Kaupthing, Yucaipa, Galleon, Goldman Sachs, JPMorgan, Pfizer in Court News

Hreidar Mar Sigurdsson, the former chief executive officer of Kaupthing Bank hf, was arrested after an investigation into the collapse of Iceland’s largest bank, two people familiar with the probe said.

Reykjavik police arrested one person, who they didn’t identify, on suspicion of forgery, market manipulation and violating the law in pursuit of personal financial gain, Iceland’s special prosecutor said in a statement.

The individual is being held in solitary confinement to protect the integrity of the investigation, the prosecutor said. The probe is supported by information from the Financial Supervisory Authority and other data, according to the statement.

State television later showed video of Magnus Gudmundsson, the CEO of Luxembourg-based Banque Havilland, a former Kaupthing unit, in police custody. Gudmundsson is being detained at the Reykjavik Police Department, according to a duty officer, who declined to be identified citing department policy.

Kaupthing, Glitnir Bank hf and Landsbanki Islands hf collapsed in October 2008 after they amassed $61 billion of debt, equivalent to 12 times the country’s gross domestic product. The government took over the three banks and was forced to seek an International Monetary Fund bailout as its currency lost as much of 80 percent of its value.

Sigurdsson’s lawyer, Hordur Felix Hardarson, declined to comment on the arrest when reached by telephone. Karl Axelsson, Gudmundsson’s attorney, was in bed and couldn’t be disturbed, his wife said when contacted by Bloomberg News.

Sigurdsson, 39, who led Kaupthing as it expanded overseas, was forced to step down after the government seized his bank. He defended himself in an Aug. 20 interview, saying Kaupthing officials believed all the loans they made were “good, well- secured loans.”

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Burkle’s Yucaipa Sues Barnes & Noble Over Poison Pill

Ron Burkle’s Yucaipa Cos. sued Barnes & Noble Inc., demanding a change to the bookseller’s so-called poison-pill defense and accusing Chairman Leonard Riggio’s family of using the retailer as a “personal piggy bank.”

Under the defense, adopted in November, Barnes & Noble can issue rights for additional shares if any outside investor accumulates 20 percent or more of the stock. The provision is also triggered if parties who together own 20 percent or more of the stock act in concert to nominate directors, according to the complaint, filed May 5 in Delaware Chancery Court in Wilmington.

Yucaipa claims that the measure unfairly exempts the Riggio family, which owns about 30 percent of the shares. Burkle’s companies hold about 19 percent, making him the biggest outside investor. Yucaipa asked the court either to throw out the 20 percent threshold or to bar the Riggios from exercising voting rights beyond the 20 percent imposed on other shareholders.

“The B&N board has not identified any material benefit to the company’s public stockholders in adopting the poison pill,” Los Angeles-based Yucaipa said in the complaint. “Yet the benefits to the Riggio family and the board in ensuring that they will remain in control and office are obvious.”

Barnes & Noble, the biggest U.S. bookstore chain, called the suit meritless. The plan “is intended to protect our shareholders from actions that are inconsistent with their best interests,” the board said in an e-mailed statement.

The case is Yucaipa American Alliance Fund II LP v. Riggio, CA5465, Delaware Chancery Court (Wilmington).

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Swiss Prosecutor Charges Holenweger With Bribery

Swiss prosecutors charged Oskar Holenweger with money laundering, bribery, falsifying bank documents and mismanaging client assets.

He used fictitious accounting and transferred money between off-shore companies to hide the origin of bribes, according to statement yesterday from Swiss Federal Prosecutors.

Holenweger, who managed the private bank formerly owned by the Sandoz Family Foundation, is the Zurich banker named only by the initial ‘H’ in the statement, said Jeannette Balmer, a spokeswoman for the prosecutors.

Holenweger was arrested after accepting money from an undercover investigator, prosecutors said. Investigators then allegedly discovered files indicating Holenweger hid accounts to help a French industrial company, which prosecutors didn’t identify, bribe foreign officials and win projects.

Balmer declined to name Holenweger’s lawyer. A call to a phone number listed for an Oskar Holenweger in Maennedorf, outside the city of Zurich, wasn’t answered.

Lorenz Erni, the Zurich-based lawyer that the Tages- Anzeiger newspaper has previously said represented Holenweger, wasn’t available to comment.

Holenweger bought Tempus Private Bank Ltd. from the heirs of drugmaker Sandoz’s founding family in 1998. He sold Tempus to M.M. Warburg & Co. KGaA in 2004, after spending 48 days in custody. The four charges each carry a maximum penalty of 5 years in prison.

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Lawsuits/Pretrial

Chiesi’s Challenge to Wiretaps to Be Filed Under Seal

Danielle Chiesi, the New Castle Funds LLC consultant who faces a trial for insider trading, won a judge’s permission to file a confidential legal brief that will seek to exclude evidence of wiretaps.

The brief is due to be filed today.

