The trustee for Lehman Brothers Holdings Inc.’s brokerage charged $12,600 to review documents outlining terms of its purchase by Barclays Plc, and now says he didn’t know what he was signing, according to a Barclays lawyer.
One document was a so-called clarification letter detailing assets Barclays would get when it bought the defunct brokerage in September 2008, said David Boies, of New York-based Boies Schiller & Flexner LLP. Boies is defending Barclays against the claim that the U.K. bank should pay Lehman as much as $11 billion for an alleged “windfall” it got on the brokerage.
Trustee James Giddens of Hughes Hubbard & Reed LLP signed the letter and charged $787.50 an hour for 16 hours of work on Saturday, Sept. 20, 2008, Boies said, showing a slide of Giddens’s fee application. The work included “review of continuing revisions to APA, clarification letter and numerous rounds of negotiations with Weil, Cleary, and other professionals re changing terms to sale,” Boies said, reading from the fee request. APA is short for asset purchase agreement.
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 creditors and brokerage customers. Giddens seeks $6.7 billion from Barclays to pay brokerage clients, including a $4 billion margin account that is due to Barclays, according to the clarification letter.
“The trustee read this document, correct?” Boies asked Giddens’s lawyer on the deal, James Kobak of Hughes Hubbard.
“We read it, yes,” Kobak said.
“The trustee saw and knew” there was a specific provision entitling Barclays to the $4 billion? Boies asked.
“I don’t know if we knew it was in there when we signed it,” Kobak said. The provision wasn’t in earlier drafts of the document, and “we had no reason to think someone would include” it in the final document, he said.
“Did you ask anyone if there was any change?” Boies said.
“No,” Kobak said. “We expected somebody to tell us.”
“Did you tell anyone” that was your expectation? Boies said.
Kobak said no.
Weil, mentioned in the fee request, refers to Lehman’s bankruptcy law firm, Weil Gotshal & Manges LLP, which drafted the clarification letter, Boies said. Cleary is Barclays’s lawyer for the deal, Cleary Gottlieb Steen & Hamilton.
The trustee has $35 billion in outstanding customer claims, and may have a shortfall if Barclays succeeds in taking any money from him, Kobak said earlier.
Kent Jarrell, a Giddens’s spokesman with the public relations firm APCO Worldwide, said in an e-mailed statement, “Citing fee records is a complete sideshow to the merits. The focus of the trustee and his team that weekend was to do as much as possible as fast as possible to protect customers, and the transfer of more than 110,000 accounts and $92.2 billion was already under way.”
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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CyberSource Sued by Fund Over $2 Billion Visa Offer
CyberSource directors are obligated to get the highest price for the stock, lawyers for the Inter-Local Pension Fund of the Graphic Communications Conference of the International Brotherhood of Teamsters said in a lawsuit filed May 4.
Visa’s bid “undervalues the company’s true worth,” according to the Delaware Chancery Court complaint. “There is no indication” that directors “took reasonable steps to obtain the best value.”
Visa, the world’s biggest payments network, said April 21 it would buy CyberSource, of Mountain View, California, for $26 a share, a 34 percent premium at the time.
Bruce Frymire, a CyberSource spokesman, didn’t return voice and e-mail messages seeking comment on the lawsuit. A Visa spokesman, Will Valentine, declined to comment, citing a company policy not to discuss pending litigation.
The case is Inter-Local Pension Fund v. CyberSource Corp., CA5454, Delaware Chancery Court (Wilmington).
Dollar Thrifty Shareholder Sues to Block Hertz Deal
“Acceptance of Hertz’s offer without adequately exploring alternative potential proposals” would constitute a breach of fiduciary duties by Dollar Thrifty’s directors, lawyers for shareholder Cynthia Sinclair said in the complaint filed yesterday in Delaware Chancery Court in Wilmington.
Hertz, based in Park Ridge, New Jersey, said April 26 that it would buy Tulsa, Oklahoma-based Dollar Thrifty in a deal valued at the time at $41 a share. The acquisition would add Dollar and Thrifty to Hertz’s namesake and Advantage brands as a rebounding economy spurs travel demand.
Avis Budget Group Inc. said in a May 3 letter to Dollar Thrifty that it is interested in bidding. Dollar Thrifty said May 4 in a statement that it is ready to consider a “substantially higher offer” from Avis.
Stephanie Pillersdorf, an outside spokeswoman for Dollar, and plaintiff attorney Carmella Keener didn’t return phone calls seeking comment.
The case is Sinclair v. Dollar Thrifty Automotive Group Inc., CA5456, Delaware Chancery Court (Wilmington).
SpongeBob Bath Toymaker’s Officers Accused of Fraud
Two top officers of the company that makes the SpongeBob SquarePants soap-filled bath sponges for children were arrested and charged with conspiracy to commit securities fraud.
