Goldman, RBS, AKO, EMC, Gome's Huang, Dow, Madoff, Galleon in Court News

Lawyers for Goldman Sachs Group Inc. will face Lorin Reisner, the deputy director of enforcement for the Securities and Exchange Commission, in the agency’s lawsuit over the bank’s use of subprime mortgage-backed securities.

Reisner yesterday filed a one-sentence “notice of appearance” in federal court in Manhattan, indicating he will participate in the case. Reisner, who worked at the law firm Debevoise & Plimpton LLP before joining the SEC last year, was an assistant U.S. attorney in New York from 1990 to 1994.

“It sends a strong message that the enforcement division is both stepping up to the plate and standing behind its case,” said Jacob Frenkel, a former SEC enforcement division attorney, who isn’t involved in the Goldman lawsuit. “It’s unusual, but it’s a logical and brilliant move when you have skilled trial lawyers who are part of senior management who step forward.”

Goldman Sachs, which reported record earnings last year, and a company executive director, Fabrice Tourre, were sued by the SEC in April for misleading investors in mortgage-linked securities.

The SEC alleged the firm wasn’t forthcoming about the role that a hedge fund, Paulson & Co., played in selecting and betting against the instrument. New York-based Goldman Sachs has denied wrongdoing.

Lucas van Praag, a spokesman for Goldman Sachs, didn’t return a call or e-mail after regular business hours seeking comment on yesterday’s filing by the SEC.

John Heine, a spokesman for the SEC, declined to comment.

The case is Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

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Stanford, in Dershowitz Filing, Says Rights Violated

R. Allen Stanford, the financier accused of leading a $7 billion fraud scheme, has been deprived of his constitutional rights by being held without bail before trial, lawyers including Alan Dershowitz said in a court filing.

Stanford has been jailed since June when he was indicted by a grand jury in Houston. U.S. District Judge David Hittner, who is presiding over the case, has denied requests to ease his confinement as the defense gets ready for a January trial.

“This court has not previously been asked to consider the issues as a constitutional matter involving detention of a predictable minimum of more than two years from arrest through trial,” Dershowitz and lawyer Robert Bennett said yesterday in the filing.

Stanford, 60, faces a 21-count indictment. Prosecutors allege he and his associates ran a “massive” fraud scheme involving the sale of certificates of deposit through Antigua- based Stanford International Bank Ltd.

He has denied all allegations of wrongdoing.

Dershowitz, a Harvard University law professor who helped defend former professional football player O.J. Simpson and socialite Claus von Bulow, joined the Stanford defense team as a consultant last month. He said then he would work only on the issue of obtaining bail for the Texas financier.

“He’s presumed innocent, yet he is being treated worse than a convicted defendant,” Dershowitz said then.

Hittner has twice denied Stanford bail. Both of those decisions were upheld on appeal.

The judge yesterday rejected Dershowitz’s motion on technical grounds involving type size and the standing of the lawyers submitting it.

Justice Department spokeswoman Alisa Finelli said the government declined to comment on the bid for bail.

The case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).

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Santander Cited Madoff ‘Secrecy’ Risk in 2006, Investors Say

Banco Santander SA, the Spanish bank that lost $3.2 billion in Bernard Madoff’s fraud, identified risk tied to the firm’s secrecy and accounting practices in 2006 and didn’t warn customers, lawyers for investors said.

An internal report in July 2006 by Santander’s Geneva-based Optimal Investment Services unit said Madoff was “shrouded in secrecy” and had “no independent verification of trading” for his firm, according to a copy of the study filed yesterday in a class-action lawsuit in Miami federal court.

“Madoff Securities is a privately owned family business which enhances control, but on the other hand, also increases the possibility of collusion,” Optimal said in the report. “Despite the above, we believe the organization is efficiently and professionally managed.”

Santander was sued by a group of Optimal funds investors, most from Latin America, in January 2009 over claims it failed to protect them after discovering as early as 2002 that Madoff didn’t follow industry standards by acting as custodian of his own funds. Madoff, 72, pleaded guilty to operating a Ponzi scheme in March 2009 and is serving a 150-year sentence.

