Mark Kurland, a co-founder of New Castle Funds LLC, was ordered to serve 27 months in prison after pleading guilty in the Galleon Group LLC insider-trading case, becoming the first defendant in the scheme to be sentenced.
Kurland, 61, who pleaded guilty on Jan. 27, was also ordered May 21 in federal court in Manhattan to forfeit $900,000, the profit from one of three illegal trades.
“Mr. Kurland here had a chance as a leader of the financial industry, he could have led by example, instead he chose to follow,” U.S. District Judge Victor Marrero said in court. “He became a joiner, surrendering to a spree of a mob mentality that nearly brought down this country’s financial industry in a search for ever bigger and faster gains.”
Kurland, who lives in Mount Kisco, New York, is among 21 people charged since October in two waves of arrests. Among them are Galleon co-founder Raj Rajaratnam, 52, who is charged with using confidential tips to earn millions of dollars on illegal stock trades, and Danielle Chiesi, whom Kurland supervised at New York-based New Castle. Both deny wrongdoing.
Unlike most others who have pleaded guilty in the case, Kurland isn’t cooperating with prosecutors.
Federal sentencing guidelines recommended that Kurland be sentenced to 30 to 37 months of prison based on the one profitable trade. Two other Kurland trades based on inside information ended in losses.
Defense attorney Patrick Smith sought probation for his client. He urged Marrero to disregard the sentencing guidelines, saying Kurland had a “minor” role in the crime and didn’t profit personally from the illegal trades.
With dozens of his friends, family members and investors looking on yesterday, Kurland asked Marrero for leniency.
“I destroyed my reputation, everything I’ve worked so hard for,” Kurland said. “I will continue to suffer regardless of the sentence imposed today.”
The case is U.S. v. Kurland, 10-cr-69, U.S. District Court, Southern District of New York (Manhattan).
For more, click here.
J&J Unit Pleads Guilty to Improper Topamax Marketing
A Johnson & Johnson unit admitted it illegally marketed the Topamax epilepsy drug for other ailments, fulfilling part of an $81 million settlement reached in April with the government.
Officials of Johnson & Johnson’s Ortho-McNeil Pharmaceutical LLC pleaded guilty May 21 in federal court in Boston to a misdemeanor charge of selling a misbranded drug. The company agreed to pay a $6.14 million criminal fine.
While the Food and Drug Administration approved Topamax for the treatment of some epileptic seizures, Ortho-McNeil promoted the drug for unapproved psychiatric uses, such as bipolar disorder and drug and alcohol dependence, the government said in court filings. Although doctors may prescribe drugs for uses not approved as safe and effective by the government, companies are forbidden to market them for the so-called off-label uses.
“The agreement is a fair disposition of the criminal conduct alleged,” U.S. Magistrate Judge Robert B. Collings told Ortho-McNeil executives before accepting the plea May 21.
As part of its plea deal, Ortho-McNeil also pledged to adopt a corporate integrity agreement designed to bar the company from engaging in further illegal marketing practices, Collings said. Ortho-McNeil-Janssen Pharmaceuticals, another Johnson & Johnson unit, will pay $75.4 million to resolve the government’s civil claims that it encouraged off-label sales.
“It’s a fair result,” Robert Ullmann, a lawyer representing Ortho-McNeil, said in an interview after the hearing.
“This case should send a strong reminder that the off- label promotion of pharmaceuticals is illegal, whether it is done directly by company employees or through programs such as the doctor for a day program,” U.S. Attorney Carmen Ortiz in Boston said in an e-mailed statement.
“The company has taken appropriate action with this settlement agreement and is fully committed to meeting its requirements,” Greg Panico, a spokesman for Ortho-McNeil- Janssen, said in an interview May 21.
The case is US v. Ortho-McNeil Pharmaceutical LLC, 10-CR- 10147, U.S. District Court, District of Massachusetts (Boston).
For more, click here.
Ex-Agape Executive Arrested in Alleged Ponzi Scheme
A former vice president and underwriter at Agape World Inc. surrendered to authorities who accuse him of participating in a $413 million Ponzi scheme at the loan company.
Richard Barry, who allegedly knew investor funds were used improperly, appeared in federal court in Central Islip, New York, May 21 and was released on a $200,000 bond, according to Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn, New York. Prosecutors obtained a warrant for his arrest May 20, Nardoza said. Nicholas Cosmo, Agape’s owner, was arrested in the case in January 2009.
“Between October 2003 and January 2009, Agape received approximately $363 million from investors to fund specific bridge loans but only loaned approximately $25 million to its bridge-loan borrowers,” according to the arrest affidavit sworn to by Postal Inspector Richard Cinnamo. Another Agape company loaned $5 million of $50 million invested, according to Cinnamo.