U.S. District Judge Richard Holwell yesterday approved Chiesi’s request to file the brief under seal, after her lawyers said their filing will have “substantial and extended references” to the government’s wiretap applications and the intercepted conversations.

On April 28, Chiesi’s co-defendant in the insider trading case, Galleon Group LLC co-founder Raj Rajaratnam, won a ruling from Holwell keeping wiretap applications confidential. Those records may become public if the judge rules that they are admissible as evidence at the trial.

Rajaratnam and Chiesi are charged with illegally using tips from company executives, hedge fund officials and other insiders to earn millions of dollars. Eleven people have pleaded guilty in the probe.

The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).

Goldman Sachs’s Gupta Did Business With Galleon’s Rajaratnam

Rajat Gupta, the Goldman Sachs Group Inc. director who is being investigated by U.S. authorities over his links to Galleon Group LLC founder Raj Rajaratnam, had a long-standing business relationship with the billionaire hedge fund manager.

Interviews, public records, lawsuits and regulatory filings show a 13-year history of co-investing and other business collaborations between Gupta, 61, the former worldwide head of consulting firm McKinsey & Co., and Rajaratnam, 52, the central figure in the Galleon insider trading probe.

Rajaratnam has a stake in a fund managed by New Silk Route NSR Partners LLC, founded by Gupta and three others in 2006 to invest in South Asian companies, according to a New Silk Route spokeswoman. The fund owns stakes in at least 11 Indian companies, including cell phone tower operator Reliance Infratel Ltd. and the Cafe Coffee Day chain.      “Mr. Rajaratnam has had a well-known relationship with Mr. Gupta for many years, and it is one that he is both proud and fond of,” Rajaratnam’s spokesman, Jim McCarthy, said May 5 in a statement. “Their association as investors has led to many successful ventures around the world and made a large and positive impact for a long list of worthy businesses and charities. But just as important, they have always conducted those efforts with integrity and diligent attention to sound, ethical practices.”

Rajaratnam, who was arrested Oct. 16, is fighting criminal charges and U.S. Securities and Exchange Commission civil claims that he used inside information to trade shares of companies including Advanced Micro Devices Inc. He denies any wrongdoing.

U.S. investigators are examining whether Gupta tipped off Rajaratnam to a $5 billion investment in Goldman Sachs by Warren Buffett’s Berkshire Hathaway Inc., a person with direct knowledge of the inquiry said April 23.

Gupta’s attorney, Gary Naftalis of Kramer, Levin, Naftalis & Frankel LLP, denied that his client had done anything wrong.

“During the course of his long career, Rajat Gupta has been involved with many business dealings and philanthropic activities,” Naftalis said in a May 4 statement. “In all his activities, he has always conducted himself with unquestioned integrity.”

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Trials/Appeals

Berlusconi Prosecutor Takes on Wall Street in Milan

For Milan prosecutor Alfredo Robledo, challenging Wall Street firms in court may prove tougher than taking on Italian Prime Minister Silvio Berlusconi.

Robledo, who helped former Federal Reserve Chairman Paul Volcker investigate the United Nations’ oil-for-food program, planned to outline fraud charges against Deutsche Bank AG, Depfa Bank Plc, JPMorgan Chase & Co. and UBS AG at a trial that started yesterday in Milan. The banks first sold interest-rate swaps in 2005 to the city on 1.7 billion euros ($2.1 billion) of bonds.

The trial is the first criminal case in which investment banks are accused of deliberately misleading cities on swaps, derivatives contracts that are hurting taxpayers from Milan to Jefferson County, Alabama. The firms and 11 bankers are charged with fraud and the banks are accused of earning 101 million euros by misleading Milan, Italy’s business capital. Two former city officials are on trial for collusion.

“The problem with a case like Milan is there are big gray areas because the standards for banks aren’t clear,” said Peter Shapiro, managing director of South Orange, New Jersey-based Swap Financial Group LLC, which advises local entities on derivatives. “A conviction could lead regulators to adopt clearer rules.”

At yesterday’s hearing, the city and about a dozen consumer groups filed requests to seek damages from the banks. Judge Oscar Magi was assigned the case, which was adjourned to May 19.

“Our accusation is that the four banks through their bankers convinced the city to enter derivatives agreements through improper means,” said Robledo, a 59-year-old from Naples, in a May 3 interview.

“UBS confirms once more its position that no fraud was committed by UBS nor by any of its exponents to the detriment of the city of Milan,” the Zurich-based company said in a May 4 e- mail. Deutsche Bank in Frankfurt said it’s confident it will be cleared, and Hypo Real Estate Holding AG of Munich said neither Depfa Bank nor its employees “violated any law or regulation.”

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Pfizer Wins New Trial of Lawsuit Over Menopause Drugs

A Pfizer Inc. unit won a re-trial of a Pennsylvania lawsuit over its menopause drugs that ended in a first jury’s award of $1.5 million in damages, the company said.

