Novartis Gender Suit, Merrill, UBS, Samsung, Xerox, Google in Court News

A Novartis AG pharmaceuticals unit was ordered to pay $250 million in punitive damages to a group of 5,600 female employees after losing a gender-bias lawsuit, the second largest verdict of 2010.

A federal jury in Manhattan yesterday returned the damages ruling in one of the biggest gender-bias lawsuits to reach trial. The same jury on May 17 found the company liable for discrimination and ordered it to pay about $3.4 million in compensatory damages to 12 women named as plaintiffs.

The women are among the Basel, Switzerland-based company’s 14,000 workers in the U.S. They sought between $190 million to $285 million in punitive damages, or 2 to 3 percent of the company’s stipulated $9.5 billion value. Jurors found that Novartis had discriminated against women over pay and promotion and because of pregnancy.

“This is a vindication of everything that has happened in the courtroom,” David Sanford, a lawyer for the women, said yesterday. “This sends a message to Novartis and all other corporations in America that they cannot continue to get away with the discrimination and the systemic problems that have occurred for so long.”

“We are disappointed in the jury’s verdict. For more than 10 years the company has developed and implemented policies setting high standards with regards to diversity and inclusion for the development of our employees,” Andy Wyss, president of the Novartis Pharmaceuticals Corp. unit, said in a statement.

Richard Schnadig, a lawyer for Novartis, declined to comment after the verdict. Novartis said May 17 that it plans to appeal.

In weighing punitive damages, the nine jurors considered the nature and length of Novartis’s conduct, the extent of harm it caused, the company’s actions after learning of allegations of discrimination, and the amount required to deter future bias.

The women covered by the case are sales representatives and entry-level managers who have worked for Novartis since 2002.

The lead plaintiff is Amy Velez, who was hired by Novartis in 1997 as a sales representative in Washington. She worked at the company until 2004, the year the suit was filed.

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

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Broker Who Stole $780,000 From Merrill Pleads Guilty

Former Merrill Lynch & Co. broker Steven Mandala, who was charged with stealing $780,000 from the firm, partly to buy a Ferrari, pleaded guilty to grand larceny and identity theft.

Mandala made the plea in New York state Supreme Court in Manhattan yesterday and faces two to six years in prison at his sentencing, scheduled for June 2.

The Ferrari, for which Mandala paid $245,000, has been sold to help pay restitution, according to his attorney, Franklin Rothman. His client still has about $378,000 to pay back, to be made in monthly payments after he’s released from prison. A conviction on the grand larceny count could have carried a term of 15 years.

While employed as a stockbroker with Maxim Group, Mandala, who lives in New York City, falsely told Merrill that he managed $300 million in assets and earned about $765,000 a year, well above his actual pay of about $100,000, prosecutors said. According to a February statement by Manhattan District Attorney Cyrus Vance Jr., Merrill hired Mandala, 29, in April 2009 and loaned him $780,000 to be paid back over eight years.

Mandala had been charged with grand larceny, money laundering, criminal possession of a forged instrument, falsifying business records and identity theft. He stole the identity of his ex-girlfriend’s father and took out a line of credit.

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Ex-UBS Banker Pleads Guilty in Municipal Bid-Rigging Conspiracy

A former banker with UBS AG pleaded guilty yesterday to participating in a conspiracy to rig bids and overcharge state and local governments on investment deals, the Justice Department said.

Mark Zaino, who worked on the Zurich-based bank’s U.S. municipal bonds and derivative trading desk from 2001 until 2006, pleaded guilty to fraud and conspiracy charges filed in U.S. District Court in New York, the Justice Department said.

The plea marks the first time that an employee of a Wall Street bank has admitted to participating in the conspiracy to fix prices on the investment contracts that local governments buy with the proceeds of municipal bonds. Three employees of Beverly Hills, California-based broker CDR Financial Products pleaded guilty in February and March.

Court documents released don’t mention UBS by name, saying only that Zaino worked for “Financial Institution A.” That firm is identified as UBS in separate records obtained by Bloomberg News.

Zaino didn’t respond to a message left on his mobile phone seeking comment. Doug Morris, a UBS spokesman, didn’t immediately return a call seeking comment.

Ameripay Owner Pleads Guilty in $10.2 Million Fraud

An owner of Ameripay LLC, a New Jersey payroll services company, pleaded guilty yesterday to defrauding public and private clients of $10.2 million.

