Banks agreed to pay about $15.5 billion to settle claims by about 720,000 investors outside the U.S. who lost money in Bernard Madoff’s fraud, said the chairman of a group of law firms representing victims.
After the findings were disclosed publicly, some lawyers representing Madoff victims, including members of the lawyer’s group, said they were surprised by the results or questioned the accuracy of the data.
“There’s no doubt that the banks are compensating their clients,” Javier Cremades, chairman of Cremades & Calvo-Sotelo and president of the law firm network, said yesterday at a press conference in New York while discussing the results of a survey of the group’s 60 member firms.
Cremades’s Madrid-based law firm last year helped set up the Global Alliance of Law Firms that took on Madoff-related complaints. The estimated $15.5 billion in settlements was reported earlier by the New York Times.
The total amount of the settlements reported by Cremades, between non-U.S. investors and a group of mostly unnamed banks, is 10 times the total recovered for investors by the trustee liquidating Madoff’s defunct firm in a U.S. bankruptcy court.
“The number is shockingly large compared to anything we’ve seen on this side of the Atlantic,” Charles Grice, managing director of CRI Compliance, a New York-based firm that consults with banks, said yesterday in a phone interview. “I’m just afraid it isn’t true.”
Grice said he and other Global Alliance members he’s spoken to since the data was made public are “very nervous” that the figures aren’t accurate.
Cremades didn’t return a voice-mail message left on his cell phone after regular business hours yesterday.
European banks have been sued in France, Ireland and Luxembourg by investors seeking repayment of losses from Madoff funds. UBS AG and HSBC Holdings Plc, Europe’s largest bank, face more than 100 investor complaints accusing them of failing in their duties as custodians for European Union-regulated funds.
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Psychiatric Solutions Directors Are Sued by Pension Fund
Psychiatric Solutions Inc. directors and executives were sued by an Oklahoma pension fund claiming they improperly collected $30 million in stock options and grants tied to the company’s planned sale to Universal Health Services Inc.
The Psychiatric Solutions board and officers, including Chief Executive Officer Joey Jacobs, didn’t reveal the “lavish” award before announcing the sale agreement, according to the complaint. Oklahoma Police Pension and Retirement System, which filed the lawsuit on behalf of the company, seeks a court order rescinding the options.
The directors “improperly bestowed on selected insiders tens of millions of dollars of value that rightfully belonged to PSI and its shareholders, and infringed the voting rights of shareholders,” the fund said in the complaint filed yesterday in Delaware Chancery Court in Wilmington.
Universal Health, based in King of Prussia, Pennsylvania, is buying Franklin, Tennessee-based Psychiatric Solutions in a transaction valued at about $3.1 billion, including debt. The acquisition will more than double Universal Health’s revenue from mental health-care facilities.
Officials at Psychiatric Solutions couldn’t be reached for comment.
The case is Oklahoma Police Pension and Retirement System v. Jacobs, CA5514, Delaware Chancery Court (Wilmington).
Ex-CEO of Industrial Enterprises of America Indicted
John D. Mazzuto, former chief executive officer of Industrial Enterprises of America Inc., was charged yesterday in a $60 million fraud case.
Mazzuto was charged in a 57-count indictment with grand larceny, falsifying business records and other charges. He looted “the company of more than $60 million,” said Manhattan Assistant District Attorney Garrett Lynch. Bond was set at $2 million.
On May 1, 2009, the company filed for chapter 11 bankruptcy. The company also has been involved in lawsuits around the country, including a class action brought in the Southern District of New York in November 2007 by stockholders who claimed the company made false representations and omissions about its financial condition, according to the company filing.
Mazzuto resigned as chief executive and interim chief financial officer in February 2008, according to a release by the company.
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Transocean Can’t Cap Liability Using Old Law, Lawyers Say
Transocean Ltd. can’t use a 150-year-old statute to cap its liability against claims arising from the Gulf of Mexico oil spill, lawyers for victims of the disaster said at a hearing in federal court in Houston.
The Oil Pollution Act of 1990, passed after the 1989 Exxon Valdez oil spill in Alaska, supersedes the older law in this situation, attorneys for the Louisiana Environmental Action Network and the United Commercial Fisherman’s Association said in court papers, citing earlier decisions. Even under the old law, the negligence of BP Plc and Transocean would make it inapplicable, plaintiffs’ lawyer Kurt Arnold told U.S. District Judge Keith P. Ellison.