Michael Metter, chief executive officer of New York-based SpongeTech Delivery Systems Inc., and Steven Moskowitz, its finance chief, were arrested yesterday and charged by the U.S. Attorney’s Office in Brooklyn, New York.
“Between January 2007 and May 2010, the defendants Michael Metter and Steven Moskowitz, along with others, executed a scheme to defraud SpongeTech’s existing and potential investors by publicly reporting false and grossly overstated sales figures,” according to a criminal complaint unsealed yesterday.
Metter, 58, of Greenwich, Connecticut, and Moskowitz, 45, of Flushing, New York, were each released on $2 million bail after an appearance yesterday in federal court in Brooklyn.
Moskowitz’s lawyer, Mark M. Baker of Brafman & Associates PC in New York, declined to comment after the hearing. Metter’s lawyer, Jeffrey B. Sklaroff of Greenberg Traurig LLP in New York, didn’t return a call seeking comment. The company didn’t immediately respond to a voice-mail message seeking comment.
SpongeTech reported the fraudulent information in filings with the SEC and in press releases, according to the criminal complaint. Metter and Moskowitz are accused of reporting that SpongeTech got purchase orders from or made sales to five customers that didn’t exist.
The criminal case is U.S. v. Metter, M10-507, U.S. District Court, Eastern District of New York (Brooklyn).
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BP Spill Suits Might Be Combined, Quickly Resolved, Lawyer Says
About 200 attorneys suing BP Plc over the Gulf of Mexico oil spill are meeting in a New Orleans hotel to devise a strategy for resolving virtually all spill litigation within three months, a lawyer said.
Daniel Becnel, the lawyer who called the meeting, has asked a federal judicial panel in Washington to combine thousands of claims by commercial fishermen, shrimpers, property owners, seafood processors and tourism-related businesses into a single multidistrict case before one judge in New Orleans. That could keep the lawsuits from dragging on for years and would get badly needed cash into victims’ hands, Becnel said.
“We’re not going to have a long march to trial,” Becnel said yesterday in an interview before the meeting. “This could all be over in 90 days.”
Becnel represents hundreds of individuals and businesses claiming damages from the oil slick created by the April 20 explosion of the Deepwater Horizon drilling rig, which burned and sank about 40 miles off the Louisiana cost.
More than 70 lawsuits, almost all class actions potentially involving thousands of claims, have been filed against BP, which owned the offshore lease where the damaged well is now gushing at least 5,000 barrels of oil a day.
Also named as defendants in most of the suits are: Transocean Ltd., which owned the rig; Cameron International Corp., which supplied the blowout prevention equipment on the well; and Halliburton Energy Services Inc., which was providing cementing services to the well. None of the companies has accepted liability for the accident. BP Chief Executive Officer Tony Hayward has said the company will clean up the oil and pay “all legitimate claims.”
Daren Beaudo, a BP spokesman, didn’t return a call and e- mail seeking comment after regular business hours yesterday.
Becnel asked the judicial panel to expedite his request to combine the cases before one of three New Orleans judges, all of whom have experience with multidistrict litigation. Becnel previously advocated combining lawsuits over Merck & Co.’s Vioxx painkiller as well suits by homeowners over toxic drywall made in China. Both of those combined cases are being handled by federal judges in Louisiana.
If the spill cases are combined, Becnel said he will immediately ask the judge for summary judgment in favor of damaged businesses and property owners.
The MDL request was made in Acy J. Cooper Jr. v. BP Plc, 2:10-cv-01229, U.S. District Court, Eastern District of Louisiana (New Orleans).
IKB Must Face Suit Over Failed Rhinebridge Investment
IKB Deutsche Industriebank AG, a German lender, must face a fraud lawsuit filed by King County, Washington, over the bank’s failed Rhinebridge structured investment vehicle, a U.S. judge ruled.
The county, which includes Seattle, sued in October, saying it and other investors were deceived by allegedly sham ratings on the investment vehicle and lost millions of dollars. U.S. District Judge Shira Scheindlin in New York rejected May 4 the Dusseldorf, Germany-based defendant’s argument that her court didn’t have jurisdiction.
“Plaintiffs contend that the primary means to carry out that fraud involved forming Rhinebridge and launching it in New York,” Scheindlin wrote. The judge’s 29-page decision didn’t address the merits of the underlying lawsuit.
Joerg Chittka, a spokesman for IKB, had no comment.
IKB almost collapsed before being bailed out in 2007 by KfW Group and banking associations. It has received guarantees of as much as 12 billion euros ($15.5 billion) from the German government’s Soffin bank-rescue fund.