A Santander spokesman declined to comment yesterday.

The 229-page amended complaint filed in October outlines problems Santander identified in 2002. After the bank and Optimal met with Madoff in September of that year, they revised prospectuses for two Optimal funds that invested with Madoff to say there was a “possibility” or “risk” Madoff could abscond with their assets.

The case is In re Banco Santander Securities-Optimal Litigation, 1:09-cv-20215, U.S. District Court, Southern District of Florida (Miami).

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Rajaratnam Can’t See Khan’s SEC Records, Judge Rules

Galleon Group LLC co-founder Raj Rajaratnam can’t obtain records from the U.S. Securities and Exchange Commission about Roomy Khan, a government witness in the insider-trading case against him, a judge said.

Rajaratnam faces both criminal and civil allegations of insider trading. Khan, a former Intel Corp. executive who pleaded guilty, is cooperating with the government in a bid for leniency. Lawyers for Rajaratnam have been seeking records about Khan from the witness herself, First Republic Bank and the SEC, which brought the civil fraud lawsuit.

U.S. District Judge Jed Rakoff, who is presiding over the civil case, yesterday granted Khan’s request for a protective order barring Rajaratnam from obtaining records including images of five computers Khan owned, financial documents such as a 2000 mortgage application, tax returns and appointment calendars.

“Pressed to justify this broad subpoena, all that counsel for Rajaratnam could offer was a speculation that these records contain ‘likely false’ statements that may be used for impeachment,” Rakoff wrote in a three-page order. “It is clear that this request amounts to little more than an impermissible fishing expedition.”

“Counsel for Mr. Rajaratnam will seek re-consideration of the court’s order in accordance with the suggestions by the court,” Rajaratnam’s spokesman, Jim McCarthy, said in a statement.

The case is SEC v. Galleon, 09-cr-8811, U.S. District Court, Southern District of New York (Manhattan).

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American Express Wins Ruling Upholding Dismissal

American Express Co. won an appeals court ruling upholding the dismissal of a shareholder lawsuit claiming the company misrepresented its high-yield investments as safe.

The U.S. Court of Appeals in New York yesterday upheld a lower-court judge’s 2008 dismissal of the case. New York-based American Express was accused in the securities-fraud suit of defrauding its investors from 1999 to 2001 by claiming in a regulatory filing that its investments in high-yield debt securities were conservative and that the bank had adequate risk management controls.

“Importantly, the plaintiffs have not alleged any theory as to why the defendants would knowingly mislead investors,” the appeals court wrote in a 31-page opinion. A two-judge panel agreed that the plaintiffs hadn’t alleged enough facts in the complaint for the case to go forward.

The appeals court also said that a defendant won’t be held liable for making a “forward-looking” statement, such as the one in this case, if it’s identified as such.

The case is Slayton v. American Express, 08-05442-cv, U.S. Court of Appeals for the Second Circuit (New York).

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Verdicts/Settlements

Former Head of RBS Investment Bank Settles With FSA

Johnny Cameron, the former head of the Royal Bank of Scotland Group Plc’s investment bank, agreed to never again hold a senior-management role at a financial company in order to resolve an investigation by Britain’s markets regulator.

Cameron, 55, reached an agreement with the Financial Services Authority without admitting guilt or the regulator finding him at fault as part of its probe of RBS’s systems and controls, the agency said yesterday in a statement. The agreement means he will be able to work as a financial consultant.

“Given the losses sustained by RBS in 2008 I recognize that it is appropriate I take my share of responsibility,” Cameron said in a statement through his lawyer, Charles Evans of London-based Norton Rose LLP. He said he wouldn’t seek another senior-management position.

Cameron is the first executive of RBS, the Edinburgh-based lender majority-owned by the U.K. government, to settle with the FSA. RBS is facing five separate investigations following a 45.5 billion-pound ($65.6 billion) government bailout. The U.K. Treasury ousted Chief Executive Officer Fred Goodwin when it took control of RBS in October 2008. Cameron stepped down that same month.