“Give me depositions of the top five or six BP guys” who were working on the rig “and this limitation will be over,” Arnold told Ellison at yesterday’s hearing. “We can bust this limitation sooner rather than later.”
Transocean asked Ellison on May 13 to cap its financial liability at $26.7 million under a maritime statute that limits a vessel-owner’s exposure to the value of its ship and cargo. Transocean owned the Deepwater Horizon drilling rig that exploded and sank last month while drilling an offshore lease owned by BP.
Transocean’s lawyer, Ron White, asked Ellison to wait until all claims are filed to make any decisions on substantive matters.
“All we’re seeing so far are snapshots,” White said. “You have to look at the big picture.”
BP, which owns the underwater lease, and Transocean face more than 130 lawsuits filed by thousands of commercial fishermen, property owners and tourism-related businesses claiming harm from oil leaking from the damaged subsea well. The oil threatens the coastline of four states and has led to closure of almost 20 percent of the Gulf’s fishery, the U.S.’s second-largest.
Guy Cantwell, a Transocean spokesman, declined to comment yesterday on Arnold’s interpretation of the maritime statute or the fleet’s value.
The case is In Re The complaint and petition of Triton Asset Leasing GmbH, 10-cv-01721, U.S. District Court, Southern District of Texas (Houston).
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Toyota California Lawsuits Should Be Coordinated, Judge Says
Lawsuits in California state court against Toyota Motor Corp. related to sudden acceleration of its vehicles should be coordinated so they can be handled more efficiently, a judge said.
California Superior Court Judge Carl West heard arguments yesterday in Los Angeles on whether 21 lawsuits should be grouped together. The cases included a class-action lawsuit brought by the Orange County District Attorney and a lawsuit by the family of a California Highway Patrol officer who died in a crash.
West said he will recommend to the California Supreme Court’s chief justice that the cases be coordinated in either Los Angeles or Orange County. He also said he would recommend that the personal injury cases either proceed as a separate group before the same judge or in one group on separate tracks with the class-action lawsuits alleging economic loss.
“I don’t think it would be appropriate to let a group of cases go off on their own,” West said.
Toyota, the world’s largest automaker, faces at least 228 federal and 99 state lawsuits, including proposed class actions over economic loss and claims of personal injuries or deaths allegedly caused by sudden-acceleration incidents. The federal lawsuits were combined April 9, before U.S. District Judge James V. Selna in Santa Ana, California.
Lisa Gilford, a lawyer representing Toyota, said at yesterday’s hearing that the carmaker would prefer to have one coordinated proceeding for the state court cases in Orange County because the federal cases are there already.
Mark P. Robinson Jr., a lawyer representing Orange County District Attorney Tony Rackauckas, said in a March 22 filing that having one judge hear all the cases would avoid duplicative and inconsistent rulings.
John H. Gomez, a lawyer for the family of Mark Saylor, the deceased Highway Patrol officer, said at yesterday’s hearing that there were only eight personal injury cases that were part of the coordination proceeding and there was no need to combine those with the class-action lawsuits.
The case is Toyota Motor Cases, JCCP4621, Superior Court of California (Los Angeles).
Kerviel Says SocGen Superiors ‘Helped’ Make Disputed Trades
Jerome Kerviel, who goes on trial next month over his role in Societe Generale SA’s 4.9 billion-euro ($6 billion) trading loss, said his superiors “helped” him make the futures bets at the center of the case.
“I’m innocent,” Kerviel, 33, said in a Bloomberg Television interview yesterday outside his lawyer’s Paris office. “I want to prove to everybody that my superiors knew what I was doing and helped me to do it, to make more money for the bank.”
Societe Generale, France’s second-largest bank by market value, disclosed the loss in January 2008, saying it occurred after unwinding unauthorized positions taken by a lone employee. While Kerviel has previously said the bank knew about the trades, he now explicitly says his supervisors helped him.
“The more money you get for the bank, the more the bank asks you for,” Kerviel said in the interview two weeks before the trial is scheduled to start in Paris. “My only objective was to make money for the bank.”
Kerviel is charged with abuse of trust, falsifying documents and hacking into bank computers. He faces as many as five years in prison if found guilty at the trial that starts June 8.