U.S. District Judge Denis Hurley in Central Islip set a Jan. 10 trial date for Cosmo, who also owns Agape Merchant Advance LLC. Cosmo, who pleaded not guilty, was indicted in April 2009 for defrauding at least 6,000 investors.
Jonathan Edwards, a lawyer for Barry, didn’t return a call for comment.
The criminal case is U.S. v. Cosmo, 09-cr-002255, U.S. District Court, Eastern District of New York (Central Islip). The bankruptcy case is In Re Agape World Inc., 8-09-70660, U.S. Bankruptcy Court, Eastern District of New York (Central Islip).
Protection One Settles Buyout Suits for $3.25 Million
Protection One Inc., a provider of burglar-alarm services being bought by GTCR Golder Rauner LLC, tentatively agreed to pay shareholders $3.25 million to settle lawsuits challenging the fairness of the $15.50-a-share offer.
Shareholder Donald Rensch sued May 6 in Delaware Chancery Court in Wilmington over the $828 million deal. He claimed Protection One directors violated their duties to investors. Another suit was filed in Kansas.
The settlement includes “defendants’ denial that they have committed or aided and abetted in the commission of any unlawful or wrongful acts,” according to court papers filed May 21. The agreement is subject to approval by a judge.
GTCR, a private-equity firm based in Chicago, announced April 26 that it would pay shareholders of the Lawrence, Kansas- based company the $15.50 a share in cash. The company reported $368 million in sales last year.
Robin Lampe, a spokeswoman for Protection One, didn’t return a voice-mail message seeking further comment on the settlement.
The case is Rensch v. Protection One Inc., CA5468, Delaware Chancery Court (Wilmington.)
France Telecom Wins EU Appeal Over $11.3 Billion Aid
France Telecom SA won a court challenge to a European Union decision that it had been offered 9 billion euros ($11.3 billion) in unlawful state aid from the government.
Statements by the national government that sought to assure France Telecom of its support when the operator was close to bankruptcy “cannot be classified as state aid,” the General Court, the second-highest EU court, ruled in Luxembourg May 21.
“Although those statements conferred a financial advantage on France Telecom, they did not commit any state resources.”
The decision follows France Telecom’s failure in a ruling by the same court last year to overturn a separate state aid decision forcing it to pay as much as 1.1 billion euros in back taxes to the French government. The EU’s antitrust regulator adopted both decisions in 2004, without seeking repayment of the proposed 9 billion-euro loan it said helped boost the company’s shares and credit rating and qualified as unlawful aid.
The European Commission, the EU’s executive agency, had probed France’s support for Europe’s third-largest phone company when it was near bankruptcy in 2002. The ruling, which annuls the 2004 decision by the commission, can be appealed a last time to the EU Court of Justice, the region’s top court.
Amelia Torres, a spokeswoman for the commission, said the regulator will study the “complicated judgment” before deciding whether to appeal.
The cases are T-444/04 French Republic v European Commission; T-425/04 France v European Commission; T-450/04 Bouygues SA and Bouygues Telecom v European Commission; T-456/04 Afors Telecom v European Commission.
For more, click here.
Ex-Lewis Charles Broker Pleads Guilty, Banned by FSA
The U.K. Financial Services Authority banned a former inter-dealer broker at Lewis Charles Securities Ltd. after he ran up losses of 2.7 million pounds ($3.9 million) in unauthorized trades. He pleaded guilty to false accounting at a London court May 21.
Jonathan Bunn bet against HSBC Holdings Plc without authorization in July 2009 and concealed the trades when questioned by LCS, according to an e-mailed statement from the FSA May 14. The FSA banned Bunn from “performing any function” at a regulated firm and referred his case to the City of London Police “for suspected criminal offenses,” the FSA said. The police said that Bunn pleaded guilty May 21.
“The FSA did come to visit us and did have a look at our systems and controls and were satisfied with them,” Stavros Loizou, chief executive officer at LCS, said in a telephone interview in London. “Unfortunately they couldn’t prevent the outcomes of someone lying outright.”
Bunn didn’t return a call to his mobile phone. He will be sentenced on June 24, the FSA said. False accounting carries a maximum sentence of seven years. FSA spokesman Chris Hamilton said Bunn represented himself.
Lewis Charles cooperated with the FSA and isn’t accused of wrongdoing, it said. The firm said in 2009 that it faced a potential loss following unauthorized trades, the Financial Times reported at the time.
For more, click here.
