Transocean, Rajaratnam, Goldman, UBS, Conventree, J&J, Kagan in Court News

Transocean Ltd., the owner and operator of the oil rig leased to BP Plc that exploded last month and killed 11 workers, asked a U.S. judge to limit its liability to $26.7 million.

The request, filed yesterday in Houston federal court under a 150-year-old law originally designed for the shipping industry, applies to all litigation the company faces over the explosion and subsequent oil spill.

“I think there are more than 100 cases now,” Guy Cantwell, Transocean’s spokesman, said in a telephone interview.

The Deepwater Horizon drilling rig off the coast of Louisiana exploded on April 20 and sank two days later. Transocean and co-owners of the Deepwater Horizon, which now lies wrecked a mile deep in the Gulf of Mexico, say the state- of-the-art rig has a present value of zero and had accrued almost $27 million in unpaid rental fees before it exploded.

The company also asked that all litigation against the rig owners be consolidated before one federal judge in Houston, where Transocean’s U.S. operations are based. Vernier, Switzerland-based Transocean said it would create a court- administered fund, equal to the unpaid fees, from which all claims against the company could be paid on a pro-rata basis.

Lawyers for victims of the rig disaster and spill said that while Transocean’s move to limit its liability probably wouldn’t succeed, it could cause the oil spill litigation to be consolidated into a single multidistrict proceeding in federal court in Houston, as BP has also requested.

Transocean denied responsibility for the explosion and spill and said the Deepwater Horizon, known as a mobile offshore drilling unit, was “in all respects seaworthy” and properly maintained and staffed.

The case is In Re The complaint and petition of Triton Asset Leasing GmbH, 4:10-cv-01721, U.S. District Court, Southern District of Texas (Houston).

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Rajaratnam Again Seeks to Block Stock Trade Evidence

Raj Rajaratnam, the founder of hedge fund firm Galleon Group LLC who faces insider trading charges, again asked a judge to bar prosecutors from admitting evidence at his trial of trades in 22 companies that prosecutors didn’t initially cite in the case.

Rajaratnam was indicted for making illegal trades in 12 stocks. In March and April, prosecutors said they planned to offer evidence at Rajaratnam’s October trial of his suspect trades in 22 more companies, including Goldman Sachs Group Inc. Rajaratnam’s lawyers previously asked to exclude evidence of the additional companies and reiterated the request yesterday.

“An ambush it was,” defense attorney John Dowd wrote in a six-page legal brief, referring to the disclosure of additional companies. The 22 new companies “were not mentioned at all” in the indictment.

Rajaratnam is the central figure in a wide-ranging inside trading probe that has led to criminal charges against 21 people in two overlapping cases. Eleven people have pleaded guilty, including the four other defendants arrested with Rajaratnam and Danielle Chiesi on Oct. 16.

Rajaratnam is accused of using secret tips from hedge fund executives, corporate officials and other insiders to earn millions of dollars in illegal stock trades. He has denied the charges.

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

Toyota Plaintiffs’ Lawyers Jockey to Lead Lawsuits

Several dozen lawyers asked a federal judge in California yesterday to appoint them to leadership positions over lawsuits against Toyota Motor Corp. related to sudden acceleration.

Toyota, the world’s largest automaker, faces at least 228 federal and 99 state lawsuits, including proposed class actions over economic loss and claims of personal injuries or deaths caused by sudden-acceleration incidents. The federal lawsuits were combined April 9 in a multidistrict litigation, or MDL, before U.S. District Judge James V. Selna in Santa Ana, California.

Attorneys from more than 70 firms filed requests seeking to be appointed by Selna as lead counsel or committee members for the litigation, the judge said in court papers May 11. He heard applicants’ arguments at an initial organizing conference yesterday. Selna said he will rule by May 17.

The Toyota City, Japan-based company has recalled more than 8 million vehicles for fixes related to sudden, unintended acceleration. The automaker announced in September that it was recalling 3.8 million Toyota and Lexus vehicles because of a defect that may cause floor mats to jam accelerator pedals. The company later recalled vehicles over defects involving the pedals themselves.

“Toyota is confident the legal process will be conducted with integrity and fairness,” the company said yesterday in a statement on the opening of the litigation. “Recently we have seen instances where the facts did not support the initial claims and sensational reports. In the best interest of all those involved, it’s important to keep this in mind as the case proceeds and facts are presented.”

The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).

