Philip Morris, R.J. Reynolds, GE, Flyonthewall, Smart Online in Court News

Analysts predict Goldman Sachs Group Inc. will pay $1 billion or more to settle a Securities and Exchange Commission fraud suit that triggered a 26 percent drop in the firm’s stock, Bloomberg News’s Jesse Westbrook and David Scheer report. Extracting such a record-setting penalty may be easier said than done.

The SEC’s April 16 complaint accused Goldman Sachs of defrauding investors in a collateralized debt obligation linked to home loans. The firm concealed the fact that Paulson & Co., a New York-based hedge fund, picked components of the CDO and bet it would collapse, the agency said. Goldman Sachs, which underwrote and marketed the product in 2007, collected about $15 million in fees and Paulson reaped a $1 billion profit. The remaining investors lost more than $1 billion, according to the complaint.

Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, 55, has denied wrongdoing. Paulson hasn’t been accused of any impropriety and the firm’s founder, John Paulson, has said it didn’t market the transaction or have authority to select securities in the CDO.

The $1 billion loss for investors has become the minimum “goalpost” that the public expects the SEC to reach, according to James Cox, a securities law professor at Duke University in Durham, North Carolina.

A settlement would cost the firm “at least $1 billion, if not more, which they can easily pay,” Matt McCormick, an analyst at Bahl & Gaynor Inc. in Cincinnati, which manages about $2.8 billion, said in an April 30 Bloomberg Television interview. The firm “will do whatever it takes to get this away, or at least they should.”

SEC spokesman John Nester and Goldman Sachs spokesman Michael Duvally declined to comment.

For more, click here.


BP Cap Waiver May Be Moot in Light of Potential Safety Lapses

BP Plc’s pledge to waive a $75 million limit on environmental damages for its Gulf of Mexico oil spill may prove an empty gesture if safety violations played a role in the disaster, Bloomberg News’s Margaret Cronin Fisk and Laurel Brubaker Calkins report.

The U.S. Oil Pollution Act of 1990 requires parties responsible for a spill to pay cleanup costs, while it limits payouts for private economic and public natural-resource claims to $75 million. Exceptions include gross negligence, willful misconduct and the violation of safety rules.

BP has said the cap is “irrelevant” and that it will pay “legitimate” claims. The offer, experts and lawyers suing BP said, is hollow in light of violations they claim led to the Gulf disaster -- violations that remove the $75 million ceiling.

“They know perfectly well there will be some violation of federal safety regulations, so there will be no cap,” said Jeffrey Rachlinski, an environmental law professor at Cornell University in Ithaca, New York.

The Deepwater Horizon rig, leased to BP, blew up off the coast of Louisiana on April 20, killing 11 workers and releasing more than 5,000 barrels of crude a day. The federal government and four Gulf states are assessing damage to coastlines and wetlands, and more than 130 private lawsuits have been filed by fishermen, property owners and tourist businesses.

Scott Dean, a spokesman for BP, declined to discuss alleged safety violations or potential liability under the 1990 law.

“That is for the investigation to determine,” Dean said in an e-mail. BP believes claims will exceed $75 million and the company will “pay those claims described by Congress” in the Oil Pollution Act, he said.

For more, click here.

Philip Morris, Reynolds on Losing End of Florida Smoker Suits

U.S. cigarette makers led by Philip Morris USA and R.J. Reynolds Tobacco Co. have been on the losing end of recent Florida state court trials, where smokers and their families have won 14 of 15 verdicts and more than $200 million in damages over the past year.

And there are still more than 9,000 cases to go.

The 15 cases are among the first to be tried on behalf of sick and dead smokers since the Florida Supreme Court threw out a statewide class-action suit in 2006, along with a $145 billion punitive-damages verdict against the industry, Bloomberg BusinessWeek reports in its May 24-May 30 issue. The court said individual members of the class may sue on their own.

“Collectively, these cases are the single greatest litigation threat facing the industry,” Morgan Stanley analyst David J. Adelman said in an interview.

Lawyers for smokers say they hope the victories will spur the industry to settle remaining claims. Defense lawyers reject the suits and vow not to settle. They argue rules imposed by judges make it impossible for them to get a fair hearing.

The cases stem from a class action filed in 1994 by Howard Engle, a Miami pediatrician and smoker who died last year at the age of 89.

In a ruling being fought by the industry, the court said smokers can use jury findings from a 2000 trial in the Engle case as part of their separate cases. Among the findings were jury conclusions that the tobacco companies sold defective products, concealed the dangers of smoking and acted negligently.

