Galleon Group LLC co-founder Raj Rajaratnam, facing insider-trading charges, asked a judge to throw out government wiretaps of 2,400 of his conversations and evidence prosecutors gathered after listening to them.
Rajaratnam filed a legal request May 7 in Manhattan federal court, where he faces an October trial in the largest hedge fund insider trading case ever. Along with government witnesses who will testify against Rajaratnam, the wiretaps are a critical piece of prosecution evidence.
Defense attorney John Dowd argued in court papers that prosecutors violated the Constitution by misleading the judge who gave permission to tap Rajaratnam’s mobile-phone calls. Prosecutors misled the judge about the background and reliability of a key government witness, Roomy Khan, and falsely claimed her phone conversations with Rajaratnam included tips based on inside information, according to Dowd.
“In its zeal to break new ground and in an effort to salvage its nine-year pursuit of Mr. Rajaratnam, the government violated its obligation of candor and forthrightness to the court,” Dowd said in the filing. “The government obtained the court’s authorization to use wiretaps based on the sworn affidavit of an FBI agent that was rife with ‘deliberately or recklessly’ false statements.”
The filing seeks to exclude evidence of more than 2,400 of Rajaratnam’s conversations with at least 130 colleagues, employees, friends and family members over nine months in 2008.
If successful in persuading U.S. District Judge Richard Holwell to exclude the wiretap evidence from the trial, Rajaratnam’s lawyers may also seek to argue that some government witnesses who pleaded guilty after being caught on tape should be barred from testifying.
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Top German Court Denies Emergency Ruling on Greek Aid
Germany’s highest constitutional court rejected an attempt by a group of economists and university professors to block the nation’s participation in a 110 billion-euro ($140 billion) aid package for Greece.
The court denied their request for an emergency ruling that would prevent the government from taking any steps as long as the case was pending, the Federal Constitutional Court in Karlsruhe said in an e-mailed statement May 8. An interim ruling would be more damaging to Germany if the rescue measures were later deemed to be constitutional, the court said.
German lawmakers approved May 7 loans of as much as 22.4 billion euros for Greece, with the lower house of parliament in Berlin voting 390 to 72 in favor of the country’s share of the financial lifeline from the euro region and the International Monetary Fund that will allow Greece to avoid default. The upper house, where Germany’s 16 states are represented, also backed the bill.
Unless the government acts now, the whole rescue attempt may be endangered, the court said.
The group of five economists and professors sought the emergency ruling as part of a complaint at Germany’s top court, arguing that the aid package violates the “no bailout-clause” in European Union governing treaties.
BP Spill Suits Won’t Be Expedited for Consolidation
Litigation stemming from the Gulf of Mexico oil spill won’t be put on a fast track for possible consolidation, a judicial panel in Washington ruled.
The Judicial Panel on Multidistrict Litigation denied a motion to expedite the process filed by about 200 lawyers representing people and businesses in Gulf coast region suing BP Plc, Transocean Ltd. and other companies involved in the spill. The panel could decide to put all the cases from separate judicial districts under one proceeding heard by a single judge.
“The panel agrees that the still unfolding oil spill is tragic for so many, and the efficient handling of cases arising from the spill is critical,” Jeffrey Luthi, clerk of the panel, said in an order signed and made public May 7. “The parties and the courts are better served if all affected parties have sufficient time to formulate reasoned responses.”
Luthi said at least 20 related actions have been filed and more are likely. The attorneys seeking the fast-track approval, who represent thousands of commercial fishermen, shrimpers and tourism-related businesses claiming damages from the drifting oil slick, will have their request considered at a hearing in July, the panel ruled.
New Orleans lawyer Daniel Becnel Jr., who provided a copy of the order, said in a May 5 interview that combining the spill lawsuits into a single action before one federal judge in Louisiana could help resolve environmental and economic damage claims quickly. If the cases are consolidated, Becnel plans to ask for an immediate summary judgment, which could allow the claims to be resolved within 90 days, he said.
Becnel didn’t respond to a request for comment on the panel’s decision.
The spill case is Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, U.S. Judicial Panel on Multidistrict Litigation MDL-2179, Washington. The 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).