“We welcome the conclusion of this investigation with a settlement between the FSA and our former director Johnny Cameron,” RBS spokeswoman Lisa Irvine said.

Cameron wouldn’t get approval to become an executive again now if he applied, the FSA said. As a way of improving risk management, the regulator has made it harder for people to gain approval to be executives that exert a “significant influence” over firms. More than 400 candidates for senior-management jobs were interviewed by the agency since October 2008, with about 30 withdrawing their applications, Jon Pain, the FSA’s managing director of supervision, said yesterday at a conference in London.

Were it not for the settlement, the regulator said it would have taken steps to try to ban Cameron from the industry. He worked in RBS’s investment-banking division for a decade, joining the lender from Dresdner Kleinwort Benson, where he was co-head of global finance.

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Ex-AKO Capital Trader Pleads Guilty in FSA Insider-Dealing Case

A former trader at AKO Capital LLP, a London-based hedge fund, pleaded guilty to insider trading in a court yesterday.

Anjam Ahmad pleaded guilty at Southwark Crown Court in London to one count of conspiracy to commit insider dealing, relating to transactions involving 22 different companies between June and August 2009, in a case brought by the U.K. Financial Services Authority.

“I can make no promises as to sentence,” Judge Geoffrey Rivli said at a hearing in London. “I hardly need tell you that this is a serious matter.”

Robert Brown, Ahmad’s lawyer at Corker Binning, wasn’t available to comment. Sentencing was scheduled for June 22.

AKO Capital, where Ahmad worked until September 2009 according to FSA data, hasn’t been accused of wrongdoing by the FSA, the firm said last month.

FSA spokesman Joseph Eyre declined to comment.

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EMC Founder Egan Cheated IRS While Ireland Envoy, Judge Says

EMC Corp. founder Richard J. Egan used a sham tax shelter to cheat the U.S. government out of more than $62 million starting the same year former President George W. Bush named him ambassador to Ireland, a federal judge ruled.

Egan, who died Aug. 29, used a variation of a widely used transaction known as “Son of Boss” to avoid paying capital gains taxes on more than $327 million in gains from stock or options in Boston-based EMC, the world’s biggest maker of storage computers, according to court papers.

In a 357-page decision, U.S. District Judge Dennis Saylor in Boston ruled May 17 that Egan and his wife, Maureen, concocted transactions with offshore entities to generate artificial tax losses intended to wipe out his taxable gains. The Egans were aided by nine advisers, including law firms and accountants, Saylor wrote. The transactions were managed by their son, Michael J. Egan, the judge said.

“None of the participants in these complex transactions believed that they were real business transactions, with any purpose other than tax avoidance,” Saylor wrote. “Indeed, it is highly doubtful that any participant believed, even for a minute, that the transactions would withstand legal scrutiny if discovered.”

Ray Howell, a family spokesman, didn’t return a call and e- mail seeking comment.

The law firms, dubbed “tax promoters” by Saylor, included Proskauer Rose LLP and Brown & Wood LLP, which was acquired by Sidley Austin LLP. Janet Zagorin, a spokeswoman for Sidley Austin, said she had no comment because she hadn’t yet read the case. Josh Epstein, a spokesman for Proskauer Rose, didn’t return a call and e-mail seeking comment.

KPMG, which prepared the Egans’ tax returns, agreed in 2005 to pay $456 million to avoid criminal prosecution over its sale of tax shelters such as the one used by the Egans.

The case is Fidelity International Currency Advisor A Fund, LLC v. United States of America, 05-cv-40151-FDS, U.S. District Court, District of Massachusetts (Boston).

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Huang, Once China’s Richest Man, Jailed for 14 Years

Huang Guangyu, the founder of Gome Electrical Appliances Holding Ltd., was sentenced to 14 years in prison for graft, completing the downfall of a school dropout who rose to become China’s richest man.

