brad Pacheco, a spokesman for Calpers, the largest U.S. pension fund, said yesterday in a phone interview.
Judge Richard Kramer, in an April 30 ruling, tossed out a claim of negligent interference and said Calpers could renew that claim later, Pacheco said.
Calpers sued the three major bond-rating companies for $1 billion in losses it said were caused by “wildly inaccurate” risk assessments. They used methods to analyze medium-term notes and commercial paper that were “seriously flawed in conception and incompetently applied,” Calpers said in its lawsuit filed July 9.
The companies all gave their highest ratings to Cheyne Finance Ltd., Stanfield Victoria Funding LLC and Sigma Finance Inc., prompting Calpers to invest in them in 2006, the fund said in its complaint. The structured investment vehicles collapsed in 2007 and 2008, defaulting on payments to Calpers, the pension fund said. The underlying assets of the three firms, Calpers said, consisted primarily of risky subprime mortgages.
Moody’s, S&P and Fitch face similar lawsuits by institutional investors in federal court in Manhattan. The companies have denied wrongdoing.
“We are pleased that the judge granted our motion to dismiss the claim of negligent interference with prospective economic advantage,” Frank Briamonte, a spokesman at McGraw- Hill Cos., the parent company of Standard & Poor’s, said in an e-mail.
“We are confident that when the court considers more than the plaintiff’s baseless allegations -- which it was required to accept as true at this preliminary stage of the case -- it will be apparent that the facts and applicable law do not support the claim and we will prevail,” he said.
David Weinfurter, a spokesman at Fitch, said in an e-mail that the company believes “the Calpers claim is fully without merit and we will continue to defend it to the fullest extent.” Fitch plans to appeal the judge’s decision, he said.
Michael Adler, a Moody’s Corp. spokesman, said in an e-mail that the company “continue to believe the case is without merit, and we are confident that the remaining claim will be dismissed once the court is presented with the facts in the case.”
The case is California Public Employees’ Retirement Systems v. Moody’s Corp., 09-490241, Superior Court of California, County of San Francisco.
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Commerzbank Asks U.K. Judge to Throw Out Dresdner Bonus Suits
Commerzbank AG asked a judge in London yesterday to dismiss the claims from more than 100 current and former bankers at its Dresdner Kleinwort unit in the largest bonus dispute in the U.K. stemming from the financial crisis
The collapse of Lehman Brothers Holdings Inc. and its affect on the financial markets made it impractical for the bank to pay what it considered discretionary bonuses, said Jonathan Sumption, a lawyer for Commerzbank. The bankers say they were paid a 10th of what they were owed in a contract with Dresdner Kleinwort before it was acquired by Commerzbank last year.
Allianz SE, the insurer that sold Dresdner Bank to Commerzbank, had earmarked about 400 million euros ($523 million) for Dresdner bonuses, including retention payments. Later, Dresdner’s investment-banking operations posted a 6.3 billion-euro loss for 2008 amid the global financial crisis. The losses, plus Commerzbank’s need to tap the German government for 18.2 billion euros of capital, created a material change to the contracts, Sumption said.
“There was a hope, and no doubt an expectation, but it was not an obligation,” Sumption said of the bonuses.
Commerzbank is asking the court to dismiss the two lawsuits filed by the workers instead of going to trial.
Louise Beeson, a spokeswoman for some of the bankers, said that the bonuses were retention bonuses, not discretionary payments.
“Our clients argue the decision, by new owner Commerzbank, to renege on the repeatedly promised payment was a breach of contract that should be determined at full trial,” Beeson said.
The case is The parties named in Schedule A v. Dresdner Kleinwort Ltd. & ors, High Court, IHQ/10/0062 IHQ/10/0063
Ex-Qwest Chief Nacchio Will Skip Sentencing Hearing
Former Qwest Communications International Inc. chief Joseph Nacchio, serving a six-year prison term for insider trading, need not attend court hearings on his bid for a shorter sentence, a federal judge ruled.
U.S. District Judge Marcia S. Krieger in Denver yesterday granted his request to skip the hearings next month after he traveled to her courtroom from his prison in Pennsylvania. The judge said she wanted to see Nacchio to be assured he understands his rights and is satisfied with his lawyers.
Nacchio, 60, said he doesn’t want to come to the hearings because he serves as a Catholic minister in prison and teaches Sunday services that don’t happen when he isn’t there.
Nacchio, bald and wearing a prison uniform, goatee and moustache, also told the judge that traveling round-trip from prison to Denver with a government escort requires four to eight weeks. He said that for eight of the last nine days of travel, he was kept in solitary confinement. The trips also may force him to miss prison visits from his family, including his 92- year-old mother who is ill, he said.
Sean Berkowitz, Nacchio’s lawyer, was unavailable for comment and didn’t return a phone call or e-mail message seeking comment after yesterday’s hearing.
Nacchio, of Rumson, New Jersey, was convicted in 2007 on charges he sold $52 million of stock in Denver-based Qwest in 2001 based on inside information.
He was sent last year to a federal prison in Minersville, Pennsylvania. He seeks to have his sentence reduced after persuading a federal appeals court that the judge who presided over his 2007 trial incorrectly calculated his gains from stock sales. The appeals court sent the case back to the district court to determine a new prison term.
The case is U.S. v. Nacchio, 1:05-cr-00545, U.S. District Court, District of Colorado (Denver).
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Barclays Got No ‘Secret’ Discount on Lehman Deal, Seery Says
Barclays Plc took no “secret” $5 billion discount on a portfolio of securities it acquired when it bought bankrupt Lehman Brothers Holdings Inc.’s brokerage, according to a former executive of the investment bank.