Paul Bultmeyer, 70, entered his plea in federal court in Newark, New Jersey, where he admitted that from December 2004 to last May he defrauded clients in Ameripay, which handles payroll and tax withholding services for employers. Ameripay co-owner Arthur Piacentini, 50, pleaded guilty on May 5,

Bultmeyer and Piacentini owned Ameripay along with Sherbourne Capital Management Ltd. and Sherbourne Financial Ltd. Bultmeyer, an attorney from Upper Saddle River, New Jersey, pleaded guilty to conspiracy to commit wire fraud and admitted that Ameripay diverted money to cover its payroll and tax obligations.

“Paul Bultmeyer and Arthur Piacentini diverted millions of dollars Ameripay clients sent to Ameripay to satisfy the payroll obligations of other payroll clients or to make unrelated tax payments,” prosecutors said in a court filing yesterday.

Bultmeyer admitted that he and Piacentini solicited Sherbourne clients to raise money to send to cover Ameripay’s operation. The men falsely claimed to Sherbourne investors that their money would be invested in private placement debt, high- grade corporate bonds, preferred stock and government securities, Bultmeyer admitted.

Gerald Krovatin, Bultmeyer’s attorney, said outside the courtroom that the government’s estimate of the loss at $10.2 million is overstated. Bultmeyer was arrested in May 2009.

“Paul’s been cooperating from Day One,” Krovatin said.

The Securities and Exchange Commission sued Bultmeyer and Piacentini last May, claiming they targeted retirees.

Yesterday, U.S. District Judge Jose Linares scheduled Bultmeyer for sentencing on Sept. 1. The judge allowed him to remain free on bail of $500,000. Bultmeyer faces as long as 20 years in prison.

The case is USA v. Bultmeyer, 09-mj-06093, U.S. District Court, District of New Jersey (Newark). The civil case is Securities and Exchange Commission v. Sherbourne Capital Management, 09-cv-2302, U.S. District Court, District of New Jersey (Newark).

UBS Client Gets Conditional Discharge in Tax Case

Jules Robbins, a New Yorker who set up a sham company to conceal ownership of a UBS AG account in Zurich, received a conditional discharge after pleading guilty to breaking state tax laws, Manhattan District Attorney Cyrus Vance said.

Robbins, 83, paid $859,699 to New York state in taxes, interest and penalties and was sentenced yesterday in Manhattan state court, Vance said in a statement.

Robbins, who owned New York companies that distributed watches, set up a sham Hong Kong corporation in 2000 with the help of a Swiss attorney and opened an account in the company’s name at UBS, the statement said. At the end of 2007, the account had assets valued at $42 million.

“This office has long fought against the use of offshore accounts by tax cheats and other criminals,” Vance said in the statement. “At a time when the city and state face severe fiscal shortfalls, we cannot afford to let wealthy citizens commit crimes by cheating on their taxes.”

Robbins also pleaded guilty in federal court in April. His attorney, Martin Perschetz, declined to comment.

In his federal case, Robbins agreed to pay a $20.8 million civil penalty for failing to file reports of foreign bank or financial accounts.

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Samsung, Chipmakers Settle European Union Cartel Case

Infineon Technologies AG, Europe’s second-largest chipmaker, Samsung Electronics Co. and Hynix Semiconductor Inc. are among nine chipmakers who agreed to pay a total of 331.2 million euros ($408.5 million) in the first settlement of a price-fixing case with European Union antitrust regulators.

Mitsubishi Electric Corp., Elpida Memory Inc., Hitachi Ltd., Nanya Technology Corp., Toshiba Corp. and NEC Corp. also agreed to pay fines as part of the settlement. Micron Technology Inc. received immunity in the case, the commission said in a statement yesterday. Samsung will pay the biggest fine of 145.7 million euros, followed by Infineon, which will pay 56.7 million euros.

“The companies have allowed the commission to bring this long-running investigation to a close and to free up resources to investigate other suspected cartels,” said Competition Commissioner Joaquin Almunia. Settlements are “expected to speed up investigations significantly.”

The settlement is the first time the Brussels-based commission has reached an agreement with companies involved in a price-fixing probe. All companies that agree to the settlement terms as proposed by the commission receive a 10 percent reduction in their fine.

“Samsung accepts the findings of the commission’s inquiry and is committed to conducting its business operations in full compliance,” the Suwon, South Korea-based company said in an e- mailed statement yesterday.

Infineon spokesman Kay Laudien said the company welcomed a decision had been made “after so long.” This “will have no impact on our earnings as it will in its entirety be taken out of reserves set aside,” he said by phone.

Under the settlements, Hynix was fined 51.5 million euros yesterday, Toshiba 17.6 million euros, Mitsubishi 16.6 million euros and Nanya 1.8 million euros. NEC was fined 10.3 million euros and jointly with Elpida and Hitachi got a 8.5 million-euro penalty and another joint one with Hitachi of 2.1 million euros.