Jean Veil, a lawyer for Societe Generale, said in a telephone interview that he is “waiting for Mr. Kerviel to prove” that his superiors aided him in his bets.
Paris-based Societe Generale will ask the court to make Kerviel pay it 4.9 billion euros as “reparation for the financial cost of unwinding the fraudulent operations, as well as the cost of the recapitalization,” Veil said.
The June trial will bring the banking sector and the trading culture under the judges’ scrutiny, as well as the question of his own guilt, Kerviel said.
“My first goal is to defend myself and to prove” that the bank hierarchy knew of his activities, said Kerviel, wearing blue jeans, a black v-necked shirt, and gray pinstriped jacket on a sunny day with temperatures of 86 degrees Fahrenheit (30 degrees Celsius). “I hope perhaps one of the upsides of the trial will be to expose the practices’ of traders.
Kerviel worked on Societe Generale’s Delta One trading desk, specializing in European stock market index futures. His job was to arbitrage small price differences between contracts, not to take bets on the markets’ direction. His positions, mostly on Germany’s DAX Index and the pan-European Euro Stoxx 50, had losses of 1.4 billion euros when Societe Generale discovered the fraud. The bank said it lost an additional 3.5 billion euros liquidating the stakes as European markets fell.
Kerviel earned less than 100,000 euros a year before the bank fired him in March 2008.
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Depfa, Dexia Can Sue Pisa in London Court Over Rate Swaps
The city, known for its leaning tower, challenged whether London was the proper jurisdiction for the dispute after the banks filed a lawsuit last year. The banks also sued in administrative court in Tuscany to force the city to continue payments. The swap agreements were governed under U.K. law, Judge Nicholas Hamblen said in his judgment yesterday.
“The defendant has not established that the courts of Italy have exclusive jurisdiction,” Hamblen ruled.
Pisa stopped making payments on the swaps last year, claiming that 95 million euros ($117 million) of bonds and derivatives sold to it by the banks in 2007 didn’t provide an economic advantage to the city.
Pasquale Vulcano, Pisa’s lawyer, said he didn’t have a comment on the ruling.
Depfa and Dexia refinanced 95 million euros of mortgages held by Pisa with a bond linked to an interest-rate swap. The province had lost about a million euros on the deal as of June 2008, Pisa’s annual accounts show.
About 467 public borrowers faced losses of 2.5 billion euros on derivatives as of the end of September, according to the Bank of Italy.
The case is Depfa Bank Plc v. Provincia di Pisa, case no. 861/09, High Court of Justice, Chancery Division (London).
Madoff Trustee Seeks U.K. Firm FIM’s Documents, May Seek Claim
The trustee liquidating Bernard L. Madoff Investment Securities LLC asked a London judge to order investment firm FIM Advisers LLP to produce documents about its knowledge of, and its investments in, the convicted fraudster’s business.
Irving Picard, a court-appointed trustee in the Madoff bankruptcy, is seeking to know whether he may have a claim against FIM, which managed the Kingate Global and Kingate Europe funds that invested more than $1.7 billion with Madoff, Picard’s lawyer Robin Dicker said at a hearing in London yesterday. Picard is also seeking information on who ran Kingate and whether they knew of Madoff’s fraud, Dicker said.
“These documents are likely to shed light” on Madoff’s business “effectively summarizing how Kingate and FIM Advisers operated and what they should or should not have known,” Dicker said. Picard “wants to investigate whether he has a claim, powder and shot, against Kingate Management and those behind it.”
Madoff pleaded guilty in March 2009 to using money from new investors to pay off old ones in a Ponzi scheme, sparking investigations and dozens of lawsuits in the U.S. and Europe. Investors lost billions in Madoff’s fraud. Kingate was one of the largest feeder funds that funneled money to Madoff, who is serving a 150-year jail sentence for the fraud.
Antony Zacaroli, a lawyer for FIM Advisers, said the firm is not opposed to providing documents and has already provided some. It is seeking to prevent unrelated, confidential documents from being handed over, he said.
The case is In the Matter of Bernard L. Madoff Investment Securities LLC, between Picard v. FIM Advisers LLP & others, GLC 80/10, High Court of Justice, Chancery Division (London).
Stanford Wins a Judge’s Endorsement of Bail to Prepare Case
R. Allen Stanford, appearing as his own counsel, convinced a judge that he should be moved from a from jail to closely monitored house arrest so he can prepare for a hearing.