Zuckerman Suit Against Merkin Over Madoff May Proceed
Mort Zuckerman, chairman of Boston Properties Inc. and publisher of the New York Daily News, can continue his fraud lawsuit against Ezra Merkin and his Gabriel Capital Corp. over $40 million in losses stemming from investments made with Bernard Madoff, a judge ruled.
New York state Supreme Court Justice Richard Lowe denied Merkin’s and Gabriel Capital’s motion to dismiss the fraud claim alleging that they failed to disclose Madoff’s role and misrepresented Merkin’s role in managing his Ascot Fund Ltd.
The offering documents “could be construed as misrepresenting that Merkin would be controlling and actively managing the funds, and concealing that Ascot Fund was a feeder fund to Madoff,” Lowe wrote in a May 5 ruling made public May 7.
Lowe dismissed Zuckerman’s negligent misrepresentation claim against Merkin and Gabriel. He also dismissed all claims against accounting firm BDO Seidman LLP, which issued audited financial statements for both Ascot Partners and Gabriel fund, and BDO Tortuga, a Cayman Islands based accounting firm.
In his suit, Zuckerman accused Merkin, the former GMAC Financial Services chairman, of placing his assets with Bernard L. Madoff Investment Securities LLC without his knowledge. Madoff is serving a 150-year prison term after pleading guilty last year to running a $65 billion fraud, the biggest Ponzi scheme ever.
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Ex-Kaupthing CEO and Havilland CEO Placed in Custody
Former Kaupthing Bank hf Chief Executive Officer Hreidar Mar Sigurdsson and Banque Havilland CEO Magnus Gudmundsson were placed in solitary confinement by a Reykjavik court May 7.
Sigurdsson, 39, will be confined for 12 days and Gudmundsson seven days, after special prosecutor Olafur Thor Hauksson told the court that the measure was needed to protect the integrity of an investigation into Kaupthing’s collapse. Sigurdsson and Gudmundsson, the former CEO of Kaupthing’s Luxembourg unit, were arrested May 6 on suspicion of forgery and market manipulation.
Kaupthing Bank hf, 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.
“The arrests are a large milestone in the resurrection of Iceland’s society,” Prime Minister Johanna Sigurdardottir told reporters in Reykjavik May 7. “It’s crucial that the players in the collapse are held accountable. I’m still of the opinion that the lending practices of Kaupthing were either unethical or illegal.”
Gudmundsson will appeal the ruling to Iceland’s Supreme Court, said a spokeswoman for his lawyer, Karl Axelsson. Hordur Felix Hardarson, Sigurdsson’s lawyer, couldn’t be reached to comment.
Luxembourg-based Banque Havilland, formerly a Kaupthing unit, said in a statement that Gudmundsson was relieved of his duties and Jonathan Rowland will become the bank’s sole CEO.
Sigurdsson, 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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Lions Gate Appeal of Poison-Pill Ruling Is Dismissed
Lions Gate Entertainment Corp.’s appeal of a regulator’s ruling that voided a poison pill designed to thwart Carl Icahn’s hostile takeover bid for the film studio was dismissed by a British Columbia court.
A three-judge panel of the Canadian province’s Court of Appeal led by Judge Kenneth Smith decided on May 7 that last month’s ruling by the British Columbia Securities Commission wasn’t unreasonable and was in step with previous decisions by securities regulators.
“The Icahn group is very pleased with the decision,” said Mark A. Gelowitz, a Toronto-based lawyer representing the billionaire U.S. investor.
Peter A. Gall, a lawyer for Lions Gate, had argued the commission’s ruling wasn’t reasonable because voiding the poison pill would deny shareholders the right to act collectively to protect their interests. Gall declined to comment after the dismissal.
The court’s upholding of the commission’s ruling removes one impediment to Icahn’s $7-a-share tender offer, which values the maker of “Saw” and “Tyler Perry” films at about $826 million. Lions Gate, based in Vancouver, is urging investors to reject Icahn’s bid.