“Hynix has already set aside provisioning for the fines and therefore there shouldn’t be any impact on the company’s financials,” Park Seong Ae, a spokeswoman at the Ichon, South Korea-based company, said by phone yesterday.

Nanya settled with the commission “to avoid the distraction and cost of further proceedings,” Pai Pei-lin, spokesman for the Taoyuan, Taiwan-based company said in a statement.

NEC “cooperated fully with the commission during the course of the investigation, and ultimately settled the case,” the company said in a statement yesterday, confirming the fines.

Toshiba spokesman Keisuke Ohmori, Hitachi spokesman Atsushi Konno and an Elpida spokesman said the companies agreed to the settlement. Spokespeople for Mitsubishi said the company had been notified of the fine.

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Xerox Agrees to $69 Million ACS Suit Settlement

Xerox Corp., the world’s largest maker of high-speed color printers, agreed to a $69 million settlement of a shareholder lawsuit over its $6 billion takeover of Affiliated Computer Services Inc.

Investors sued ACS in Delaware Chancery Court in October, alleging directors wrongly agreed to allow former Chairman Darwin Deason to collect more than $1 billion in the buyout, completed in February.

“Defendants deny any and all allegations of wrongdoing” as part of the settlement, their lawyers said in papers filed in Wilmington yesterday.

ACS said Sept. 28 that Xerox would buy each of its shares for $18.60 in cash and 4.935 Xerox shares. A union and a pension fund with ACS stock said the price was too low and Deason was getting an unfair windfall.

Under the agreement, subject to approval by Judge Donald Parsons Jr., ACS will pay $56.1 million and Deason will pay $12.8 million, some subject to insurance payments, according to the settlement papers. Former ACS stockholders who file claims will share what’s left of the settlement fund after legal fees and administrative expenses, according to court papers.

Shareholders’ lawyers said in a court filing they’ll seek about $17 million in fees.

Plaintiffs’ lawyer Stuart M. Grant said in a May 4 court filing that Deason’s payout in the buyout would include $340 million in convertible stock, $600 million in common stock and $200 million in “personal benefits.”

Deason’s lawyer, David C. McBride, said in a May 7 brief that the shareholders targeted Deason “to extract further consideration for themselves.”

The cases are Sheet Metal Workers Local 28 v. Affiliated Computer Services, CA4933, and New Orleans Employees’ Retirement System v. Deason CA4940 (Consolidated), Delaware Chancery Court (Wilmington).

For the latest verdict and settlement news, click here.


Miami Beach Developers Urged Witness Lies, U.S. Says

Two Miami Beach hotel developers charged with hiding $45 million from the Internal Revenue Service coached witnesses to lie in civil litigation, according to a Justice Department filing yesterday opposing bail for the men.

Mauricio Cohen Assor and his son Leon Cohen Levy, who built residential hotels under the Flatotel name, suborned perjury in pretrial depositions in a lawsuit related to their sale of the New York Flatotel in 2000, prosecutors said. The Cohens coached four witnesses from France to lie to help hide their ownership of entities related to the sale, according to the filing.

“Leon Cohen provided each individual with a typed ‘script’ and told them to memorize the answers and destroy it before traveling to the United States,” according to the filing in Fort Lauderdale, Florida. “As an inducement, Mauricio and Leon Cohen promised the individuals that their retirement would be taken care of if they provided false testimony as scripted for them.”

Prosecutors filed the motion, along with documents they said were scripts, one day before U.S. Magistrate Judge Lurana Snow in Fort Lauderdale will consider whether to grant bail to the Cohens. They have been in custody since their arrest on tax evasion charges on April 15. The judge will consider whether to release them on bail or detain them as a risk of flight.

“The Cohens respectfully and absolutely disagree with what the government says in its pleading and what the government says that its documents mean,” Cohen attorney Michael Pasano said in a telephone interview yesterday. “The place to make those arguments will be tomorrow before Magistrate Judge Snow. The Cohens unequivocally deny it.”

Prosecutors said the Cohens failed to report to the IRS about $33 million in proceeds they made from the sale of sale of the New York hotel. They transferred the money to an account at London-based HSBC Holdings Plc, according to government filings.

The case is USA v. Cohen Assor, 10-mj-06159, U.S. District Court, Southern District of Florida (Fort Lauderdale).