Stanford made his argument yesterday before U.S. District Judge Nancy Atlas in Houston. She is presiding over a dispute between the financier and Lloyd’s of London underwriters. The insurers rejected the financier’s claim for directors’ and officers’ coverage, saying there was criminal activity at his businesses.
Stanford allegedly led a $7 billion swindle centered on the sale of certificates of deposit through his Antigua-based bank. He has denied both civil and criminal charges against him and is being held awaiting a January trial.
He and three co-defendants in the criminal case sued the Lloyd’s underwriters last year after the insurers denied the coverage, citing the guilty plea of former Chief Financial Officer James M. Davis as proof of criminal activity at the Houston-based Stanford Financial Group of companies.
Atlas told Stanford that U.S. District Judge David Hittner, who is presiding over the criminal fraud case in Houston, will decide whether to free the financier.
Hittner has twice denied requests for bail. A third was filed with him this month by criminal-defense lawyer Robert Bennett and Harvard University law professor Alan Dershowitz.
Atlas proposed an arrangement subjecting Stanford to “very, very, very tight house arrest” so he can prepare his insurance case. “I would not be opposed to that,” she said.
Atlas said his criminal-defense lawyer Robert Bennett might represent Stanford in the insurance case. At the moment, the financier is without a lawyer in that dispute. He has no right to court-appointed counsel in that case because it’s civil, not criminal.
The insurers said they have paid $6 million to the financier’s lawyers, including $4 million to “attorneys who are no longer representing Stanford in the criminal action because Stanford has fired them without any rational explanation.”
The insurance case is Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 09-cv-3712, U.S. District Court, Northern District of Texas (Dallas).
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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Ex-NeuTec CFO Says He Was Enthusiastic, Not Passing Data
The former chief financial officer of NeuTec Pharma Plc, who is on trial for insider trading, said that while he never gave confidential information to unauthorized people, his enthusiasm for the company “rubbed off” on friends.
Peter Andrew King, one of three defendants in the case filed by the U.K. Financial Services Authority, took the witness stand to testify in London yesterday.
While he “always made sure that I never encouraged people to buy shares because I didn’t want to be responsible for them losing any money,” King said that when he told his friends about his work, he was very enthusiastic.
The former executive is on trial along with two attorneys: former McDermott Will & Emery partner Michael McFall and Andrew Rimmington, a former partner at Dorsey & Whitney LLP. The prosecution claims the lawyers made illegal trades in NeuTec after King leaked information about a proposed takeover.
King told people he was “working for the most amazing company that is going to save many lives.” He said if asked he would say “it’s also going to make me very wealthy one day.”
“The passion I think I showed about the company rubbed off” he testified, saying about 10 friends invested in the company.
When Basel, Switzerland-based Novartis AG bought NeuTec in June 2006, King exercised his share options to buy 1 percent of the company’s equity at 50 pence a share. He said he made about 3 million pounds ($4.3 million) on the deal.
On May 24, McFall declined to take the witness stand. Rimmington is scheduled to testify later in the case.
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Schwab $235 Million Settlement Wins Judge’s Approval
Charles Schwab Corp. won preliminary court approval to pay $235 million to settle claims that the online brokerage misled investors in its YieldPlus fund.
William Alsup, a federal judge in San Francisco, tentatively approved the settlement yesterday, Steve Berman, a lawyer for the investors, said in a phone interview.
Investors sued in 2008 claiming that the San Francisco- based company incorrectly described YieldPlus, once the world’s largest short-term bond fund, as safe and failed to disclose the amount of its holdings in mortgage-backed securities. Alsup last year approved class-action, or group, status for the investors.
Alsup “carefully vetted this settlement and approved it on the California side of things,” after earlier reviewing the federal claims, Berman said. “The recovery is 82 percent of damages. That’s a very high recovery.”
Class members will receive a notice giving them a chance to object to the settlement, and Alsup will hear about any objections at a hearing in September, Berman said.
Schwab is pleased with the judge’s decision, David Weiskopf, a spokesman for the company, said in an e-mail.
The case is In re Charles Schwab Corp. Securities Litigation, 08-cv-01510, U.S. District Court, Northern District of California (San Francisco).