A Philadelphia judge ruled May 5 that lawyers for the plaintiff, Merle Simon, must ask another jury to consider whether Pfizer’s Pharmacia & Upjohn subsidiary hid the health risks of its Provera hormone-replacement drug. In December, an appeals court reinstated Simon’s original verdict after it was thrown out by the trial court, giving the judge the option of ordering a new trial.

“We anticipate we have a good opportunity to win another verdict on behalf of Mrs. Simon,” Jim Morris, one of the woman’s lawyers, said in a telephone interview. “We intend to push forward with this case until justice is served.”

More than 6 million women have taken hormone-replacement medicines to treat menopause symptoms such as hot flashes, night sweats and mood swings. Until 1995, many patients combined Premarin, an estrogen-based drug made by Wyeth, with progestin- laden Provera, made by Upjohn.

Wyeth later combined the two hormones in Prempro. The drugs are still on the market. New York-based Pfizer, the world’s largest drugmaker, completed its $68 billion purchase of Wyeth in October.

“We are pleased with the judge’s ruling as we believe a new trial is appropriate given the facts of this case,” Chris Loder, Pfizer’s spokesman, said in an e-mailed statement yesterday.

The case is Simon v. Wyeth, 040604229, Court of Common Pleas (Philadelphia).

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Verdicts/Settlements

Countrywide Settles With Private-Placement Investor

Countrywide Financial Corp., the mortgage lender acquired by Bank of America Corp., and three of its former executives said they will settle a securities-fraud lawsuit brought by a private-placement investor.

The investor, Argent Classic Convertible Arbitrage Fund LP, said in a joint court filing with Countrywide, former Chief Executive Officer Angelo Mozilo, former Chief Operating Officer David Sambol and former Chief Financial Officer Eric Sieracki that they agreed to “resolve this matter amicably.”

U.S. District Judge Mariana Pfaelzer in Los Angeles kept the Argent lawsuit separate from the Countrywide securities class-action case led by a group of New York retirement funds because of the “unique issues” involved with securities sold through private placement. Settlement terms weren’t disclosed in the May 4 request to dismiss the case.

Countrywide and the other defendants agreed to pay more than $600 million to settle the class-action case filed by the New York State Common Retirement Fund and other investors, people familiar with the case said last month. Both the Argent and pension fund lawsuits accused Mozilo and the other executives of lying about the mortgage lender’s deteriorating financial situation.

The Argent fund sued in 2007, seeking to represent investors who bought $4 billion in Countrywide convertible debt through private placement. Pfaelzer in December denied a request to certify the case as a class-action, or group, lawsuit because, she said, there weren’t enough investors.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment. Vincent Cappucci, a lawyer for Argent, and David Siegel, a lawyer for Mozilo, didn’t return calls seeking comment yesterday.

The case is Argent Classic Convertible Arbitrage Fund v. Countrywide, 07-07097, U.S. District Court, Central District of California (Los Angeles.)

Nicholson, Facing Almost 25 Years Behind Bars, Suggests Nine

Westgate Capital Management LLC founder and President James Nicholson, who pleaded guilty to defrauding investors in a Ponzi scheme, wants a judge to consider a sentence of nine years in prison instead of maximum 24 1/2 years.

Nicholson said in a court filing in Manhattan federal court May 5 that under federal sentencing guidelines, he faces between 19 1/2 to 24 1/2 years in prison when sentenced on June 30. That’s largely because investors lost between $20 million and $50 million in his scheme, his lawyer says. Nicholson is urging the judge to weigh a lesser sentence of nine to 11 1/2 years.

“Nicholson was initially accused of operating a massive ‘Ponzi scheme’ which allegedly defrauded hundreds of investors out of $600 to $900 million,” his lawyer, Erika Edwards, wrote in a legal brief. “However, as the government’s investigation progressed, it realized that Nicholson’s loss amount was far less and it was nowhere near the Madoff-type of ‘Ponzi scheme’ they had originally reported.”      In their own legal brief May 5, prosecutors said Nicholson’s fraud cost investors $141 million and challenged his calculations. The brief focused only on the amount investors lost and doesn’t focus on a proposed sentence.

At his December guilty plea, Nicholson, who lives in Saddle River, New Jersey, admitted he lied to investors about stock trades, the returns on his investments and the amount he had under management. He said he controlled $50 million to $60 million while telling investors he had $900 million under management, prosecutors said.

In court, he said some of his lies came in 2004 and some after the collapse of Lehman Brothers Holdings Inc. in September 2008 cost his firm large losses.

In the legal brief, Nicholson’s lawyer argues that the recommended sentencing guideline should be nine to 11 1/2 years. The guidelines aren’t mandatory, and at sentencing Edwards has the right to argue for an even lesser sentence.

Janice Oh, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment.

The case is U.S. v. Nicholson, 09-cr-414, 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 eamon2@bloomberg.net.

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