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CNR’s Purchase of BC Rail Was Rigged, Lawyer Alleges

Canadian National Railway Co.’s C$1 billion ($956 million) acquisition of government-owned BC Rail Ltd. in 2003 was rigged from the start, with British Columbia’s premier intent on handing over the operation to a former fundraiser, a lawyer said yesterday at a trial.

“The fix was in for CNR to get the assets from the beginning,” said Kevin McCullough, a lawyer representing Bob Virk, who is accused of accepting bribes in exchange for information about the sale while working as assistant to the province’s transportation minister.

Virk, and David Basi, a former aide to British Columbia’s finance minister, are charged with fraud, breach of trust and accepting bribes for passing on secret information to one of the bidders for BC Rail in exchange for cash and favors. Basi’s cousin, Aneal Basi, a former government communications officer, was charged with money laundering. All three pleaded innocent.

Martyn Brown, chief of staff to British Columbia Premier Gordon Campbell, denied that the sale process was rigged by his boss during cross-examination by McCullough yesterday in Vancouver.

“I don’t believe that’s true,” Brown told a six-man, six- woman jury in British Columbia Supreme Court. He called the bidding process “fair and open.”

David McLean, chairman of Canadian National, had persuaded Campbell to run for the leadership of the British Columbia Liberal Party and was his chief fundraiser during the 1996 campaign, McCullough said.

The perception created by a former fundraiser bidding on the railway “might have been a real problem” for the government, McCullough said.

Just because the chairman was involved in politics “wouldn’t disqualify this company,” Brown responded. “People are allowed to participate in a democracy.”

Brown testified earlier that he had repeatedly urged political staff, including Virk and David Basi, to avoid anything that might be perceived as a conflict of interest or improper.

CNR, North America’s largest hauler of forest products, won the exclusive use of BC Rail’s 2,315 kilometers (1,450 miles) of track in November 2003. The losing bidders for the renewable 60- year contract were Canadian Pacific Railway Ltd. and a venture of Burlington Northern Santa Fe Corp. and closely held OmniTrax.

Virk, who sat on a government committee evaluating bids for the railway, provided Erik Bornman, a partner at Pilothouse Public Affairs Group, which represented OmniTrax, with the bids that were submitted, at least three days before they were presented to the committee, William Berardino, a special prosecutor, said in his opening statement May 18.

David Basi received C$25,000 in payments from Bornman through his cousin, Berardino said. Virk and David Basi also received at least C$20,000 worth of meals from OmniTrax and were flown with their wives to Denver for a football game in November 2002, Berardino said.

The case is Regina v. Virk, VA23299, British Columbia Supreme Court (Vancouver).

For the latest trial and appeals news, click here.

New Suits

Microsoft Sues Over Online Advertising ‘Click Fraud’

Microsoft Corp. filed two lawsuits to combat what it says is a previously unknown form of pay-per-click fraud on its adCenter network that has cost advertisers hundreds of thousands of dollars.

The company alleged that RedOrbit Inc., a Texas operator of a website about science-related topics, its president and unidentified defendants have used technical measures to make invalid ad clicks appear to have originated from legitimate sources, according to a Microsoft statement.

With click fraud, a company inflates the number of times an ad is clicked on, often boosting advertising costs for a competitor. In some cases, a website operator uses the technique to increase its own revenue. Microsoft said RedOrbit’s actions represent “click laundering,” a form of the practice designed to evade fraud detection systems.

In the past, advertisers have sued companies, such as Google Inc., that make money based on the number of times Web users interact with online advertisements. Google, the most-used Internet search engine, agreed in 2006 to pay $90 million to settle a lawsuit with companies that said they paid for clicks on ads that had no chance of generating sales.

Microsoft said investigators uncovered the fraud following “dramatic and irregular growth in click traffic” on two sites within its adCenter network.

“It is RedOrbit’s policy not to comment on pending litigation,” said Eric Ralls, founder of RedOrbit, listed as the defendant in one of the lawsuits. “However, we do not, nor have we ever, engaged, assisted in, or condoned click fraud. We are disappointed that Microsoft has made these completely baseless allegations, and intend to defend against them vigorously.”

The cases are Microsoft v. Eric Ralls, 10-818, and Microsoft v. John Does, 10-820, U.S. District Court, Western District of Washington (Seattle).

FSA Arrests Man in London as Part of Insider Probe

Britain’s financial regulator arrested a 39-year-old man as part of an insider-trading investigation.

The man was arrested after the regulator and police raided a home in East London this morning, the Financial Services Authority said in a statement. The FSA didn’t identify the man, who was arrested for questioning “in relation to allegations of insider dealing.”