The companies haven’t contested other findings that smoking causes illness or that the nicotine in cigarettes can be addictive.

The federal cases are on hold as the U.S. Court of Appeals in Atlanta decides what, if any, use must be made of the Engle factual findings in trials. Florida state appeals courts will weigh that question in company challenges of pro-smoker verdicts. About half the company losses have been appealed, and the companies have made post-trial motions in the others that may be followed by appeals.

David Howard, a spokesman for R.J. Reynolds, said the company will fight the lawsuits and “ultimately prevail at the appellate level.”

Murray R. Garnick, senior vice president and associate general counsel for Richmond, Virginia-based Altria, said the cases are “fundamentally flawed” and that his company has “no intention of settling.”

For more, click here.

Deutsche Bank Advised to Settle Utility Swap Case, FAZ Reports

Deutsche Bank AG was advised by a Frankfurt appeals court to settle a lawsuit brought by a utility in Pforzheim, Germany, over interest rate swaps, Frankfurter Allgemeine Zeitung reported, citing a hearing in the case.

The Frankfurt Higher Regional Court recommended Deutsche Bank pay half the 4 million euros ($4.9 million) sought by Stadtwerke Pforzheim, the newspaper said. The utility said the lender wrongfully advised it when selling the derivatives, the FAZ added. Deutsche Bank has denied the allegations.

A settlement was advisable because the legal situation was unclear, FAZ cited the presiding judge as saying.

The suit raises a question over whether rules prohibiting municipalities from engaging in speculative transactions also apply to their utilities, the FAZ said.

For the latest trial and appeals news, click here.

New Suits

Sands Sues Law Group After Singapore Casino Complaint

Las Vegas Sands Corp.’s Singapore casino resort sued the organizers of the first conference it hosted after they withheld payment for an event where the power failed during a speech by the Chief Justice of New South Wales and delegates complained of unfinished rooms.

Marina Bay Sands Pte is seeking S$300,000 ($214,000) from IPBA 2010 Pte, according to a lawsuit filed with the Singapore High Court on May 14. Lee Kuan Yew, Singapore’s first Prime Minister was a keynote speaker at the Inter-Pacific Bar Association conference held May 2-5 and the law firm he founded, Lee & Lee, was one of the sponsors.

Sands, controlled by billionaire Sheldon Adelson, halted projects in Macau and Las Vegas during the 2008 financial crisis to focus on the $5.5 billion Singapore complex which opened last month.

The IPBA organizing committee said in an e-mailed statement that it wrote to Sands on May 6 to propose compensation and a meeting on May 11 was followed by the writ.

“Now that we have been dragged to court we will defend the claim and issue a counterclaim as well,” according to the statement.

Marina Bay Sands said in an e-mailed statement yesterday it had made a police report regarding power disruption at its property and its meetings with IPBA “unfortunately failed to resolve matters.”

The case is Marina Bay Sands Pte Ltd. v. IPBA 2010 Singapore Pte Ltd. S348/2010 in the Singapore High Court.

For more, click here.

Four Arrested in U.K. on Carbon-Tax Fraud Suspicion

U.K. authorities arrested four people in early morning raids yesterday while investigating a suspected 38 million-pound ($54 million) fraud of value-added tax linked to carbon- emissions trading.

Investigators found guns and “large amounts” of cash during the raids on seven properties in the London and Leicester areas, according to an e-mailed statement from Britain’s revenue and customs agency.

Three men, aged 29, 30 and 31, were arrested in London, according to the statement. A 53-year-old man was arrested in the Midlands, it said. Nine people were arrested in August 2009 in connection will alleged fraudulent emissions trading, the U.K. department said.

Prosecutors searched Deutsche Bank AG and RWE AG in a raid on 230 offices and homes in Germany last month to investigate 180 million euros ($222 million) of tax evasion linked to CO2 trades. Deutsche Bank, Germany’s largest bank, and RWE, the country’s second-biggest utility, said they were cooperating with the probe and aren’t the focus of the investigations.

The U.K., France and Netherlands are among nations that started investigations last year of “carousel fraud,” where carbon traders collect tax and disappear before turning it in to authorities.

GE Accused by Mitsubishi of Monopolizing Wind Market

General Electric Co. was accused by Mitsubishi Heavy Industries Ltd. of trying to monopolize U.S. sales of wind turbines through “sham litigation” and intimidation.