The poison pill, or shareholder rights plan, was designed to make a hostile takeover more expensive by offering investors additional stock at a discount. In a statement, the securities commissions said it voided the film studio’s poison pill because it had “exhausted its usefulness and there was no justification for its continuation.”
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Former Integrity Bank Executives Charged With Fraud, Bribery
Two former executives of Integrity Bank and a hotel developer were charged with conspiracy, bribery, bank fraud and securities fraud related to $80 million in loans, according to a federal indictment unsealed in Atlanta.
Douglas Ballard, 40, and Joseph Todd Foster, 42, both former Integrity Bank executives from Atlanta, and hotel developer Guy Mitchell, 50, of Coral Gables, Florida, were scheduled to be arraigned May 7 in U.S. District Court in Atlanta before Magistrate Judge Gerrilyn Bell, according to a statement from the Department of Justice.
From 2004 to 2007, Mitchell and companies he controlled allegedly obtained more than $80 million in business loans from Integrity Bank under false pretenses, according to the indictment. Mitchell allegedly deposited almost $20 million of these business loans in a personal checking account and used the money on personal luxuries, including more than $1.5 million on a private island in the Bahamas.
“These officers of Integrity Bank sure weren’t living up to the bank’s name,” U.S. Attorney Sally Quillian Yates said in a statement. “After passing out $80 million to the developer like it was monopoly money, both officers dumped their Integrity stock before the failed loans came to light. While the developer was living the good life, even buying a private island with Integrity’s money, and the bank’s senior loan officer was making huge commissions and taking payoffs from the developer, the bank was dying a slow death.”
Federal regulators seized Integrity Bank in August 2008, at an estimated cost to the Federal Deposit Insurance Corp.’s insurance fund of $250 million to $350 million. Regions Bank, based in Birmingham, Alabama, took over Integrity’s operations and deposits.
KPMG Manager Faces New Bribery Charge in Hong Kong
KPMG senior manager Leung Sze-chit was charged May 7 with accepting a HK$300,000 ($38,560) bribe in connection with the accountant’s report in the initial share offering prospectus of Hontex International Holdings Co.
Hong Kong’s Securities and Futures Commission said April 8 the Chinese fabric maker included false and “materially overstated” information in its prospectus. Hontex raised almost HK$1 billion in a share sale last year, funds the SFC is trying to recover for investors in a legal action.
The Independent Commission Against Corruption separately charged Leung with offering HK$100,000 to a subordinate in the case, the agency said April 8.
A new charge filed May 7 accuses Leung, 32, of taking a bribe. Alan Tse, an information officer at the ICAC, declined to say who allegedly had paid Leung.
Fion Ko, Hontex chief financial officer, said she was “not in a position to comment on the case,” when reached by phone May 7, citing ongoing investigations.
KPMG said after the first charge against Leung was filed that the firm had discovered problems in the matter and reported them to the ICAC. KPMG said Leung had been suspended from duties, adding in a statement May 7 it “has been and continues to cooperate fully with the authorities.”
Leung didn’t enter a plea May 7, pending the transfer of his case to District Court on May 28.
The case is ESCC1403/2010 in the Hong Kong Eastern Magistracy.
Ex-AKO Capital Trader Charged With Insider Trades Faces Trial
A former trader at AKO Capital LLP, a London-based hedge fund, faces a trial on an insider-trading charge, a U.K. magistrate said May 7.
The City of Westminster Magistrates’ Court sent the case, filed by the U.K. Financial Services Authority, for trial and said Anjam Ahmad, 39, could remain on bail. The next hearing will take place next week.
Ahmad faces as long as seven years in jail if a jury finds him guilty. He is charged with one count of conspiracy to commit insider dealing relating to transactions involving 22 different companies between June and August 2009, according to the FSA. He was at AKO Capital until September 2009, according to FSA data.
Ahmad didn’t enter a plea. AKO Capital hasn’t been accused by the FSA, the hedge fund said last month.
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Barclays Sought Safety in Lehman Deal, Ricci Says
Barclays Plc protected itself when it bought Lehman Brothers Holdings Inc.’s defunct brokerage by focusing on the “maximum exposure” it was taking on in the falling markets of September 2008, a bank executive said.