Sepracor Wins Court Approval to Settle Suit Over Sale
Sepracor, based in Marlborough, Massachusetts, said in September it would be acquired by Osaka-based Dainippon for $23 a share. Investors including two pension funds sued, claiming Sepracor stock was worth more.
“I’ll approve the settlement,” said Delaware Chancery Court Judge Leo Strine Jr. at a hearing in Wilmington May 21. “There would be almost no likelihood of success” in seeking more per share. He also awarded shareholders’ lawyers $550,000 in fees, to be paid by the company.
The transaction gave Dainippon access to a U.S. sales force and experimental treatments in the world’s biggest drug market. Sepracor makes the sleeping aid Lunesta and the asthma drug Xopenex. Earlier this month, Dainippon failed to win U.S. approval to sell a once-daily epilepsy medicine, called Stedesa, acquired in the purchase of Sepracor.
As part of the settlement, Sepracor agreed to release additional information about the buyout, including projected financial information and transaction analysis data.
Strine approved the fee after plaintiffs’ lawyer Francis A. Bottini Jr. told him it had been negotiated down from $980,000.
Officials at Sepracor weren’t available to comment.
The case is In re Sepracor Inc. Shareholders Litigation, CA4871, Delaware Chancery Court (Wilmington).
For the latest verdict and settlement news, click here.
BP Spill Claims Process Inadequate, Fishermen Say
Commercial fishermen and coastal businesses losing income because of BP Plc’s uncontained oil spill in the Gulf of Mexico asked a federal judge to oversee the company’s process for paying interim damage claims.
Lawyers for hundreds of Gulf fishermen, shrimpers and beachfront rental property owners asked U.S. District Judge Carl J. Barbier to appoint a court supervisor to address complaints that BP’s claims-payment process is inconsistent, one-sided and inadequate to address the needs of individuals experiencing dire financial hardship as a result of the spill.
“Telling the fishermen that their only recourse is to bring their problems with BP’s procedures to BP is like telling the hens to bring their issues with henhouse safety to the fox,” lawyers for the fishermen said in papers filed May 21 in New Orleans federal court.
At a hearing in New Orleans this week, BP’s lawyers told Barbier the fishermen must give the claims process a chance to work and said that lawsuits over economic damages suffered from the spill are premature.
“The process is under way and working, and hundreds of thousands of dollars in claims have already been paid,” Don Haycraft with Liskow & Lewis Plc, one of BP’s lawyers, told Barbier. “We need to give the process a little more time to let the dust settle.”
More than 50 lawyers representing fishermen, shrimpers, coastal property owners and tourism-related businesses crowded into Barbier’s May 19 hearing, which was called on 24-hours’ notice, to complain of a variety of difficulties with BP’s claims process. They provided greater detail on these complaints in the May 21 court filing.
BP spokesman Scott Dean didn’t respond to a reporter’s request for information on how BP is handling interim damage claims or addressing the fishermen’s complaints.
For more, click here.
For the latest lawsuits news, click here.
Former RIM Executive Accused of Insider Trade in Certicom Deal
“In purchasing securities of Certicom in the circumstances, Donald acted contrary to the public interest,” the regulator said. Donald denied wrongdoing.
Donald bought 200,000 Certicom shares from Aug. 21 to Sept. 15, 2008, after talking about the company with another RIM executive at a social event on Aug. 20, the regulator said. Donald understood from the discussion that Certicom shares were “dramatically undervalued,” the OSC said.
The companies had met to discuss a possible takeover as early as February 2007. In December 2008, Waterloo, Ontario- based RIM said it would offer C$1.50 a share for Certicom, sending the stock up 87 percent in a single day and setting off a bidding contest with VeriSign Inc.
RIM, which wanted Certicom’s encryption software to make its e-mail transmission system more secure, raised its offer to C$3 in February, and Certicom accepted.
RIM said it learned in December 2008 that Donald had bought Certicom shares earlier that year. It began an investigation and gave the results of that inquiry to the regulator, the company said May 21 in an e-mail. Donald left in March 2009 and the company doesn’t expect it or any current employees to be charged in relation to the matter, according to the statement.
Donald said the regulator’s allegations were without merit.
“I had a casual conversation with a colleague at a golf course in which we discussed companies that we thought were undervalued,” he said in a statement distributed by Canada Newswire. “I did not and do not believe our discussion involved any material information about any of the companies we discussed”.
The regulator will hold a hearing on the matter in Toronto on June 7.
For the latest new suits news, click here. For copies of recent civil complaints, click here.
Continental Should Pay 175,000 Euros, Concorde Prosecutor Says
Continental Airlines Inc. should be fined 175,000 euros ($220,000) for its role in the fatal crash in 2000 of a Concorde supersonic jet outside Paris, a French prosecutor told judges May 21.