The 41-year-old was found guilty of bribery and insider trading by the Beijing No. 2 Intermediate People’s Court, lawyers for Huang’s co-accused business partner Xu Zhongmin said in phone interviews yesterday. Huang was also fined 600 million yuan ($88 million), the state-run Xinhua News Agency said.

Huang, who built Gome into China’s biggest appliance chain and amassed a fortune estimated at $6.3 billion in 2008, is the highest-profile businessman snared by a government crackdown on corruption.

Gome’s mainland China subsidiary, Gome Appliances Co., was fined 5 million yuan by the court yesterday, a decision the Hong Kong company said it respected. The unit had been indicted for corporate bribery, according to an earlier Gome statement.

Huang was involved in bribing five government officials with cash and properties worth 4.56 million yuan from 2006 to 2008 in exchange for corporate benefits, Xinhua said. Huang was also found to have illegally traded HK$822 million ($105 million) from September 2007 to November 2007, the news agency said.

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Dow Chemical Must Supply Arkema, Delaware Judge Rules

Dow Chemical Co., the world’s largest producer of acrylic paint ingredients, must continue to supply a unit of French business partner Arkema SA with contractually required quantities of methyl methacrylate, a judge decided.

Arkema Inc. sued Dow May 10 in Delaware Chancery Court contending it reneged on an agreement to provide the chemical, used to make Plexiglas and automobile taillights. Dow blamed the delivery slowdown on problems at a Deer Park, Texas plant.

Arkema asked Judge Donald Parsons Jr. to prohibit Dow from allocating the chemical for itself or others “until they have satisfied their obligations to Arkema.” Parsons granted a temporary restraining order in a sealed ruling made public May 17 and in effect until June 13, according to court papers.

Dow notified customers this month it was declaring force majeure, a contract provision that allows companies to avoid penalties when they can’t meet supply agreements because of circumstances beyond their control.

“Dow continues to work with all customers, including Arkema, in the most fair and reasonable way,” said Bob Plishka, a spokesman for Midland, Michigan-based Dow, in an e-mailed statement. He said production of the chemical was restarted May 13 and “full operating rates are expected soon.”

Sybille Chaix, an Arkema spokeswoman, didn’t reply to voice and e-mail messages after business hours in Paris.

The case is Arkema Inc. v. The Dow Chemical Co., CA5479, Delaware Chancery Court (Wilmington).

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Trials/Appeals

Novartis Should Pay $285 Million, Bias Lawyer Says

Novartis AG’s U.S. pharmaceuticals unit should pay $190 million to $285 million in punitive damages on top of the $3.4 million awarded to a dozen women in a gender bias verdict, a plaintiffs’ lawyer said in court.

A nine-member panel found in favor of female employees of Novartis Pharmaceuticals, a U.S. unit of Europe’s second-largest drugmaker, following a month long trial in Manhattan federal court. The jurors’ $3.4 million award to the women for lost pay and other damages May 17 came in the first stage of deliberations. The second stage, over punitive damages, ended yesterday without a verdict.

Jurors in the class-action lawsuit ruled May 17 that the company discriminated against women in terms of pay, promotions and pregnancy. David Sanford, a lawyer for the women, yesterday asked them to award punitive damages that would force the Basel, Switzerland-based company to pay from 2 to 3 percent of its value, which both sides stipulated to be $9.5 billion.

“Novartis has been involved in systemic discrimination since 2002,” Sanford, a lawyer for the women, said after yesterday’s verdict. “The verdict supports the claims of 5,600 women.” Novartis has a 14,000-member U.S. workforce, the lawyers said.

The drugmaker said May 17 it will appeal the verdict. Pam McKinlay, a spokeswoman for Novartis, said yesterday the company didn’t have any further statement about the punitive damages request.

The case is Velez v. Novartis Corp., 04-cv-09194, U.S. District Court, Southern District of New York (Manhattan).

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Deutsche Bank May Lose 2008 Meeting Case, Court Says

Deutsche Bank AG, Germany’s biggest bank, may lose an appeals court bid to uphold decisions made at its 2008 shareholder meeting, including the re-election of Clemens Boersig to its supervisory board, a court said.