“Markets were very depressed and going one way -- downward,” Rich Ricci, co-chief executive of Barclays’s corporate and investment bank, told a bankruptcy judge in New York May 7. “We wanted to make sure we had protection in case things went wrong.”
Ricci testified in a trial of Lehman’s claim that Barclays should pay it as much as $11 billion for an allegedly undisclosed “windfall” on the brokerage. The deal closed a week after Lehman’s September 15, 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 hedge funds and other institutional clients.
Ricci was responding to questions from Lehman lawyer Robert Gaffey about “parameters” Barclays’s board had set him as lead negotiator on the deal.
“We certainly intended to have a gain,” Ricci said. “The board wanted us to protect the bank’s capital.” At the same time, he said, “We were looking to pay fair value” for Lehman’s assets.
Lehman and its creditors claimed in lawsuits they found new evidence of an asset “raid” by Barclays that wasn’t disclosed to Lehman’s advisers or the court. Barclays, which announced a gain on its purchase on Sept. 17, 2008, is trying to prove the Lehman advisers knew all the terms of the deal at the time and could have told the judge.
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Teva, Baxter Will Fight $500 Million in Damages Over Propofol
Teva Pharmaceutical Industries Ltd., the world’s biggest maker of generic drugs, said it will appeal a Las Vegas jury’s award of $356 million in punitive damages against a subsidiary over its propofol drug, which is used to sedate surgery patients.
The jury also awarded $144 million in punitive damages against Baxter International Inc., which distributed propofol, said Kellie Hotz, a Baxter spokeswoman. Baxter plans to appeal, too.
“Teva believes that there are numerous grounds for appeal, and plans to contest the verdict vigorously,” according to a statement issued by the company.
Hotz said the case involved “product misuse related to unsafe clinical practices, as opposed to an issue with a widely used and clearly labeled product.”
“Jurors were not allowed to hear a number of compelling facts related to unsafe clinical practice at the root of the issue, Hotz said in an e-mail. “We expect this verdict will be successfully appealed.”
Propofol is an intravenous agent used for sedation or anesthesia, according to Teva’s website.
The Associated Press reported that the verdict was issued in the first of hundreds of civil lawsuits stemming from a hepatitis C outbreak two years ago. Nevada health officials have blamed the reuse of vials of propofol for infecting patients with the incurable liver disease, AP said.
The label for propofol clearly states that it is for single-patient use only and that aseptic procedures should be used at all times, Petah Tikva, Israel-based Teva said in its statement. The company said it acted responsibly.
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Countrywide, KPMG May Pay $624 Million, DiNapoli Says
Countrywide Financial and KPMG LLP have agreed to pay $624 million to settle a lawsuit that accused the mortgage lender of securities fraud, New York Comptroller Thomas DiNapoli said.
The settlement, if approved by U.S. District Judge Mariana Pfaelzer in Los Angeles, would provide as much as $15 million to pensions covering state and New York City workers, fund representatives said May 7. The funds led the class-action lawsuit against the mortgage lender.
Countrywide exposed investors to “excessive, undisclosed risk” and “violated securities laws by making misstatements and omitting material facts about its policies and procedures” for lending, according to a statement from DiNapoli’s office. The lender is now part of Bank of America Corp.
The New York State Common Retirement Fund, with $129.4 billion in assets, may recover as much as $10 million, said Robert Whalen, a DiNapoli spokesman. Five separate city pension funds, which hold assets of $105 billion, stand to get about $5 million, said Kate Ahlers of the city Law Department.
Countrywide has agreed to pay $600 million and KPMG, an accounting firm, would pay $24 million, DiNapoli said. He is the sole trustee of the state’s pension fund.
“Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws,” Norton said in a statement. Information “that plaintiffs contended was not disclosed to investors had in fact been disclosed in multiple ways, including through regular investor forums,” Norton said. She said the lender agreed to settle to avoid further costs.
“The settlement concludes the securities class action,” said George Ledwith, a KPMG spokesman.