Continental should face the fine for manslaughter, prosecutor Bernard Farret said. The fine is less than the 225,000 euro penalty possible for manslaughter. Continental’s “general laxity” was responsible for the crash, Farret said.
“The amount of the fine isn’t what is important,” said Olivier Metzner, Continental’s lawyer. “We contest entirely any claims that we are responsible” for the crash that killed 113 people.
Investigators said the crash was caused by a titanium wear strip that fell from a Continental plane on the runway at Paris’s Charles de Gaulle airport. The piece of metal ruptured the tire of the Air France SA Concorde, sending debris into fuel tanks and sparking the fire that brought down the plane, according to the criminal probe. The crash hastened the end of Concorde services.
The wear strip was improperly installed on the plane due to a culture of “defective general maintenance” at Continental, said Farret during his presentation May 21. “The lack of rigor in maintenance contributed” to the incident, he said. “The consequences were catastrophic.”
Continental denies responsibility, saying the plane caught fire before reaching the wear strip.
Continental, based in Houston, filed a complaint earlier May 21 with the prosecutor nearest Charles de Gaulle airport for obstruction of justice, saying that evidence uncovered in the crash investigation was lost or never produced during the trial.
For the latest trial and appeals news, click here.
Obama to Nominate Lawyer Cole for No. 2 Justice Job
President Barack Obama intends to nominate James M. Cole, a corporate defense lawyer who served as independent monitor of American International Group Inc., for the No. 2 job at the Justice Department, according to a White House announcement.
Cole is a partner at the law firm of Bryan Cave LLP in Washington and a former Justice Department prosecutor. He would fill the post vacated in February by David W. Ogden, who returned to private practice.
Cole “brings with him exceptional experience, both as a lawyer in private practice and as a government official,” Obama said in a statement.
Cole was a Justice Department official for 13 years before entering private practice in 1992, according to his law firm’s website. He served as deputy chief of the department’s public integrity section, which handles corruption cases involving public officials. Cole’s law practice includes advising companies on securities, regulatory and criminal law matters.
Cole was hired as part of a 2004 agreement with the government to monitor AIG’s regulatory compliance, financial reporting, whistle-blower protection and employee retention policies. He submitted confidential reports to the Justice Department and the Securities and Exchange Commission.
Prosecutors had accused the company of violating accounting standards. AIG, a New York-based insurer, didn’t admit wrongdoing and agreed to pay $126 million in fines as part of a deal to avoid prosecution.
Virginia Pushes to Rival New York for Securities Fraud Cases
U.S. prosecutors in Virginia plan to step up pursuit of financial fraud cases, taking advantage of a court holding two years ago that their district has jurisdiction over crimes linked to federal securities filings.
The Justice Department, Virginia’s Attorney General, and the Securities and Exchange Commission will comprise a new Virginia Financial and Securities Fraud Task Force, seeking to bring more cases and benefit from the district’s fast-moving federal docket.
“There are allegations that very large companies may have taken part in fraudulent activity,” Neil MacBride, the U.S. Attorney for the Eastern District of Virginia said May 21 at a news conference in Richmond, Virginia. “This allows us to prosecute those cases.”
The 4th U.S. Circuit Court of Appeals ruled in December 2007 that since computer servers for the SEC’s Electronic Data Gathering, Analysis, and Retrieval system are located in Virginia, the state could be the jurisdiction for a prosecuting a crime involving SEC reports regardless of where the accused company or individuals are based.
The Southern District of New York in Manhattan, with a courthouse blocks from Wall Street, historically has been the primary jurisdiction for securities fraud cases. Prosecutions in Virginia could encroach on cases brought in New York, where the New York Stock Exchange is based, and on Washington, home of the SEC.
For more, click here.
For the latest litigation department news, click here.
CDO Suit Against Citigroup Most Popular Docket on the Bloomberg
The docket for a dismissed lawsuit against Citigroup, alleging the bank inflated CDOs using false and misleading statements in order to profit from continued sales in the market, was the most popular docket on the Bloomberg system.
“Citigroup perpetrated a Ponzi-style scheme that gave the appearance of a healthy asset base, and therefore allowed Citigroup to continue to benefit from the illusion of the blossoming market,” the complaint stated.
The suit was brought March 20 in federal court by Alan Brody and his hedge fund, Epirus Capital Management LLC,
The judge in the case granted the bank’s motion to dismiss the suit before discovery, saying the complaint didn’t include adequate evidence that the disclosures were flawed or that Citigroup knew the collateral’s real value.
The case is Epirus v. Citigroup 1:09-cv-02594-SHS, U.S. District Court, Southern District New York
For a related story, click here.