While the case is stand-alone, it is an off-shoot of another probe, codenamed Saturn, which resulted in seven men being charged, and an arrest warrant being issued for an eighth, two people familiar with yesterday’s case said. The man arrested yesterday isn’t the eighth Saturn suspect, said the people who declined to be identified because the investigation is private.

The Saturn probe focuses on about 2.5 million pounds in illegal profits made from trades using data leaked from printers used by UBS AG and JPMorgan Chase & Co.’s Cazenove unit.

Joseph Eyre, a spokesman for the FSA, declined further comment.

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Legal Reviews

Google Street View Privacy Probe Joined by Spain, Italy, France

Google Inc., under investigation in Germany for the data- gathering practices of its Street View mapping service, now faces probes in Spain, France and Italy for possible violation of privacy laws.

Spain’s Data Protection Authority ordered May 19 an investigation of whether Google breached national privacy rules by collecting and storing data from Wi-Fi networks and information sent over these networks. Italy and France also ordered inquiries.

The Spanish agency “will call on Google to explain whether it has captured data without the consent of citizens in Spain,” it said in an e-mailed statement May 19. It sent a formal request urging Google “to block the data associated with wireless networks gathered in Spanish territory.”

The Hamburg Prosecutors’ Office said May 19 that it’s investigating people at Google on suspicion of criminal data capture. German data regulators are already looking into how cars that Google used to take pictures for Street View ended up with private data from Wi-Fi networks that weren’t password- protected.

Google, based in Mountain View, California, said May 17 that it deleted data mistakenly gathered from Wi-Fi networks in Ireland and was aiming to do the same in other countries.

Company representatives didn’t return calls and e-mails seeking comment yesterday on the latest investigations.

Street View allows Google users to click on maps to see photographs of roadsides. Officials from 30 European countries on May 11 adopted a common approach to keep Google from infringing privacy rights as the service is rolled out in Europe. They want Google, owner of the world’s biggest search engine, to improve blurring techniques used to disguise images and to make faces and license plates harder to recognize.

Court News

Kagan Court Confirmation Hearings to Begin June 28

The Senate Judiciary Committee will begin confirmation hearings for U.S. Supreme Court nominee Elena Kagan on June 28 as Democrats rejected a Republican bid for more time to study her record.

“It is in the best interests of the court, and of course of the country,” to confirm Kagan before the next session of the court begins in October, committee Chairman Patrick Leahy, a Vermont Democrat, said yesterday. He urged senators to come to the hearings “with an open mind.”

Senator Jeff Sessions of Alabama, the top Republican on the panel, said Leahy turned down his request to delay the hearings until Congress returns from a July 4 recess.

Senate leaders aim to confirm Kagan before a five-week congressional recess that begins Aug. 9.

President Barack Obama last week named Kagan, 50, the former dean of Harvard Law School, to replace retiring Justice John Paul Stevens. In her current job as solicitor general, Kagan is the government’s chief courtroom lawyer.

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On the Docket

Former Delphi Executives Will Face October Trial

Former Delphi Corp. Chief Executive Officer J.T. Battenberg III and four other former managers will begin trial Oct. 4 in a securities-fraud lawsuit brought by the U.S. Securities and Exchange Commission, a federal judge said.

The SEC sued Battenberg and the other executives in 2006, alleging they “engaged in one or more fraudulent accounting or disclosure schemes” before the auto-parts supplier filed for bankruptcy protection in 2005. The SEC claims Battenberg was responsible for the company materially misstating its financial condition.

U.S. District Judge Avern Cohn denied Battenberg’s request to dismiss the case last month and set Oct. 4 for opening statements in the trial. Jury selection for the trial in federal court in Detroit will start the week before, Cohn said.

“A jury will determine the liability of each defendant,” Greg Miller, an SEC attorney, said May 18 in an interview outside court. Should the jury find against any defendant, “the judge will assess damages.”

Delphi, once the largest U.S. auto-parts supplier, filed for bankruptcy in October 2005, after failing to win wage cuts from workers and financial aid from its former parent, General Motors Corp. The company emerged from bankruptcy under the new name of Delphi Holdings LLP in October.

The other defendants at trial are Paul Free, former Delphi controller and chief accounting officer; Milan Belans, former director of capital planning and pension analysis; John Blahnik, former treasurer; and Catherine Rozanski, former accounting director.

The SEC claimed Delphi artificially inflated share prices by issuing misleading statements in the years before the bankruptcy.

The defendants said there were no attempts to mislead investors and that they weren’t involved in fraud.

The case is SEC v. Battenberg, 2:06-cv-14891, U.S. District Court, Eastern District of Michigan (Detroit).

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

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