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New Suits

EBay Sellers Allege PayPal Improperly Holds Funds

Two EBay Inc. customers sued the company alleging that its PayPal payments unit improperly freezes sellers’ funds for as long as 180 days without adequately explaining why customers can’t access their money.

EBay tells customers that the holds are for security issues or suspicious activity, according to a complaint alleging unfair business practices that was filed yesterday in federal court in San Francisco. Users have been unable to get the hold lifted after complaining and providing documentation and personal information, according to the complaint.

Sellers are told that they must obtain a subpoena or court order to find out why their accounts are on hold, according to the complaint. EBay retains the interest that has accrued when the funds are returned, the customers said.

“We haven’t yet been served with the lawsuit and are therefore unable to comment on the matter specifically,” Anuj Nayar, an EBay spokesman, said in an e-mail. “However, our policies are standard in the industry and we believe they comply with all applicable laws.”

The case is Osman v. EBay, 10-2046, U.S. District Court, Northern District of California (San Jose).

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Legal Reviews

Banks’ Municipal Debt Trades Face Preliminary Probe, WSJ Says

U.S. regulators are exploring possible conflicts of interest for banks that sold municipal bonds and bet the securities would fail, the Wall Street Journal reported, citing unidentified people familiar with the matter.

The U.S. Securities and Exchange Commission and state authorities opened a preliminary probe into municipal credit- default swap trades by banks, the newspaper said. The inquiry seeks to determine whether banks used their own capital to bet against bonds they sold and if the practice was disclosed properly to buyers, the newspaper said.

The municipal bond investigation may not lead to any final action, the Wall Street Journal said. All the banks declined to comment on the SEC probe and a related inquiry by California, the report said.

Last week, California Treasurer Bill Lockyer asked six banks how much they earned by betting against the state’s bonds, according to the report. He sent letters to Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, the newspaper said. In March, Lockyer questioned how the same banks marketed contracts used to bet against municipal bonds.

Clare Williams, Barclays Asia-Pacific spokeswoman, Rob Stewart, a Bank of America spokesman, and Citigroup’s Asian spokesman James Griffiths all declined to comment. E-mails to the other three banks seeking comment weren’t returned.

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Banks, Rating Companies Said to Be Subpoenaed by Cuomo

Goldman Sachs Group Inc., Morgan Stanley, UBS AG and five other banks were subpoenaed by New York Attorney General Andrew Cuomo over whether they misled rating companies about mortgage- backed securities, according to a person familiar with the investigation.

Cuomo is probing the relationships between the banks and the companies, which also were subpoenaed, said the person, who declined to be identified because the investigation is continuing.

The subpoenas were sent May 12, the person said. State and federal regulators since at least 2008 have been looking into why Moody’s Investors Service, Standard & Poor’s and Fitch Ratings gave top grades to subprime-mortgage backed securities and collateralized debt obligations that later plummeted in value.

Subpoenas also went to Credit Suisse Group AG, Deutsche Bank AG, Citigroup Inc., Credit Agricole SA and Merrill Lynch & Co., which was acquired by Bank of America Corp., the person said.

In June 2008, after probing the role of the three ratings agencies in the subprime-mortgage crisis, Cuomo announced settlements that he said included a new fee structure designed to eliminate shopping by investment banks for ratings for residential mortgage-backed securities.

UBS received a subpoena from the New York attorney general and will comply, said Doug Morris, a spokesman.

Michael Duvally, a Goldman Sachs spokesman, and Morgan Stanley’s Mark Lake declined to comment.

Coventree Followed Law in Commercial Paper Sale, Lawyer Says

Coventree Inc., once the biggest seller of non-bank asset- backed commercial paper in Canada, complied with Ontario regulatory law, the company’s lawyer said, denying allegations the bank misled investors.

The Ontario Securities Commission “sought to attribute to Coventree knowledge that it did not have,” Kent Thomson, Coventree’s lawyer, said yesterday at an OSC hearing in Toronto. “One can’t disclose what one does not know.”

OSC lawyer Jane Waechter said May 12 Coventree misled investors about the risks of its commercial paper investments and failed to disclose that institutional buyers, including Caisse de depot et Placement du Quebec, were pulling out of the market on concern that the notes had ties to U.S. subprime mortgages. The market for the notes froze in August 2007.

The OSC filed a statement Dec. 7 alleging that Coventree broke securities law. The commission isn’t seeking specific monetary damages, and any fine would be up to the panel.