Mitsubishi filed an antitrust complaint yesterday in federal court in Arkansas, claiming “GE embarked on an unlawful anticompetitive scheme to drive Mitsubishi suppliers out of the U.S. market.” The Tokyo-based company is seeking damages that could exceed $1 billion, according to a statement.

Dan Nelson, a spokesman for Fairfield, Connecticut-based GE, had no immediate comment on the allegations.

GE, the biggest U.S. maker of wind turbines, sought to block imports of Mitsubishi’s machines in a U.S. International Trade Commission complaint, and filed a separate lawsuit after losing that case in January. Mitsubishi said the fight started when it began in 2006 to gain a foothold in the U.S. wind- turbine market, dominated by GE and Denmark’s Vestas Wind Systems A/S.

The GE lawsuit deterred customers from buying variable- speed wind turbines from Mitsubishi, the company said. Mitsubishi’s “lawsuit documents how GE representatives intimidated Mitsubishi customers by advising them to either purchase license agreements from GE or face infringement risk,” Sonia Williams, a spokeswoman, said in the statement.

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


U.K. FSA to Lose Enforcement Power to Crime Agency

The power of Britain’s financial regulator to tackle insider trading will be merged with other antitrust and fraud prosecutors to form a single white-collar crime agency.

The Financial Services Authority’s prosecutorial power will be combined with those of the Serious Fraud Office and the Office of Fair Trading to create an economic crime agency, according to the text published yesterday of an agreement between the Conservative and Liberal Democrat parties setting up their coalition government.

The FSA was created by the Labour government in 1997 and the Conservatives vowed before the May 6 election to carve up the agency, handing lender supervision to the Bank of England. While the failure of the Prime Minister David Cameron’s party to win an outright majority gave the FSA a stay of execution, yesterday’s move amputates one of its most prominent divisions.

All three agencies have been aggressive on financial crimes this year. The FSA has 14 insider-trading cases pending stemming from four separate investigations. The SFO has focused on bribery probes, reaching settlements with BAE Plc and Innospec Inc. Earlier this month, an OFT criminal antitrust case against current and former British Airways Plc executives collapsed after problems with electronic evidence were discovered.

“We will engage with government to ensure effective implementation of their policy while seeking to ensure that the current strong momentum of enforcement work -- which underpins our credible deterrence agenda -- is maintained,” the FSA said in a statement yesterday.

Kasia Reardon, a spokeswoman for the OFT, which is an antitrust and consumer protection agency, declined to comment.

“The SFO’s considerable experience in investigating and prosecuting serious and complex fraud will make a substantial contribution to the proposed new agency,” said David Jones, a spokesman for the agency. “Economic crime is a constant and evolving threat that demands an equally evolving and innovative approach.”

Flyonthewall Wins Delay of Order Blocking Instant News Reports, an online financial news service, won a delay of a court order blocking it from issuing immediate online reports about banks’ stock upgrades and downgrades.

A federal appeals court in New York granted the request by the Summit, New Jersey-based company while its appeal of a lower court order is pending. The appeals court also granted expedited consideration of the lawsuit filed by Barclays Plc, Bank of America Corp.’s Merrill Lynch and Morgan Stanley.

The banks accused of “free riding” on their research reports by sending headlines on upgrades and downgrades. Each bank spends “hundreds of millions of dollars per year in creating the research,” U.S. District Judge Denise Cote in Manhattan said in her March opinion.

Cote had ruled in favor of the banks, which claimed wrongfully obtains and sells reports to its subscribers on changes to the banks’ stock evaluations. The judge ruled must wait until after the financial exchanges open in New York before repeating pre-market reports by the banks. For reports issued when the market is open, Cote ordered a two-hour delay.

The May 19 order by the appeals court said the parties must file their written arguments on the appeal by July 26. A three- judge panel will hear oral arguments “at the earliest possible date” after the briefs are filed, the court said.

The case is Barclays Capital Inc. v., 10-01372, U.S. Court of Appeals for the Second Circuit (New York).

Canada Wins Top Court Hearing Over Tobacco Treatment Costs

Canada won a bid for a hearing before the country’s top court on whether the government should be a defendant in a lawsuit against tobacco companies over the cost of treating smoking-related illnesses.

The Supreme Court of Canada granted the government’s request for a hearing.

The tobacco companies, facing a suit by British Columbia for unspecified damages over the cost of treatment of cancer and other tobacco-related illnesses, claim the federal government knew of the risks of smoking while it regulated the industry.