The Frankfurt Higher Regional Court is likely to back a lower tribunal that said shareholders weren’t properly invited to the meeting, Judge Klaus Maier said at a hearing yesterday. The invitation may have limited shareholders’ rights to appoint a representative by seemingly requiring a three-day notice period, said Maier. The court’s assessment is preliminary, he said.

“We know that other appeals courts and judges take a different view on the issue,” said Maier. “But we think the way the invitation was drafted may have deterred some shareholders to make use of their rights to be represented at the meeting.”

The suit is one of many brought by Leo Kirch, the German businessman who blames Deutsche Bank for the collapse of his media empire. Among the plaintiffs is also Michael Bohndorf, the Deutsche Bank shareholder targeted by detectives hired by the lender after the 2006 annual general meeting when Boersig was first elected chairman. Kirch and Bohndorf have opposed Boersig’s election since then.

Deutsche Bank spokesman Detlev Rahmsdorf said the lender won’t comment before the court issues its ruling.

The case is OLG Frankfurt, 5 U 144/09.

DiPascali Continues to Cooperate in Probe, U.S. Says

Frank DiPascali Jr., who pleaded guilty to helping Bernard Madoff carry out the largest U.S. Ponzi scheme, continues to cooperate with federal prosecutors in their probe of the crime, lawyers said.

DiPascali pleaded guilty last summer and has cooperated with prosecutors ever since in a bid for leniency when he’s sentenced. In a letter to U.S. District Judge Richard Sullivan, who’s presiding over DiPascali’s case, Assistant U.S. Attorney Lisa Baroni asked to postpone DiPascali’s sentencing until at least November.

“Mr. DiPascali’s cooperation remains active and ongoing,” she wrote in a two-page letter made public yesterday in Manhattan federal court.

DiPascali pleaded guilty to 10 counts, including conspiracy, fraud and money laundering. He admitted misleading thousands of clients at Bernard L. Madoff Investment Securities LLC, saying no securities trades took place in their accounts. Investors lost billions of dollars.

As part of his cooperation, DiPascali has been telling prosecutors how he and others helped Madoff defraud investors by using money from new clients to pay earlier ones.

The letter says DiPascali’s assistance helped prosecutors bring criminal charges against Daniel Bonventre, Madoff’s director of operations, and two Madoff computer programmers, Jerome O’Hara and George Perez. All three have denied wrongdoing.

The case is United States of America v. Frank DiPascali Jr., 09-cr-764, U.S. District Court, Southern District of New York (Manhattan).

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Litigation Departments

Lehman Trustee Law Firm Got $84 Million in 19 Months

The trustee for Lehman Brothers Holdings Inc.’s brokerage and his law firm were paid $84.4 million for 19 months’ work liquidating the defunct affiliate, according to a bankruptcy court filing.

Trustee James Giddens and the law firm Hughes Hubbard & Reed LLP have been returning assets to customers of the brokerage, Lehman Brothers Inc., since its parent filed the biggest bankruptcy in U.S. history in September 2008 in New York. Total charges for lawyers, accountants, services and rent through April 30 were $321.7 million, the trustee said May 10 in a report.

Alvarez & Marsal, the liquidator of the parent company, has collected $262.2 million in fees over 18 months, according to a regulatory filing last month.

“The trustee has met extraordinary challenges efficiently and has greatly benefited the customers, creditors, and other stakeholders of Lehman’s brokerage business, in the largest and most complex bankruptcy in history,” Giddens said yesterday in an e-mailed statement. “His professionals have processed more than 124,000 customer accounts, are keeping custody of more than 72 billion records of customer and other data, and are managing more than 13 billion shares of securities.”

About $66 billion in claims were originally filed against the brokerage by more than 124,000 people and institutions claiming to be customers, according to Giddens’s report.

The main case is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The brokerage case is In re Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-1420, U.S. Bankruptcy 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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