The OSC also accused Coventree Chief Executive Officer Geoffrey Cornish and former CEO Dean Tai of misleading investors in April 2007 presentations by telling them that 7.4 percent of its asset-backed commercial paper was tied to U.S. subprime mortgages. That figure actually exceeded 15 percent in some investments and in one case topped 40 percent, the OSC said.

“This is misleading to ABCP investors by omission,” Waechter told the commission panel May 12. “Disclosure is the cornerstone of securities’ regulations.”

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Ex-J&J Unit Executive Wins Appeal of London Jail Time

A former employee at Johnson & Johnson’s U.K. unit who admitted to joining a scheme to pay bribes to Greek doctors had his prison sentence overturned in a ruling that may still limit the U.K. Serious Fraud Office’s ability to offer plea bargains.

The ruling yesterday by the Court of Appeal in London overturns a 12-month prison term given to Robert John Dougall, 44, who agreed with Britain’s SFO to admit his role in the plot and help with the probe in exchange for avoiding jail.

Judges David Clarke and Lloyd Jones said Dougall should have his prison sentence suspended because he cooperated with authorities and didn’t profit from the scheme. They also said the SFO shouldn’t offer such deals to whistleblowers.

“A plea agreement or bargain between the prosecution and the defense, in which they agree what the sentence should be, or present what is in effect an agreed package for the court’s acquiescence, is contrary to principle,” the judges wrote in a 19-page decision.

The ruling is the second to challenge the SFO’s ability to offer plea bargains as it seeks to win court approval for a separate settlement with BAE Systems Plc in a fraud and bribery case. David Corker, a criminal defense lawyer at Corker Binning in London, said the ruling is a rebuke to the agency.

Dougall’s lawyer, Shaul Brazil, said the court recognized the tactical value of cooperation and that his client’s successful appeal will still help investigators.

Dougall admitted paying commissions in advance on sales made by Medec SA, a Greek distributor of the company’s orthopedic products. Some of the money was used to make “incentive payments” to persuade Greek surgeons to use DePuy’s products, the SFO said.

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Lawyer Fined $591,000 for Helping Boiler Room Scam, FSA Says

The founding partner of a London law firm will be fined 400,000 pounds ($591,000) for aiding a multimillion-pound illegal share scam, Britain’s Financial Services Authority said yesterday in a statement.

Andrew Greystock, a former investment banker at NM Rothschild & Sons Ltd. and senior partner of Atlantic Law LLP, will also be banned by the FSA from working in financial services for signing off on advertising from four Spanish firms that were boiler rooms, the FSA said. Around 130 British consumers lost a total of 3 million pounds in the scam, according to the regulator.

The FSA is able to levy the penalty after Greystock lost a legal challenge at a London tribunal. Greystock wasn’t immediately available to comment.

U.S. Mortgage’s Hayden Pleads Guilty to Loan Fraud

The former service manager of bankrupt U.S. Mortgage Corp. pleaded guilty to conspiring to sell mortgage loans fraudulently in a scheme that cost credit unions and Fannie Mae at least $136 million.

Leroy Hayden, 47, pleaded guilty yesterday in federal court in Newark, New Jersey, to conspiring to commit wire fraud from 2004 to January 2009. He faces as long as five years in prison.

U.S. Mortgage, based in Pine Brook, New Jersey, filed for bankruptcy in February 2009 and is being liquidated. The company underwrote mortgages and serviced loans for credit unions. The former president of U.S. Mortgage, Michael J. McGrath Jr., pleaded guilty last June and faces a prison sentence of 12 1/2 to 20 years under a plea agreement.

“Frauds of this magnitude don’t happen without someone to cook the books and push the paper,” U.S. Attorney Paul Fishman said in a statement. “Leroy had to decide whether to go along with his boss’s fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice.”

Hayden, a resident of East Stroudsburg, Pennsylvania, admitted helping McGrath sell hundreds of loans without credit- union authorization to government-supported Fannie Mae, the largest holder of U.S. mortgage risk. Those sales “dramatically increased” from 2008 to early 2009, he told U.S. District Judge Katharine Hayden.

He also admitted giving reports to credit unions falsely stating loans that had been sold were still in the credit unions’ portfolios. He admitted he modified data in U.S. Mortgage’s servicing system.

Stacy Ann Biancamano, a lawyer for Leroy Hayden, declined to comment after the hearing. Hayden is scheduled to be sentenced July 27.

The case is USA v. Hayden, U.S. District Court, District of New Jersey (Newark).