A finding of government liability “would place an indeterminate strain on available public resources and would effectively create an insurance scheme for tobacco manufacturers at the expense of Canadian taxpayers,” according to a filing from the government.

The Court of Appeal for British Columbia in December overturned a trial judge’s decision that had removed the federal government from the case. In a 3-2 decision, the appeals court ruled the government must be added as a co-defendant as requested by the tobacco companies.

British Columbia was the first Canadian province to sue over the cost of treating smokers. Ontario, Canada’s most populous province, also sued tobacco manufacturers and is seeking C$50 billion ($47 billion).

The tobacco companies include Imperial Tobacco Ltd., Japan Tobacco Inc.’s JTI-MacDonald, British American Tobacco Plc and Rothmans Inc.

The case is Her Majesty the Queen in Right of Canada v. Imperial Tobacco Canada Limited. 33559. Supreme Court of Canada (Ottawa).

Miami Hotel Developers Ordered Held Without Bail

Two Miami Beach hotel developers charged with hiding $45 million from U.S. tax authorities were denied bail after a judge said they pose a flight risk.

Mauricio Cohen Assor and his son Leon Cohen Levy, who built residential hotels under the Flatotel name, were arrested April 15 on tax-evasion charges.

“I could not possibly set a bond in this case,” U.S. Magistrate Judge Lurana Snow in Fort Lauderdale, Florida, said yesterday. “They have enormous ties and ability to live in another country.”

The Cohens have residences in France and Monaco, a prosecutor said yesterday. The two hid assets with nominee entities in tax havens such as the Bahamas, Panama, Liechtenstein, Switzerland and the British Virgin Islands, prosecutors said in their criminal complaint.

Prosecutors said the Cohens failed to disclose to the IRS about $33 million in proceeds from the sale of the New York Flatotel. They transferred the money to an account at London- based HSBC Holdings Plc, according to prosecutors’ filings.

Snow gave prosecutors until June 21 to indict the pair or she will set bond. They were charged in a document known as a criminal information.

Michael Pasano, an attorney representing the father and son, said they have limited assets and don’t pose a flight risk.

“They live on loans from friends and business associates, who live mostly in Europe,” Pasano said. “They have every motive to appear in court and fight these charges.”

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

For the latest lawsuits news, click here.


Reynolds Told to Pay $29.1 Million to Smoker’s Widow

R.J. Reynolds Tobacco Co. must pay $29.1 million to Connie Buonomo, the widow of a Florida man who started smoking at age 13 and died of chronic obstructive pulmonary disease in 2008, a jury in Fort Lauderdale said.

The unanimous verdict yesterday by six state jurors includes $4.1 million in compensatory damages and $25 million in punitive damages. After deliberating for five hours at the end of a three-week trial, the jurors found R.J. Reynolds 77.5 percent responsible for Matthew Buonomo’s illness and death at age 80. They said Buonomo was 22.5 percent responsible.

“I’m happy for Connie and the Buonomo family,” said the widow’s lawyer, John Uustal. “We’ll see if RJR changes the way they do things.”

Jurors in Florida have delivered more than $230 million in verdicts for smokers and their families since February 2009. The plaintiffs in the cases sued after the Florida Supreme Court decertified a state-wide smokers’ class action in 2006.

“Certainly we’re disappointed with the jury’s findings in this case,” said R.J. Reynolds spokesman David Howard. “We will appeal.”

In the 2006 decision, the Florida high court ruled that smokers can’t sue as a class and overturned a $145 billion punitive damages verdict in the case. The court said that former class members in the Engle case, named for lead plaintiff Howard Engle, can sue individually.

The case is Buonomo v. R.J. Reynolds Tobacco Co., CACE- 08019612, Florida Circuit Court (Fort Lauderdale).

Smart Online’s Ex-Chief Nouri Gets 8 Years for Fraud

Smart Online Inc.’s former Chief Executive Officer Dennis Michael Nouri was sentenced to eight years in prison for fraud and bribery in a stock-manipulation scheme, prosecutors said.

Nouri and his brother, Reza Eric Nouri, were convicted in July of bribing brokers to sell stock in the software developer to investors as shares were about to start trading in 2006. Reza Nouri, who was also sentenced May 19 in Manhattan federal court, got 18 months in prison, prosecutors said.

“The Nouris bribed brokers and committed other illegal acts to sell Smart Online stock to customers so that the price of the stock went up,” Manhattan U.S. Attorney Preet Bharara said in a statement yesterday.