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Reliance Industries Gets Favorable Ruling in Gas Feud
India’s top court ruled in favor of billionaire Mukesh Ambani’s Reliance Industries Ltd. in a dispute between the world’s richest brothers over gas from a field with $38 billion of reserves.
The Supreme Court in New Delhi said the company can sell gas to Anil Ambani’s Reliance Natural Resources Ltd. at government-set prices that are higher than those in a 2005 family accord. It asked the parties to renegotiate their contract within six weeks after talks begin.
Reliance Industries had its biggest gain in six months as the ruling may spur India’s biggest company by value to explore for more fuel, easing shortages in Asia’s third-largest energy consumer. The verdict may also encourage investment in India after Exxon Mobil Corp. and Royal Dutch Shell Plc shunned auctions of gas and oil blocks in part because of the Ambani case and state control of fuel prices.
“It’s a relief,” said Taina Erajuuri, who helps manage more than 1 billion euros ($1.3 billion) of emerging market stocks at Helsinki-based Fim Asset Management, including Reliance Industries. “Of course it’s not completely over. They still have to negotiate, which is what they should’ve done in the first place.”
The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.
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Ex-Refco Board Members Agree to Forfeit $39 Million
Two former board members of Refco Inc. agreed to forfeit $39 million the government said was traceable to the fraud at the company, once the biggest independent U.S. futures firm.
The settlement with William L. Graham and Edwin L. Cox Jr. was filed May 6 in federal court in New York. The U.S. Attorney’s Office in Manhattan will ask that the money “be made available to innocent victims of the Refco fraud to compensate their losses,” according to the settlement.
Refco was closely held until August 2005, when it raised $670 million in an initial public offering. Two months later, the company collapsed in bankruptcy after disclosing that Chief Executive Officer Phillip Bennett owed it hundreds of millions of dollars. Bennett pleaded guilty to bank fraud and money laundering and is serving a 16-year sentence.
Graham’s lawyer, Marc A. Weinstein at Hughes Hubbard & Reed LLP in New York, and Cox’s lawyer, Steven G. Kobre at Kobre & Kim LLP in New York, didn’t return calls for comment.
The case is U.S. v. $35,100,000 in United States Currency, 10-cv-3743, U.S. District Court, Southern District of New York (Manhattan).
Ex-Cazenove Partner Calvert Must Forfeit $770,000, Judge Says
Malcolm Calvert, the former partner at JPMorgan Chase & Co.’s Cazenove unit who is serving a 21-month sentence for insider trading, must forfeit 524,000 pounds ($770,000) a London judge ruled May 7.
Judge Peter Testar issued a 474,000-pound confiscation order over trades made with inside information, and said Calvert must pay another 50,000 pounds to cover the cost of his prosecution. At an earlier hearing, the FSA had asked for almost 500,000 pounds in costs.
Calvert was convicted in March. It was the FSA’s third criminal insider-trading case to reach a jury trial.
Harvey Dyson, Calvert’s lawyer, said he planned to appeal the order. He has already lodged an appeal against Calvert’s sentence and conviction.
Calvert left Cazenove before it began its 2004 joint venture with JPMorgan. The New York-based bank last year bought Cazenove’s remaining shares making it a wholly owned unit.
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Shareholder Suit Against Goldman Tops Bloomberg System Chart
The suit against Goldman Sachs Group Inc. brought by shareholders over a collateralized-debt obligation known as Abacus 2007-AC1 was the most-read litigation docket on the Bloomberg Law system last week.
Goldman Sachs didn’t disclose the truth about Abacus or the bank’s financial condition, investors said in the complaint filed April 26 in federal court in Manhattan. “As news of Goldman’s misconduct reached the market, Goldman stock immediately plummeted,” according to the complaint.
The suit followed one by the U.S. Securities and Exchange Commission, which sued Goldman Sachs on April 16, over the Abacus CDO. That case centers on whether the New York-based firm should have told investors that hedge fund Paulson & Co. helped pick underlying securities in the CDO -- and then bet against it. Paulson wasn’t accused of wrongdoing.
The case is Richman v. Goldman Sachs Group Inc., 10-03461, U.S. District Court, Southern District of New York (Manhattan).