Mayfair Capital’s Green Is Sentenced to 41 Months

Stephen Green, the former chairman of Mayfair Capital Group and NoonMark Advisors LLC, was sentenced to 41 months in prison for stealing more than $5.75 million from investors in his New York-based firms.

Green, who lives in Locust Valley, New York, last year pleaded guilty to securities fraud, Manhattan U.S. Attorney Preet Bharara said yesterday in statement.

In a scheme running between 2005 and 2009, Green lied to investors about how he would use their money, according to the statement. U.S. District Judge John G. Koeltl in Manhattan ordered Green to pay $5.8 million in restitution and directed him to forfeit the same amount for his offenses, Bharara said.

Defense lawyer Bobbi Sternheim didn’t return a call after business hours.

The case is U.S. v. Green, 1:09-mj-1880, U.S. District Court, Southern District of New York (Manhattan).

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Litigation Departments

Reggie Bush’s Lawyer Keeps L.A. Stars Out of Jail and the News

New Orleans Saints tailback Reggie Bush, aided by a lawyer known for representing Hollywood celebrities, settled a lawsuit over alleged payments to him and his family while he was still in college.

Bush’s lawyer, Shawn Chapman Holley, has made a career out of keeping high-profile clients like Bush out of the spotlight. That means resolving claims before cases are filed, avoiding court appearances and staying mum on out-of-court settlements, she said in an interview. The Los Angeles native honed her skills as a public defender, on the O.J. Simpson defense team as a protégé of Johnnie Cochran, and in four years of rescuing celebrities at her present law firm.

“I came over here and I was a fish out of water,” Holley said of joining veteran entertainment lawyer Howard Weitzman, who was setting up the firm Kinsella, Weitzman, Iser, Kump & Aldisert LLP in Santa Monica, California. “We had all these celebrity clients with entertainment business litigation cases, and then suddenly they also had DUIs. My whole thing took off from there.”

Holley declined to comment on the Bush case. The settlement, confirmed by Edward P. Swan, a San Diego-based lawyer who also represents Bush, avoids a deposition of Bush that, according to an April 22 Los Angeles Times report, may have been used by the National Collegiate Athletic Association in a probe of payments to University of Southern California athletes.

Holley said her success in representing well-known clients like Bush is the product of years of legal practice, including a caseload filled with drunk-driving and paparazzi-assaults by the famous and almost famous.

Her clients have included actress Lindsay Lohan, hotel heiress Paris Hilton and Hilton’s “The Simple Life” co-star Nicole Richie, rappers Snoop Dogg and the late Tupac Shakur, as well as boxer Mike Tyson.

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Court News

Kagan ‘Not Sympathetic’ as Law Clerk to Gun-Rights Argument

Elena Kagan said as a U.S. Supreme Court law clerk in 1987 that she was “not sympathetic” toward a man who contended that his constitutional rights were violated when he was convicted for carrying an unlicensed pistol.

Kagan, whom President Barack Obama nominated to the high court this week, made the comment to Justice Thurgood Marshall, urging him in a one-paragraph memo to vote against hearing the District of Columbia man’s appeal.

The man’s “sole contention is that the District of Columbia’s firearms statutes violate his constitutional right to ‘keep and bear arms,’” Kagan wrote. “I’m not sympathetic.”

Kagan, currently the U.S. solicitor general, has made few public remarks about the Constitution’s Second Amendment. The Supreme Court in 2008 ruled, in a case that overturned the District of Columbia’s handgun ban, that the Constitution protects individual gun rights.

As a nominee to be solicitor general last year, Kagan told lawmakers that she accepted that 5-4 decision in District of Columbia v. Heller as a precedent of the court.

“There is no question, after Heller, that the Second Amendment guarantees individuals the right to keep and bear arms and that this right, like others in the Constitution, provides strong although not unlimited protection against governmental regulation,” she said.

White House spokesman Ben LaBolt said the position taken in the memo to Marshall reflected the prevailing view of the law at the time.

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Goodwin Liu Approved by U.S. Senate Panel for Appeals Court

The Senate Judiciary Committee approved, in a party-line vote, the nomination of law professor Goodwin Liu to be a federal appeals court judge, clearing the way for a confirmation vote by the full Senate.

Republicans said they fear Liu will be an activist judge, raising an issue that is likely to come up when the Senate weighs the nomination by President Barack Obama of Supreme Court nominee Elena Kagan. Liu, 39, could also be a possible future nominee to the high court

Yesterday’s vote was 12-7 for Liu, a professor at the University of California at Berkeley.

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

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