According to the statement, U.S. District Judge Denny Chin in New York at the sentencing called the crime a “brazen fraud” that targeted investors and the company itself.

Dennis Nouri’s lawyer, Joseph Rindone, didn’t return calls for comment. James Mitchell, the lawyer for Reza Eric Nouri, declined to comment.

The case is U.S. v. Nouri, 07-01029, U.S. District Court, Southern District of New York (Manhattan).

Ex-Fundamental-E Head Eagle Fined $4 Million by FSA

Simon Eagle, the former head of Fundamental-E Investments Plc and brokerage SP Bell Ltd., was fined a record 2.8 million pounds ($4 million) by Britain’s financial regulator.

Eagle, 51, was responsible for a share-ramping scheme in 2003 and 2004 that left 9 million pounds of unsettled trades and has already resulted in a 4 million-pound fine for Close Brothers Group Plc’s Winterflood Securities unit last month, the Financial Services Authority said yesterday in a statement. Eagle’s fine was the largest ever for an individual from the FSA.

“Eagle deliberately set out to create a scheme to artificially inflate the price of FEI shares,” said Margaret Cole, the FSA’s enforcement director. “This scheme was rotten throughout and at the core was Simon Eagle. He showed a breathtaking disregard for his clients, for his duty as an approved person and chief executive and for the effect of his scheme on markets.”

Eagle dropped his challenge to the fine last month, the FSA said. Winterflood lost an appeal last month, which resulted in an FSA fine for not spotting signs that Eagle was committing market abuse.

FSA spokesman Joseph Eyre said Eagle represented himself without a lawyer, and that he couldn’t provide contact information.

A number for Eagle wasn’t available on Companies House and the number for SP Bell, which is in liquidation, on the FSA’s register wasn’t connected.

For more, click here.

British Airways Cabin Crew Can Strike, Court Says

British Airways Plc flight attendants should be allowed to strike, the court of appeal in London ruled, setting aside a lower court’s ruling blocking the walkout. The union said it won’t strike this week.

The Unite union did enough to inform cabin crew members of the results of a strike vote, the three-judge appeal panel ruled. They overturned a May 17 decision by Judge Richard McCombe of the High Court in London who blocked a walkout saying Internet postings of the results weren’t sufficient.

“BA cabin members are highly computer literate,” Lord Chief Justice Igor Judge, who was on the appeals court panel, said yesterday. “They use the Internet on a daily basis.”

Prior to the judgment, the airline’s 12,000 flight attendants were planning to strike for five days beginning May 18. It was to be the first of four walkouts totaling 20 days. Unite members already held two other strikes over seven days in March that cost the airline 45 million pounds ($65 million).

Richard Smith, a lawyer at employment consultant Croner said the ruling should help unions in future disputes.

“This is a decision that favors the trade unions and makes it less likely that they’ll be called into court for trivial breaches,” he said in an interview.

The airline said in a statement it was disappointed in the appeal ruling and may lodge an appeal of its own.

While the union could have started the strike immediately after yesterday’s decision, it won’t take any action this week, Unite’s joint general secretary Derek Simpson said.

Two out of the three judges weighing the case ruled in favor of the union. Igor Judge and Justice Janet Smith, who both sided with the union, said that while Unite disseminated the information to members adequately, it could have done better.

For more, click here.

For the latest verdict and settlement news, click here.

Litigation Departments

Lehman Pays Advisers $794 Million for 19 Months Work

Lehman Brothers Holdings Inc., the investment bank liquidating in bankruptcy, paid its lawyers and managers $794 million in the 19 months since September 2008, according to a regulatory filing.

The restructuring firm Alvarez & Marsal LLC, which provided Lehman with its current chief executive officer, Bryan Marsal, led the payments with $277.4 million in fees for “interim management” through April, according to the filing yesterday with the U.S. Securities and Exchange Commission.

Jenner & Block LLP, the law firm chaired by Lehman examiner Anton Valukas, earned $53.5 million for more than a year’s work producing a 2,200-page report on the bankruptcy.

Weil Gotshal & Manges LLP of New York collected $182.3 million for acting as the investment bank’s lead bankruptcy law firm. Milbank Tweed Hadley & McCloy LLP got $52.8 million for advising Lehman’s creditors’ committee.

Lehman filed the biggest U.S. bankruptcy in September 2008 with assets of $639 billion. Creditors include Goldman Sachs Group Inc., UBS AG, the New York Giants and Abu Dhabi Investment Authority as well as individuals who hold Lehman bonds.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For the latest litigation department news, click here.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.