The bank was an investor in the collateralized debt obligation known as Abacus, which is at the center of a U.S. Securities and Exchange Commission lawsuit against Goldman Sachs Group Inc. filed last month. The German lender lost almost all of the $150 million it invested in the CDO, according to the SEC. Goldman Sachs has denied any wrongdoing.
Scheindlin last month denied dismissal requests filed by IKB co-defendants Moody’s Corp. and McGraw-Hill Cos.’ Standard & Poor’s unit, alleging they had misled investors about Rhinebridge.
The case is King County, Washington v. IKB Deutsche Industriebank AG, 09-8387, in the Southern District of New York (Manhattan).
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Schwab Agrees to Pay Extra $35 Million in Bond-Fund Settlement
Charles Schwab Corp. said it agreed to pay an additional $35 million to settle claims that the online brokerage misled investors who owned it Schwab YieldPlus Fund.
The settlement covers claims in California, which weren’t included in the $200 million that San Francisco-based Schwab agreed to pay on April 20, according to a statement yesterday. Schwab said yesterday’s announcement boosts its litigation reverse by $14 million pretax. Combined with the settlement two weeks ago, Schwab’s first-quarter results are reduced to a loss of $1 million, or breakeven on a per-share basis, according to data compiled by Bloomberg.
The claims, filed in 2008, said Schwab incorrectly described the fund, once the world’s largest short-term bond fund, as “safe” and misled investors on the amount of mortgage-backed securities held. Schwab, which didn’t admit liability as part of the settlement, blamed the fund’s losses on the collapse of financial markets due to the subprime crisis.
The case is In Re Charles Schwab Corp. Securities Litigation, 08-cv-01510, U.S. District Court, Northern District of California (San Francisco).
Merck Wins Second Fosamax Trial on Jaw Death Claims
Merck & Co. won the second case to go to trial over claims its osteoporosis drug Fosamax causes so-called jaw death.
Louise Maley of Muncie, Indiana, said she developed osteonecrosis of the jaw, or ONJ, by taking Fosamax, in a complaint filed in May 2006. A federal jury in Manhattan ruled yesterday that Maley didn’t have ONJ.
“Unfortunately, the plaintiff had multiple medical conditions that cause people to develop the jaw and dental problems she claims she has, regardless of whether they were taking Fosamax,” Christy D. Jones, a lawyer for the drugmaker at Butler, Snow, O’Mara, Stevens & Cannada PLLC in Jackson, Mississippi, said in a statement after the verdict.
The trial, overseen by U.S. District Judge John Keenan, began April 19. In September, Keenan declared a mistrial in the first Fosamax case to go to a jury over claims that the drug might hamper blood flow to the jaw, causing jawbone-tissue death. That jury couldn’t reach a unanimous verdict. The case is to be retried in June.
“We asked for $100,000,” said O’Brien, Maley’s lawyer. “Merck spent over $2 million trying the case. The shareholders really need to wonder when is this going to end. Why has Merck spent more than $100 million defending a little over 1,000 cases?”
O’Brien is with Levin Papantonio Thomas Mitchell Echsner & Proctor PA in Pensacola, Florida.
The case is Maley v. Merck & Co., 06-cv-4110, and the lawsuits are combined in In Re Fosamax Products Liability Litigation, MDL 1789, U.S. District Court, Southern District of New York (Manhattan).
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MF Global Loses Bid to Have $30 Million U.K. Fraud Ruling Cut
MF Global Holdings Ltd.’s London brokerage unit failed in a bid to reduce the approximately 20 million pounds ($30 million) it was ordered to pay a day trader who was deceived about the amount of his trading losses.
The Court of Appeal in London yesterday ruled in favor of former client Raj Gill, saying the lower court’s decision was “impressive.” MF Global was contesting the size of the award.
A London court ruled last year that a former account manager at MF Global misled Gill about the scale of his losses which led him to follow a flawed trading strategy with mistakes worth millions of pounds.
“While this decision has no financial implications for MF Global, we are nevertheless disappointed,” MF Global spokeswoman Diana DeSocio said in a telephone interview. She said the company was “considering its options” with regards to an appeal to the U.K. Supreme Court.
Gill had sought at least 9.3 million pounds over claims that in 2001 and 2002 an MF Global account manager, who has since left the firm, told him he had trading gains when he was losing money. Gill claimed he would have changed his strategy if correct information had been provided. Instead, he wiped out a trading account with almost 10 million pounds.
“MF Global’s conduct today, in again refusing to accept the consequences of fraud by one of its brokers, mirrors its whole approach to this litigation over the past eight years,” Gill said in an e-mailed statement. “It seems they’re just desperately prolonging the inevitable.”
The case is Parabola Investments Ltd. v. Browallia Cal Ltd., 2006-855.
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