Ex-Seymour Pierce Manager Banned by FSA for Fraud
A former manager at Seymour Pierce Ltd., a London-based investment bank, was banned by Britain’s financial regulator for defrauding the company and clients out of nearly 300,000 pounds ($429,000).
John White, a former settlements manager, stole 152,372 pounds from Seymour Pierce over a five-year period and hid a further 145,000 pounds, the Financial Services Authority said in a statement yesterday. The investment bank has already been fined 154,000 pounds by the FSA for not having strict enough controls to detect White’s fraud sooner.
“We expect people who work in the financial services industry to behave with honesty and integrity, yet White’s conduct was anything but,” said Margaret Cole, FSA enforcement director, in the statement. “As this case demonstrates, we are committed to deterring behavior of this kind by punishing anyone found to have committed such misconduct.”
White didn’t have a lawyer on the case, according to FSA spokesman Toby Parker. A call to the number listed for White in the telephone directory wasn’t answered. A call to Seymour Pierce’s external spokesman wasn’t returned.
Credit Industriel Wins Singapore Accumulator Lawsuit
Credit Industriel et Commercial, France’s fifth-largest bank by market value, won a S$6.4 million ($4.5 million) lawsuit against a former Singapore private bank client who failed to pay for products known as accumulators.
Judicial Commissioner Philip Pillai also said in his 46- page ruling that a private bank isn’t acting as a trusted adviser of its client when, as in this case, its contract specifically states that the client is responsible for the risks in his own transactions.
“These are standard form contracts, which private banking clients do not normally read, and if read, are not fully understood and rarely negotiated,” Pillai wrote in his May 20 judgment.
“Nevertheless, in the absence of fraud or misrepresentation, a person is bound by the express contractual terms of the documents, which he has signed even though he has not read their content nor understood their language.”
CIC, as the unit of France’s Groupe Credit Mutuel is known, sued former client Teo Wai Cheong in October 2009 after he allegedly failed to pay for a set of accumulators, which commit investors to buying stocks at a set price for a specified period. Teo disputed that he gave instructions or the authority to his relationship manager to buy the products.
Teo couldn’t be reached for comment at his Singapore office in the business development department of electronics manufacturer Celestica Inc. His secretary said yesterday he was on a business trip in the U.S.
CIC was represented by Manoj Sandrasegara of Drew & Napier LLC, and Teo was represented by Chelva Rajah of Tan Rajah & Cheah.
The case is Credit Industriel et Commercial v Teo Wai Cheong, S626/2008 in the Singapore High Court.
EMC Pays $87.5 Million to Settle False Claims Case
EMC Corp., the world’s biggest maker of storage computers, paid the U.S. $87.5 million to settle a lawsuit alleging that the company violated the False Claims Act and the federal Anti- Kickback Act, the U.S. Justice Department said.
EMC misrepresented its commercial pricing practices, inducing the General Services Administration to enter into in a contract at an inflated price. The company, based in Hopkinton, Massachusetts, wrongfully claimed it would conduct a price comparison to ensure the government paid a lower rate, according to the Justice Department.
Last year, the Justice Department joined an existing lawsuit that alleges EMC made improper payments to its partners and failed to disclose its commercial pricing practices. Yesterday’s statement from the Justice Department completes a settlement EMC announced in February.
“The Justice Department is acting to ensure that government purchasers of commercial products can be assured that they are getting the prices they are entitled to,” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division.
The case is Rille v. Booz Allen Hamilton Inc., 09cv628, U.S. District Court for the Eastern District of Virginia (Alexandria).
EBay Isn’t Bound by Auctioneer Rules Under Court Decision
EBay Inc. won a ruling in Paris finding the company is an online marketplace and isn’t subject to rules for auctioneers as claimed by a trade group, the company said in an e-mailed statement yesterday.
The Paris Tribunal de Grande Instance awarded EBay 1,500 euros ($1,800) in damages for “wrongful and harmful procedure,” as well as legal fees.
The ruling “recognizes that EBay has not infringed regulations,” said Yohan Ruso, general manager for EBay in France, according to the e-mailed statement.
The Conseil des ventes volontaires de meubles aux encheres publiques, or CVV, sued EBay in 2007, claiming the San Jose, California-based company is an auctioneer and therefore has insufficient internal controls.
Ariane Chausson, a spokeswoman for the Paris-based group focused on furniture auctions, didn’t return a call for comment on the decision.
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