Barclays could have made or lost money on the securities, James Seery, a New York lawyer with Sidley Austin LLP who used to head Lehman’s fixed income loan business, told a bankruptcy judge in New York yesterday.
“These were incredibly volatile markets,” Seery said, referring to the days after Lehman’s bankruptcy on Sept. 15, 2008. “The markets were in free fall.”
Seery 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 on the brokerage, including $5 billion on the securities. The deal closed within days of Lehman’s 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.
Lehman, its creditors and the trustee have said they weren’t told at the time about Barclays’s potential $5 billion gain on the securities, or other assets it took.
Seery indicated they all knew about the disputed sums before the deal closed. In a phone call with creditors’ advisers on Sept. 19, 2008, before a court hearing on the sale, he said they discussed the difference between the $50 billion the securities were valued at, and the $45 billion that Barclays paid for them.
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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Nomos Capital’s Lowe Wins Bias Case Over Blonde Jokes
Nomos Capital Partners Ltd. founder Mark Lowe won a sexual discrimination case brought by a former employee who alleged he took her to strip clubs and subjected her to insults and blonde jokes.
Jordan Wimmer, who was earning 577,000 pounds ($931,000) a year as an executive at the fund, sued Lowe and Nomos Capital for 4 million pounds last year for sexual discrimination. She testified that Lowe regularly took escorts on business trips and may have hired a hit man to kill her after she left the firm.
The employment court that decided the case said they trusted the evidence provided by another Nomos executive more than Wimmer’s testimony.
“Her evidence was exaggerated in relation to the quantity of jokes,” Lowe sent her and claims that Lowe brought escorts to business events were “wholly unsupported,” the panel wrote in a 34-page ruling.
Lowe testified he didn’t think the jokes he e-mailed to staff were offensive and denied the other claims. He said Wimmer “was always treated in a gentlemanly way.”
Representatives at Addleshaw Goddard, the firm that represented Wimmer in the case, didn’t return a call for comment.
The tribunal’s ruling said Wimmer’s contact with Lowe in the 18 months before she left the firm “was minimal.”
The case is Wimmer v. Nomos Capital, London Central Employment Tribunal, 2202507/2009.
Goldman Sachs Pays $450,000 to Settle NYSE Finding
Goldman Sachs Group Inc.’s execution and clearing unit agreed to pay NYSE Euronext and the Securities and Exchange Commission $450,000 to settle allegations it broke rules governing short sales on U.S. stocks because of a bookkeeping error.
Goldman Sachs was censured for violating the SEC’s Regulation SHO, which sets rules for handling bearish trades in equities. The infractions, which are unrelated to the SEC’s April 16 mortgage-related fraud suit against the world’s most profitable investment bank, involved requirements implemented in September 2008 to reduce naked short selling, in which firms sell stock short without intending to borrow the shares required to complete their obligations.
An emergency SEC rule implemented after Lehman Brothers Holdings Inc.’s collapse in September 2008 forced brokers to close short sales that didn’t settle by the morning of the fourth day after the trade. That regulation, called Rule 204T, also imposed stricter requirements on subsequent short sales when failures to deliver shares occurred. The rule was made permanent in July 2009.
Goldman Sachs Execution & Clearing LP “initially responded to the rule by implementing procedures that were inadequate in that they relied too heavily on individuals to perform manual tasks and calculations, without sufficient oversight or verification of accuracy,” the SEC said yesterday.
Goldman Sachs neither admitted nor denied wrongdoing.
“This was the result of a manual processing error following the changes in Rule 204T closeout requirements in October 2008,” Goldman Sachs spokesman Ed Canaday said in a statement. “There was no financial impact on our clients. We now have improved, automated processes in place to avoid future errors.”
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New Jersey’s Top Court May Get Temporary Judge Amid Dispute
Governor Chris Christie’s decision not to reappoint New Jersey Supreme Court Justice John Wallace may force the state’s highest court to assign a temporary judge to fill a vacancy for the first time since the 1970s.
Democratic Senate President Stephen Sweeney said yesterday he would block the nomination of Republican attorney Anne Murray Patterson to replace Wallace, the first sitting member of the panel to be denied tenure. Neither Wallace nor Patterson can be seated during any impasse, said Winnie Comfort, a spokeswoman for the state judiciary.
“That becomes a vacancy by both the constitution and our court rules,” Comfort said in an interview. “The chief justice has the authority to make a temporary assignment to fill any vacancy.”
Chief Justice Stuart Rabner may appoint a stand-in from the ranks of retired Supreme Court justices or from the Appellate Division of Superior Court, Comfort said. Rabner, who was nominated to the panel in 2007 by former Democratic Governor Jon Corzine, said May 3 in a statement he was “disappointed” by Christie’s announcement he wouldn’t reappoint Wallace.
Christie, 47, a Republican who took office Jan. 19, angered Democratic lawmakers with the move to replace Wallace, a Democrat whose initial seven-year term ends May 20. Under New Jersey’s constitution, a justice who is reappointed after their first term remains until the court’s mandatory retirement age of 70. Wallace, the panel’s only black member, is 68.
Christie, the first Republican elected New Jersey governor since 1997, said he believes the panel has a history of “legislating from the bench,” without naming any of Wallace’s decisions with which he disagreed. The governor said he made the move to begin reshaping the seven-member court, which is currently made up of four Democrats, two Republicans and an Independent.
Patterson, 51, 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.
Sweeney, 50, of West Deptford, said yesterday he wouldn’t authorize confirmation hearings on the nomination of Patterson. The senate president controls the chamber’s agenda, including nomination hearings. Democrats control the Legislature.
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